I don’t like to throw around the “B” word – bankruptcy – casually, but it’s a possibility when talking about BlackBerry maker Research In Motion (Nasdaq: RIMM ) .
I haven’t always been a RIM pessimist. In fact, I was one of the few bulls who unwittingly ignored the warning signs that RIM was failing to innovate, in favor of drooling over its enterprise business. That proved to be a foolish (small ‘f’) decision, and I’ve since changed my view of the company to encompass the complete other end of the spectrum – a possible bankruptcy filing.
I know what you’re probably thinking: "Why even think about bankruptcy when RIM has about $2.1 billion in cash on hand, no debt, and a portfolio full of patents?"
The answer to that question is pretty simple: historical precedent says that no one’s going to come to RIM’s rescue, and the company could one day drown in its various obligations.
Eastman Kodak stubbornly refused to put itself up for auction months ago and was unable to find an adequate bid for its patent portfolio, despite putting 1000-plus patents officially up for sale prior to its bankruptcy filing.
Nortel went bankrupt and was only able to bring in bidders when its patent portfolio was auctioned off for $4.5 billion to Microsoft (Nasdaq: MSFT ) , Apple (Nasdaq: AAPL ) , and RIM. Nortel’s actual wireless business only sold for $1.3 billion.
However, the best example might be Hewlett-Packard (NYSE: HPQ ) , which purchased the ailing Palm for $1.2 billion in 2010. I personally figured Palm would go bankrupt and someone would step up then to buy its patent portfolio. Instead, HP stepped up to the plate, and wound up writing down not just the $1.2 billion it paid for Palm, but an additional $470 million in expenses, just five quarters later.
If anything, these recent cases serve as a reminder that failing tech companies with valuable patent portfolios offer little value until they reach bankruptcy court.
Based on various analyst estimates, RIM’s patent portfolio, which is filled with shared patents from Microsoft and Apple, could be worth anywhere from $1 billion to $4 billion. Clearly, the patents would be worth more had they not been shared -- but it is what it is. RIM’s cash balance is healthy now, at $2.1 billion, but that figure could be burned through quickly if the exodus away from RIM continues. Sales fell by 25% last quarter, and RIM has already warned of losses in its upcoming quarter, as its BlackBerry continues to lose ground hand-over-fist to Apple and phones running Google’s (Nasdaq: GOOG ) Android OS.
With a current market value of $4.7 billion, RIM may find some very short-term support, considering that analysts are focusing on the value of its patents (of which a median point would be $2.5 billion), and it has $2.1 billion in cash, for a total of $4.6 billion. This valuation doesn’t include RIM’s 20-some million enterprise and government customers, which should fetch some value, but that may be of little consequence considering that I expect RIM’s cash situation to rapidly deteriorate.
Innovate, or die trying
The precedent has been set and, if I were a betting man, I’d say this is RIM’s ship to right or go down with. Unfortunately, we’ve already witnessed a lifetime’s worth of shoddy decision-making over the past few years, so consider me not all that optimistic that RIM will survive long term.
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