Could Research In Motion Go Bankrupt?

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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?"

Historical precedence
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.

RIM may have failed to innovate, but for these three stocks, innovation is exactly the reason why our analysts at Motley Fool Stock Advisor feel they’ll lead the New Industrial Revolution in the tech sector. Click here to find out their identity, and get your copy of this free special report.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of Microsoft, Apple, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, and Google, as well as creating a bull call spread position in Microsoft and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that’s just the right price: free!

Read/Post Comments (8) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2012, at 11:37 PM, genesis667 wrote:

    I bailed on Rimm in the $50s....Dodged a bullet on that one....

  • Report this Comment On June 29, 2012, at 1:21 AM, jopow wrote:

    After today's grim news, which is on top of all of the past bad news, for years now, there is really zero creditability for RIM with anyone, including customers.

    BB 10 may not launch until 2Q or 3Q--it is that screwed up of a platform and way too complex to operate without bugs and crashes and churns.

    They are building something that is obviously to ridiculous in engineering and then how many updates will need to be done to fix all of the bugs and unknowns.

    The reality is that RIM needs to lay off more people and plan for 40-50 million subscribers for its future. There is nothing about BB 10 that will create 100 million subscribers. It is the opposite, BB 7 will dwindle in sales and BB 10 will allow for 40-50 million--tops, even if that.

    The Playbook is now a drain and total waste of time and effort and purpose. It offers nothing of value given the competition. There is no possible profit for it at all.

    Bottomline, nothing is believable and expect more bad news to come out drip by drip, including even more layoffs.

  • Report this Comment On June 29, 2012, at 3:38 AM, PalwashaS wrote:

    A little correction required in the article. The current cash on hand is actually $2.2 billion not $2.1 billion, which is up a $100 million from last quarter's $2.1 billion.

  • Report this Comment On June 29, 2012, at 5:33 AM, gilsh wrote:

    I don't think that RIM will go bankrupt. I wrote more about it on my blog -

    My personal Foolish bottom line is that RIM is going for a hostile takeover. Already RIM's current stock price equals the higher-end estimates of RIM's patent portfolio. at a lower share price, it will be an opportunity to buy this patent portfolio in a bargain.

  • Report this Comment On June 29, 2012, at 7:53 AM, melegross wrote:

    Happypoordays, you are totally clueless.

  • Report this Comment On June 29, 2012, at 7:57 AM, melegross wrote:

    Gilsh, you can't "go" for a hostile takeover. The meaning of hostile takeovers is that a company doesn't want to be taken over, not that they are going for one.

    Before you blog about something, look it up in the dictionary. Otherwise you are just embarrassing yourself.

  • Report this Comment On June 29, 2012, at 9:06 AM, ryanalexanderson wrote:

    Simmer down, melegross - I interpreted gilsh's comment as "Rim is going to go [away] in a hostile takeover".

  • Report this Comment On July 18, 2012, at 10:11 AM, Reveller wrote:

    Some points that people don't realize:

    -RIMs hardware is crap for the price to value you get. With tablets like Nexus 7 coming out for $200, and other devices, RIM can't compete even if BB10 is a success (which it won't be).

    -When a company gets into a bad situation with a damaged reputation, the moral level of employees is so low all they want to do is look for another job while working at RIM. RIM is not the popular "brand" it was. The stock price screams you are a loser if you buy a Blackberry, which is the size of a brick.

    -As employees leave the share price will do down with layoffs.

    -I really don't think anyone wants RIMs garbage patents, like push e-mail. If a company does buy the patents it will be at basement bargain levels in bankruptcy.

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