Please ensure Javascript is enabled for purposes of website accessibility

RIM Gets Into the Bailout Business

By Anders Bylund - Updated Apr 5, 2017 at 7:59PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Bailouts are not just for American banks and automakers.

Vertical integration works in the Japanese car industry, so why not in Canadian telecommunications?

Smartphone designer Research In Motion (NASDAQ:RIMM) saw one of its software providers falling by the wayside and stepped in with a mini-bailout of its own, agreeing to buy the smaller entity. Chalk Media's media management tools for the BlackBerry -- and only the BlackBerry -- has landed contracts with several large corporate customers, which makes the outfit valuable to RIM. It's generally hard to figure out exactly who these big customers are, because Chalk's press releases announce them as a "Fortune 50 health care company" or an "international advertising agency."

I don't think the phone giant would have bought this outfit under happier circumstances. The company's strengths lie in hardware, and software sales account for just 3% of the company's sales. And Chalk's business has been eroding over the past few years. The little company has never made an annual profit, and sales have fallen from about $4.2 million in 2005 to $1.6 million in the last four quarters.

The sale price for the whole kit and caboodle is $23 million Canadian, or about $18.5 million in American cash. On top of that, RIM is lending $2.2 million Canadian to its beau just to make sure it can survive until the wedding date. That's why I think of this deal as a bailout.

Research In Motion certainly needs all the business heft it can muster these days. With the global economy locked in a death-defying dive and competition from newcomers like Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iPhone, the traditional leader in business-oriented mobile communications needs to learn a few new tricks. The click-screen BlackBerry Storm, sold exclusively through Verizon Wireless, a joint venture between Verizon (NYSE:VZ) and Vodafone, in the U.S., is a good start. But it would do no good at all to lose a few juicy corporate customers just because of a small software developer's untimely demise.

Further Foolishness:

Stock news, financial commentary, and your daily dose of Foolishness: Get plugged in to The Motley Fool on Twitter!

Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in Google, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

BlackBerry Stock Quote
BlackBerry
BB
$6.95 (5.39%) $0.35
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$120.05 (2.93%) $3.42
Apple Inc. Stock Quote
Apple Inc.
AAPL
$168.34 (2.07%) $3.42
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$44.81 (0.30%) $0.14

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
373%
 
S&P 500 Returns
122%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/10/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.