Research in Motion (RIM.TO) has had a tremendous run in the cellphone market with its Blackberry devices. The company was once revolutionary when it came to communication and security of its network, however the competition is heating up for RIM, especially with the recent acquisition of Google Inc. (GOOG) acquisition of Motorolla (manufacturer of “cool” handsets). Now Google has officially entered the ring of cell phones, and RIM is going to face an uphill battle worse than before as the company is going to have to fight off both Google AND Apple Inc. (APPL). Before Motorollas acquisition, Google was only selling its software on the different cell phones, now it will control the handset and the software, which makes it a stiff competition, especially in the emerging markets, where RIM needs to push to get more subscribers.
So what is the next play for RIM? Should it issue dividends? RIM has reached maturity, and finding it difficult to grow and compete. Unless, the company finds valuable investments, then it will be better off for the shareholders to receive some cash, especially since the stock has decreased by more than 50% within the last year ($26.28), a tremendous blow for a stock that traded at $148 in 2008. The company has yet to come up with marketable phones, and it is lagging behind in innovation. The only thing that is keeping its subscriber base is, well, BBM. I said it. This is the only value-added service for RIM customers. Wait when Google lets its users use a BBM-like software, then the demise will be complete.
The company is sitting on 7.448 billion of current assets, as of Feb 26, 2011, and 1.791 billion of cash. You may find that it is a lot of cash, however for tech companies it is vital to have this much cushion available for acquistions (if they do come their way). If the company pays out dividend, then it will be eroding its power for acquisitions and future growth, and the company’s stock will nose dive.
Instead the company should focus not on the short-term, but the long-term return on investment. The company should increase its funding in research and development for cutting edge technology. It should consider strengthening its bonds with another software giant (a good candidate will be Microsoft) to fight off the threat of Andriod and IPhone. I expect that the merger of the two companies would be a disaster, as it is with most companies that are acquired by Microsoft, it is just how it is. RIM needs leverage, and it must get it through strategic partnership, and no one would be a better partner than Microsoft, who is also suffering due to Apple’s and Google’s success.
I can write more about the topic, however its time to sleep.