Should Apple or Google buy Research In Motion? $AAPL $GOOG $RIMM

Research In Motion Limited’s (NASDAQ: RIMM) took another beating this week, after announcing the results for thefirst quarter ended May 28, and revisiting downward the outlook for theremaining of fiscal 2012. For Q1 FY 2012, RIMM’s net income plunged to$695 million, or $1.33 per share, compared to net income of $769million, or $1.38 per share, for the same period the previous year.Revenue grew by 16% to $4.9 billion. Analysts had been expectingearnings of $1.32 per share on revenue of $5.15 billion for the period,according to consensus estimates from Thomson Reuters.

Even more, the company confirmed the continued weakness in its lineof BlackBerry smartphones, and revised downward the outlook for fiscalyear 2012. RIMM now expects earnings to come in the range of $5.25-$6.00 per share, compared to consensus estimates of $6.31. The companyhad previously maintained a full-year EPS forecast of $7.50.

As a result of these, RIMM announced significant downsizing plans byreducing the workforce and optimizing expenses. The company has alsosaid that it would delay the release of the next Blackberry with QNXsoftware for 2012. It is probably the company’s last chance to convinceinvestors that the new smartphone would be competitive. The currentportfolio of BlackBerry products has been in the market for nearly ayear, and delivering new products has proven very challenging for RIMM.

As a result, RIMM shares dropped 14% in after-hours trading on June16 to $30.26. The stock had already lost more than 50% this year, aftergetting its momentum crushed by Apple’s (NASDAQ: AAPL) iPhone and Google’s (NASDAQ: GOOG) Android platforms. RIMM, which invented the smartphone and led themarket for about a decade, is currently trying a comeback and playingcatch up with its bigger rivals.

With a market capitalization of nearly $16 billion, RIMM ispositioned to be an interesting takeover target, being traded at lessthan 5 times last twelve months EPS. This is very cheap comparing to the valuation of Apple and Google, which are traded at 10 and 13 timestheir next year EPS estimates. Despite discounted valuation, RIMM’sbusiness is generating steady profitability, double-digits growth, aswell as growth in the International markets. In addition, the company’sBlackberry smartphones maintain leading email and messagingfunctionality and retained a valuable base approximately 160 millionsmartphone users and 60 million subscribers.

In a previous commentary, we mentioned that RIMM’s business model could appeal to rivals like Apple and Microsoft (NASDAQ: MSFT), which could consider the opportunity to bid for RIMM.

There are several things that Apple would like to acquire from RIMM.First of all, it is RIMM’s exclusive messaging service, e-mail andmessaging functionality expertise, as well as security platform thatappeals to corporate clients. In addition, the valuable customer baseand consolidation of market share would position Apple better againstAndroid powered smartphones and upcoming Windows 8 powered devices.  Wementioned that the acquisition of RIMM could bring Apple some superiorfunctionality to the smartphones; a recognized brand with significantcorporate footprint; a better competitive position against the rivalAndroid platform; and finally turn Apple into the world’s largestsmartphone vendor, challenging Nokia’s position.

On the other side, Microsoft is affected by the shift from desktopand laptop computing to mobile. Microsoft’s flagship Windows division is losing customers, and revenues are threatened by the tablets momentum.The latest industry reports suggest that computing is becomingincreasingly mobile; however, Microsoft missed this opportunity and isnow playing catch up.

The acquisition of RIMM could provide MSFT with the needed platformto develop and rollout its Windows 8 operating system, which could bebenefic to both players. RIMM will get a better operating system andstronger financial back up, while MSFT would make a strong entry to thetablets market and target a significant customer base.

In addition to these, we think that Google could also consider theopportunity to bid for RIMM. A combination of Google’s Android operating platform with the appeal of Blackberry’s devices, exceptional keyboarddesign and functionality as well as messaging service could for bebenefic for both players.  The current technology level allow for arapid deployment of smartphone applications for every platform.Therefore, there should be no problem to combine Android and Blackberryapplications to get the best product on the market.

The market has already recognized thetakeover opportunity, and the further dip in RIMM’s valuation would make the takeover bids imminent. Meanwhile, RIMM has the last chance torecover and wrap up the next Balckberry to equal, at least, thefunctionality of the iPhone and Android devices.

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