Microsoft to Buy RIM? The Million Dollar Question

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Microsoft to Buy RIM? The Million Dollar Question

After the market closed for Tuesday,  Thorsten Heins, the CEO of Research In Motion Limited (USA) (NASDAQ:RIMM) announced that the BlackBerry maker will likely suffer losses in the first quarter ending June 2. The response to his statement was seen on Wednesday. Within 15 minutes of opening the market, the company’s share prices stumbled around 11% from $11.42 to $10.09. Investors and analysts were expecting at least a small profit for the company, but such worse-than-expected results have diminished the hopes for a turnaround.

Last year the company fired 2000 employees, and further job cuts are expected in near future. Heins said in a statement, “The company would engage in significant spending reductions and headcount reductions in some areas throughout the remainder of the fiscal year to save $1-billion.”

Sales of BlackBerry is decreasing every quarter as Apple Inc. (NASDAQ:AAPL) and Samsung Electronics Co., Ltd. (LON:BC94) gain the market share in the smartphone market. According to IDC reports, RIM had 13.6 percent market share in the first quarter of 2011, which fell to 6.7% in the same period this year.

The company has hired RBC Securities and JPMorgan Chase & Co. (NYSE:JPM) to help company figure out the strategic options. Mark Sue of RBC Capital says that the smartphone maker’s warning about first quarter financial results demonstrate that its business is deteriorating faster than expected.

There are also speculations that the company might be up for sale, and Mr. Heins hasn’t ruled out the possibility. Based on today’s share prices, the company’s total market value is about $5 billion, which has touched $40 billion mark last year. Robert W. Baird, analyst at William Power Google and Facebook Inc (NASDAQ:FB) may place a bid to acquire the company. Though the possibility of other giant like Dell or Cisco Systems, Inc. (NASDAQ:CSCO) entering the competitor can’t be ruled out. He further said that Microsoft wouldn’t want to make an offer, as it has completely focused itself on Windows Phone 7 (and 8).

Microsoft Corporation (NASDAQ:MSFT) bought Skype at what seemed to be an absurd price of $8.5 billion. It is not crazy to think they may purchase RIMM for 57% of book value.

“The company’s current challenges are now well understood by investors and we believe a failure of the current strategy is now well priced-in and we see upside risk making a short position unwise as the CEO appears open to strategic alternatives,” said Pierre Ferragu, senior analyst at Bernstein Research. “We nevertheless do not recommend buying RIM to play the takeover upside risk.”

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