Hey there, time traveller!
This article was published 30/4/2011 (3120 days ago), so information in it may no longer be current.
Research in Motion has a big problem: It's called Apple. Microsoft also has a big problem: It, too, is called Apple.
Both companies saw their share prices slump this week; RIM after issuing a profit warning, Microsoft after reporting lacklustre earnings of its core Windows software. Both companies suffer from a similar fate: They just don't have the innovative culture of other companies, notably Apple.
RIM invented the smartphone more than a decade ago. It had a huge and commanding head start in that space, but waited until Apple came along before it started to really improve its product.
The latest BlackBerrys are pretty cool (I'm a user) but they either lag or just equal Apple's technology in terms of both usability and coolness. And with other competitors, including those using Google's Android operating system, RIM's dominance is over. Apple sells more smartphones and makes a lot more on each one — a crucial yardstick because that higher revenue per unit means it can invest more in research and development and marketing, solidifying its advantage.
Microsoft? This is a company that, as far as I can tell, has never invented anything. It didn't invent the operating system, but rather acquired it from IBM (remember DOS?).
It didn't invent the word processor (remember Word Perfect?) or the spreadsheet (Lotus?). It didn't invent the browser, either (Netscape), or the game console. In fact, Microsoft's Xbox is putting out decent profits, but the company spent billions developing it and may never make a good return on that investment.
Microsoft is a terrific franchise, earning more than 40 per cent on equity. But it lacks innovation and I could easily argue this multibillion-dollar company could disappear in a matter of decades. Why? Because computing is moving to smartphones and tablet devices, like the iPad and the Playbook, RIM's version. Microsoft has been a distinct failure in its effort to develop both of these products (just as it failed to break into the MP3 music-player business, which Apple now dominates).
Microsoft is successful only because, by sheer brute force and some luck, it came to own the computer. But as computers become marginalized, its advantages disappear. (If you think Microsoft disappearing sounds far-fetched, go look at Eastman Kodak's stock price in 1996: it was more than US$90. It's less than $3 today).
RIM is in much more immediate trouble. It enjoys no monopoly on smartphones or tablets. And although it has no debt, it could easily go the way of many highly successful technology companies.
But I believe there's a ray of hope, a slight one, that might give investors some comfort: Whereas both RIM and Microsoft share a problem, they might also share a solution. Microsoft buys RIM.
It really makes perfect sense on paper: Microsoft has a big and growing hole in its portfolio of products, tablets and smartphones. It has tried and failed to break in to both.
RIM's problem is it's a $30-billion firm competing, or trying to, against a $300-billion firm. That's not a fight it's going to win. Microsoft has never made such a big acquisition, not even close. But I don't think it has a choice (and for the record it has enough cash in the bank to pay for it). And I don't think RIM's shareholders, or management, would mind.
The only trouble with this scenario is timing. Although I believe it to be a high probability outcome, I have no idea at what price RIM's shares will be when it does happen. But when it does, the offer will be at a nice premium to the market price.
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Last week, I said JDS Uniphase is a basket case. I meant to say "was" because I was referring to a period of time a few years ago. In fact, JDS has been an outstanding investment over the past couple of years.
Fabrice Taylor is an award-winning financial journalist and analyst. Email him at email@example.com