RIM and Samsung are Supposedly Talking Again - and Perhaps They Should be

Research in Motion (RIM) certainly remains a troubled company. With no cool products to put on the display shelves during the holiday season – with even the formerly rock solid faithful losing faith on a daily basis – and with no clear indication as yet when in fact we might expect to see new products in 2013, where can we really place RIM on the mobile continuum?

When RIM released its LTE-enabled PlayBook we noted that board member Prem Watsa was buying up substantial blocks of RIM shares, and we wondered, “What does Watsa know, or believe?” It is possible that what Watsa believes or knows is…Samsung. That notion wouldn’t be far off the mark if Jefferies analyst Peter Misek is to be believed.

Misek has spun out this idea of Samsung and RIM either partnering or Samsung making a full scale (albeit dirt cheap) acquisition a few times, and is now coming around to doing so again.

Misek is quite comfortable with holding on to the belief that RIM’s ongoing strategic review can only arrive at one specific strategy - to license BB10 to Samsung. Misek also reads “Samsung” into RIM CEO Thorsten Heins recent statement that licensing BB10 in a world where RIM can no longer compete with companies that easily spin out 60 mobile devices a year may make the most strategic sense for RIM. RIM’s stock did jump from $7.31 to $8.35 since Wed. and remains above $8 per share as we write – so Misek’s Samsung musing is getting out.

Would Canadians mind having one of their own (albeit formerly) stellar home grown brands sitting under Samsung ownership? We seriously doubt that of course, but if RIM can find a deal option that retains and sustains the RIM brand and some level of RIM autonomy, it may still work for Canadians. We note this because national pride in a global brand is a powerful thing and not something to be underestimated in terms of the kind of deal RIM may end up looking to make and be given government approval to do.

Heins has specifically used the word “licensing” and has not made mention of giving any serious thought to M&A activity. What Samsung thinks about licensing vs. M&A is anyone’s guess – they aren’t speaking on the subject.

Lots of Upside, No Downside

What are the reasons Samsung might have an interest here? We can think of a few:

• RIM has somewhere between 75 and 80 million active subscribers – some large percentage of these might migrate to Apple or Microsoft/Nokia, but the vast majority will remain captive RIM (meaning RIM/Samsung) users – a huge new target market for Samsung to sell into, with little marketing effort required.
• Even today, RIM has deep roots into the enterprise, especially in North America, where the mobile enterprise business overall is huge and will remain huge over the next decade.
• If nothing else, RIM is known for the security of its enterprise infrastructure – and has government security certificates that could prove invaluable to opening up new channels for Samsung to sell into.
• BlackBerry Mobile Fusion would become the centerpiece of Samsung’s MDM capabilities – which currently reside under its “Samsung Approved for Enterprise (SAFE) platform – an extremely modest bit of MDM and security capability that holds no real business sway.
• BlackBerry 10 we believe, based on what we have seen firsthand to date, will in fact allow for some truly unique capabilities that Samsung would legitimately be able to claim as “innovative” – this is a key differentiation issue for Samsung, which needs a real world way to counter the reality (or at least the established perception) that most of its work to date in smartphones has copied Apple and has otherwise been primarily derivative even where it hasn’t copied Apple.
• BlackBerry 10, regardless of how long it is taking RIM to get it out the door, is a major and well-established mobile operating system – unlike all of Samsung’s own earlier efforts to drive mobile OS development internally, Samsung will always be an amateur at this. Bringing BB 10 on board delivers a hugely legitimate second mobile OS and highly experienced mobile OS developer into the fold. This would entirely remove the total and complete reliance on Google/Android that currently exists. With Google’s Motorola acquisition and with Google being the ultimate holder of last resort for Android in terms of defining Android (and of course with nothing to keep Google from giving Motorola hardware special advantages it may choose not to share), Samsung would love to reduce that reliance significantly, and BB10 represents a very real means of doing so.
• The “Samsung BlackBerry” smartphone (and tablet) would not only work in the enterprise, but would likely also work in the high end consumer space – a market that RIM has completely lost.

That’s quite the collection of positives for a Samsung M&A deal.

What would be in it or RIM? Well, “Research in Motion” would disappear, but the BlackBerry brand would likely survive well into the future, as would much of RIM’s design, manufacturing, BB10 and BES/Security infrastructure development teams. That would be significant for the local jobs outlook. In fact Samsung could conceivably grow a much larger manufacturing capability in Canada. Keeping the development teams in place would be essential for ongoing enterprise support.

That leaves the one absolutely vital piece of the BlackBerry puzzle open…the famous NOCs that all BlackBerry traffic flows through. Would ownership of the NOCs by a South Korean company sit well with other world governments? RIM’s vaunted security is, ironically, tied to the NOCS, which are sometimes perceived to be security issues in and of themselves - RIM itself has had lots of issues here with foreign governments. It is an open question but likely one that would ultimately be resolved.

So, the bottom line is that for RIM it could mean survival and the possibility of returning to the spotlight; the alternative is to continue on as a struggling and minor second tier player).

For Samsung there are huge upsides. Period. And there is the issue of RIM being extraordinarily affordable – it will remain so even after factoring in the substantial premium Samsung would have to offer as part of any serious M&A offer.

The alternative for Samsung is that it will remain the monster global Android player it already is, but one with potential long term weakness relative to Google (the Google threat might never materialize, but the possibility will always give Google leverage). And, of course, an Android-only Samsung without BB10 will always remain in Apple’s innovation shadow.

So perhaps this is what Prem Watsa knows. Or believes. It makes sense.

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