Business Watch: RIM and Nokia teetering on brink of takeover


Both manufacturers have encountered highly challenging recently, and Dominic White thinks takeovers of both companies make more sense than ever now

Mobile’s two biggest fallen idols both had historic weeks this week – for the wrong reasons.

Nokia’s shares slipped below the €1.50 mark for the first time since 1996.

Meanwhile, BlackBerry maker Research in Motion (RIM) was preparing to face a decidedly hostile crowd at its annual meeting.

Both handset makers are looking vulnerable to takeover.

At the time of writing Research In Motion executives were rehearsing for what was set to be a stormy showdown with investors in the manufacturer’s home town of Waterloo, Ontario, on Tuesday.

Shares in the Canadian device maker have plunged by around 95 per cent since their peak not much more than four years ago.

Having dropped into the red by half a billion dollars in its first quarter, RIM further riled investors last month by revealing that its much-anticipated BlackBerry 10 operating system would not appear on any of its new devices until next year.

Publicity offensive
Last year at the annual meeting co-founders and long standing bosses Mike Lazaridis and James Balsillie faced a grilling from institutional shareholders.

The upshot of all that pressure is that they are now gone, with their co-chief executive positions filled by one man –Thorsten Heins (pictured).

But Heins has failed to reverse the declining fortunes he inherited even though he’s been on a big media push to convince shareholders and consumers that good times are just around the corner.

These sorts of publicity exercises have a nasty habit of backfiring and can often smack of desperation.

Heins, for instance, told the Canadian Broadcasting Corporation that RIM was not in a “death spiral”. That’s okay then.

And his new chief marketing officer Frank Boulben tried to suggest that the postponement of the BlackBerry 10 launch was “a blessing in disguise” from a marketing perspective.

He reportedly said that carriers told him it’s better to launch after the Christmas rush is over in order to stand out from the crowd.

That’s all well and good for the carriers, who doubtless want to boost post-Christmas sales, but RIM will have missed the biggest selling window of the year at a time when it can ill afford another poor quarter.

Boulben wants to sort out RIM’s below-par marketing, but it will take more than a lick of paint to address its massive loss of market share to Apple and Samsung.

It’s already clear that some major shareholders are less than happy with the new management.

The best news for many has been that Heins recently announced he had hired US investment banking giant JPMorgan Chase and RBC Capital to consider the company’s strategic options, which would doubtless include a possible sale of the business.

Takeover targets
By the time you read this we’ll know what, if anything, Heins had to say at the annual meeting about how that review was going.

With talk that some shareholders are considering filing claims over what they see as over-optimistic forecasts for the arrival of BlackBerry 10, the pressure is on for radical and bold decisions.

The same is true of Nokia chief executive Stephen Elop, whose first bold decision – teaming up with Microsoft – has worsened the already flagging fortunes of the Finnish behemoth.

Nokia shares look almost as poorly as RIM and were seen trading this week at their lowest levels for 16 years.

Even Elop’s decision last month to announce 10,000 job cuts (the sort of thing investors normally cheer about) has failed to prop up the stock price.

At this price the company is surely a takeover target. Incredibly, it is worth less than the $12.5 billion Google paid for Motorola Mobility.

A potential takeover by Microsoft appears to make more sense than ever.

Not only has Nokia decided to go with Microsoft for the operating system behind all of this future smartphones but Google’s move on Motorola has put more impetus behind any plans Microsoft may have cooked up to get into the hardware end of mobile.

It would be a giant leap of strategy of course for the company, which made its name in being the default operating system for PCs.

But Microsoft is not averse to being a hardware provider too – just look at the Xbox.

Over in South Korea things are looking very different for Samsung.

It has just celebrated a record quarterly profit of $5.9 billion propelled by strong sales of its flagship Galaxy smartphones.

Like Nokia the company has been affected negatively by the European government debt crisis, which has damaged sales of its flat-screen TVs and other home appliances.

But thanks to the historic subsidy model the mobile market remains very strong for Samsung, which has had to battle to keep up with demand for its latest S III model.

The latest Galaxy models are selling a treat while Apple prepares the launch of the next iPhone and fans hold off for its arrival, giving Samsung a handy sales window.

Network share
Finally, Vodafone’s cosy relationship with Three is continuing, this time over in Ireland.

After merging their Australian businesses three years ago the pair are reportedly in advanced talks about tying their Irish infrastructure together to cut costs.

Ireland is not an easy market right now and any savings that can be made are extremely welcome for operators.

Vodafone and Three are talking about putting together a 50:50 joint venture structure that will own both businesses’ telecommunications kit.

The Financial Times reported that the deal could save each business more than £200 million a year.

With both sides facing a hefty bill for fourth-generation mobile spectrum in the future there’s another good reason to share the burden of running networks.

Unlike in Australia the pair are not going all the way for an in-country merger however – either side plans to keep its own spectrum and run its own retail services over the top of the infrastructure, according to the FT.

But it seems wholly possible that deeper consolidation could result further down the track if the Ireland deal comes off.

It will also stoke speculation that Vodafone may ultimately swallow Three in the UK.