* RIM under pressure to weigh unpalatable options - sources
* Microsoft approached RIM to use Windows software - sources
* RIM could ask Microsoft to buy stake in return - sources
* Private equity eyeing network business carve-out - sources
(Adds details, background, comments from analysts)
By Nadia Damouni
NEW YORK, June 29 Research In Motion Ltd's board
RIM.TO RIMM.O is under mounting pressure to consider
unpalatable options such as selling its network business or
forming an alliance with Microsoft Corp (MSFT.O) after the
Blackberry maker again delayed the release of its
next-generation smartphones, said three sources familiar with
Shares in the Canadian company, which announced a
steeper-than-expected quarterly operating loss on Thursday,
plunged 18 percent in extended trading, slashing its market
value to $4.1 billion. The stock has fallen about 70 percent in
the past year. [ID:nL2E8HSFN0]
RIM said the launch of BlackBerry 10 mobile devices has been
postponed to early 2013 - more than a year later than initially
promised - because the development of its new operating system
had "proven to be more time-consuming than anticipated."
RIM CEO Thorsten Heins - who replaced long-time co-chief
executives Mike Lazaridis and Jim Balsillie in January - kicked
off a broad strategic review in March that seeks to tie the
fortunes of the company to the success of the new operating
But the latest setback has increased pressure on RIM's board
to more seriously explore other options, including measures that
would amount to an admission that its current strategy is
untenable, said the sources, who declined to be identified
because the information was confidential.
One of these options is for RIM to abandon its own operating
system and adopt Microsoft's upcoming Windows 8. Microsoft CEO
Steve Ballmer approached RIM shortly after Balsillie's
departure, looking to strike a partnership similar to the one
the software giant has with Nokia Oyj NOK1V.HE, the sources
said. Under that partnership, Nokia will use Microsoft's latest
Windows operating system on its smartphones.
In such a scenario, RIM could also look for Microsoft to buy
a stake in the company and fund marketing and other expenses,
the sources said. However, this option is not attractive to RIM
because it would mean the end of the Waterloo, Ontario-based
company's technology independence, they said.
The RIM board still prefers to see through the efforts to
develop the new operating system, according to the sources.
Microsoft could also be interested in RIM's wireless
patents, the sources said.
Another option for RIM would be to sell its proprietary
network to a private equity firm or a technology company. The
buyer could then open up RIM's network operating centers to
other smartphone providers, allowing them to also provide highly
secured emails and other services to companies and government
agencies, the sources said.
In that scenario, however, RIM's device business is seen to
have no future, they said, adding that private equity firms have
been considering how to separate the hardware business from the
RIM and Microsoft declined to comment.
Separating the network business would be an about-face for
RIM after it rejected a similar proposal from Balsillie, who had
been in advanced negotiations with wireless carriers to boost
revenue by letting them use the RIM network. [ID:nL2E8FI7RC]
The idea was to clearly define the network as an asset that
could exist without BlackBerry handsets, which are facing fierce
competition from Apple Inc's (AAPL.O) iPhone and Google Inc's
(GOOG.O) Android phones.
RIM is "going to have to be much more open-minded to the
idea that Jim Balsillie was working on before he was ousted of
opening their network to third parties," said Eric Jackson, a
hedge fund manager at Ironfire Capital in Toronto.
On Thursday, Heins gave away little in regards to the
strategic review, which is being conducted with the help of
investment bankers at JPMorgan Chase & Co (JPM.N) and Royal Bank
of Canada (RY.TO).
But he did reiterate his faith in RIM's integrated model and
dismissed a suggestion that the BlackBerry will adopt Google's
Android software. He said on a conference call with analysts
that he is "convinced that BlackBerry can deliver value as an
integrated hardware, software and services offering."
Analysts have said RIM should assess opportunities to
license its untested BlackBerry 10 software, make money from its
patent portfolio or invite a partnership with another mobile
"They need to get to a strategic decision soon. Even though
it may cause some near-term pain if you separate the business,
it might be the best course of action," said Scott Sutherland,
an analyst at Wedbush Securities.
With the delay in the launch of that software now, RIM's
working capital is also likely to come under more scrutiny. The
company held $2.2 billion in cash at the end of its fiscal 2013
"If you want to rip the company apart for its assets and
cash, this is the year to do it because the cash balance
increased this quarter, but it's likely they're going to start
burning cash as they move into the back half of the year," said
Colin Gillis, an analyst at BGC Partners.
On a conference call with analysts, RIM Chief Financial
Officer Brian Bidulka said working capital management was one of
the areas of focus for the company.
Bidulka said the company also had an unused credit facility
and it was "continuing to work with our banks on renewing that
It is also trying to reduce costs by about $1 billion,
including by cutting about 5,000 employees.
(Reporting by Nadia Damouni; Additional reporting by Alastair
Sharp in Toronto; Editing by Ryan Woo)
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Keywords: RIM OPTIONS/
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