EBN blogger Anna Young says Yahoo Inc. (Nasdaq: YHOO) needs a new bolder and riskier growth plan. Here's one: It should buy troubled BlackBerry maker BlackBerry (Nasdaq: RIMM; Toronto: RIM). Both companies need each other direly, and their options dwindle as they dawdle, even as competitors chew up their respective market shares in search engine and mobile devices. (See: Yahoo, Yang-less, Needs Riskier, Bolder Plan.)
The two companies are plagued by a similar malaise -- the inability to transform beyond original services and products. RIM was once King of the Hill in smartphones and mobile enterprise messaging. Its BlackBerry smartphones were the darling of business people, but the waists that once were adorned with RIM phones are now sporting Apple Inc. (Nasdaq: AAPL) and Google (Nasdaq: GOOG) Android devices.
Anecdotal evidence is piling up that RIM's share of the enterprise messaging market will keep declining, unless it comes up with a new plan. Recently, I misplaced my company-issued BlackBerry device and was offered an iPhone 3 as a possible replacement. I stuck with the BlackBerry, but until then, I didn't even know my company supported the iPhone for enterprise messaging. It does, now. And, it's not alone. More companies, pressured by employees tired of the BlackBerry's limited options, are supporting and offering competitive products. Personally, I am discovering newer and newer uses for my Samsung Electronics Co. Ltd. (Korea: SEC) Galaxy S2, which I am quite satisfied with. Apparently, I am not alone. Even Apple co-founder Steve Wozniak believes Android devices trump Apple iOS in some areas.
Yahoo's position isn't any better, and it is in fact getting worse. The company is losing market share fast to Google and Facebook (Nasdaq: FB). Its advertising revenue base is being eroded by social media companies like Facebook, and the decline is likely to keep accelerating. The company's sales have been sliding with year-over-year quarterly revenue dropping in the three months ended September 30, 2011 to $1.2 billion from $1.6 billion, in the year-ago quarter. Sales for 2011 are estimated to be in the range of $4.4 billion, down sharply from $4.6 billion in 2010. Forecasters expect Yahoo's 2012 revenue to rise only slightly from the prior year to $4.56 billion.
Neither company is a great acquisition target. Yahoo has no offers on the table, and it appears Microsoft is only interested in buying bits and pieces of the company. This is not in Yahoo's interest. If Yahoo sells its 40 percent stake in China's Alibaba and 35 percent interest in Yahoo Japan, its market value is likely to decline even further, and so will its ability to compete globally. No other potential offers are likely for Yahoo, which, with a market capitalization of nearly $20 billion, is too large to be gobbled up by anything but the biggest tech companies in the market. None of them appear interested.
RIM is not fielding any plausible acquisition offers, either. The company's stock price soared earlier this week on speculations Samsung Electronics might be interested in making an offer, a rumor that the Korean company torpedoed on Wednesday. RIM's shares are already giving up the gains; on Wednesday, they dove more than 3 percent after the Samsung report.
Analysts are not particularly gung ho about a deal for RIM. Shaw Wu of Sterne Agee was concerned that RIM's current market value (about $9 billion) poses a challenge to potential bidders, since the upside might be "limited." In a report emailed to me on Wednesday, Shaw poured cold water on the likelihood of Samsung or Microsoft making a bid for RIM. He said:
We see $5-$7 billion potential value, meaning $9-$13 per share. We believe its most valuable assets are arguably its patent portfolio and BlackBerry Messenger (BBM) app. We estimate its patent portfolio could be worth $2-$3 billion assuming the prices that an AAPL led team paid (which RIMM was part of) for Nortel assets and GOOG for MMI. For BBM with its 45 million users, we estimate it could be worth $2-$3 billion.
Last but not least, we believe the value of its push network and BlackBerry OS are more questionable given competitive issues both have had in the marketplace but nonetheless, we assign a value of $1 billion (the price paid for PALM). This gives us a valuation of $5-$7 billion, meaning a stock price of $9-$13, which is a bit below where it is currently trading.
Other considerations. The other considerations to keep in mind are: (1) Samsung is doing very well with Android -- in fact, they are taking share against fellow Android licensees HTC and Motorola; (2) MSFT has effectively made its bet on its Windows Phone 7 operating system -- it makes little sense to bet on another OS that is having difficulty; and (3) the Canadian government may not allow an acquisition by a foreign company due to national security interests.
Ouch. The game is not lost, though. RIM is still a profitable company with no long-term debts. So is Yahoo. RIM has a healthy balance sheet (about $1.5 billion in cash, short- and long-term investments) and so does Yahoo (no debts and $7 billion in cash, short and long-term investments). RIM's annual sales of $19.9 billion (fiscal 2011) dwarfs Yahoo's ($6.3 billion in calendar 2011), but the search engine provider has a much bigger market capitalization ($20 billion versus RIM's $9 billion), which means investors aren't that impressed with RIM's higher sales.
So, this is what I suggest. A merger of the two companies -- some market watchers don't believe in a merger of equals, and I tend to agree. Yahoo will therefore dominate such a venture. What are the advantages of such a hook up to both companies? First, a much needed new lease on life; second, the opportunity to enter new markets and solidify positions in existing operations; third, a chance to leverage about $8.5 billion in combined cash and significant borrowing strength to push for a bigger role in adjacent markets; and, lastly, the chance to fight for a future in the mutually supportive Internet and wireless markets.
But will RIM and Yahoo take such a step? I doubt it. They've both been too timid for far too long, and RIM's current co-CEO and co-chairman structure is in itself obstructionist. What's clear is that the status quo isn't in either company's interest.
Cryptoman, Yahoo is going back to the drawing board. That's what happens when a new CEO is appointed. The previous leaders wasted too much time and the new one needs time to study the business, understand its weaknesses and strength, come up with a plan and start executing.
This will take a minimum of six months during which he will review the management, line up the ones he wants and fire those he doesn't want or need. Yahoo's plan won't be apparent for many more months. It will be interesting and might work though the competition would have moved the goal posts again by then.
Ashish, Does it make sense for Microsoft to buy Nokia? One can make a case for Microsoft hanging its mobile operating system strategy on Nokia as long as it accepts this would irritate other Windows OS licensees. I don't see a major drawback here for Nokia except perhaps hurting its Scandinavian pride.
Microsoft aspires, though, to much more than this. The silent war between Apple and Microsoft hasn't ended. It continues at another level with Apple having gained the upper hand in mobile phones and in PCs. (The company is now the number one vendor of PCs if you throw in tablets, according to iSuppli.)
The RIM and Yahoo story is a different one. They both need a new business model but I believe Yahoo can overhaul its business and thrive alone whereas RIM is in a difficult situation. What bothers me is that I remember writing about Nokia along the same vein years ago. It's easy for a company, person or entity to keep coasting on old glory, believing they are doing fine whereas the enemy has already dug a pit around them and only one more strike would be required to bring the structure down.
That's where RIM is now. It is selling in other parts of the world but see who's making the money? Without solid profits you can't win in the consumer electronics market. The pace of innovation is too rapid and the lead time between design and market shortening faster each half year.
The Board at RIM still don't realise the scale of the challenge the company is facing in the smartphone space.This head in the sand approach is not going to change with an insider becoming CEO,we need an outsider to shake things up.
As I was thinking about this merger postulated here,My thoughts turned to another possible Merger-Windows buys Nokia.
Does that one make more sense?
Problem with the current Merger situation is neither parties here have a very coherent strategy for the smartphone space.
What you pinpointed here made a whole lot of sense.
"
But will RIM and Yahoo take such a step? I doubt it. They've both been too timid for far too long, and RIM's current co-CEO and co-chairman structure is in itself obstructionist. What's clear is that the status quo isn't in either company's interest.
"
For sure this merger will enable them both to compete better as well as enter new markets;but unless someone is willing to take control and accept there are problems(& consequently take plenty of risks),we are not going to see much in the name of change.
So thats the whole issue at hand. Is'nt it?
Where is the risk-taking and innovation Going to come from?
Cryptoman, The question "what does Yahoo have in mind?" is very key to the company's future. Nobody knows but the new CEO will seek an answer urgently, a situation that has become even more urgent with the company's recent performance. Scott Thompson, the CEO who got the job only two weeks ago says the company needs to "do better". How is the question most want answered.
As Bolaji said, 9% drop in shares does not look good at all. I find Heins' statement of "nothing will change at the company" very contradictive to what the company truly needs. For someone with 20 years of experience as a chief executive of several divisions in the German giant Siemens, this statement is either a big career mistake or a very strategic move that nobody in the market quite comprehends at the moment.
RIM is going to be releasing its new generation phones in the second half of 2012 when the competition will be fierce. RIM will have to come up with something at least as good as iPhone 5, the new Windows and Android devices before then to stand a chance. I would not want to be in Heins' expensive shoes at the moment.
Given all these developments and facts, I still wonder what Yahoo has in mind though...
The new head of RIM is promising more of the same. Thorsten Heins said shareholders should not expect "drastic changes" yet that is what the company needs. He is not going to last in the job.
Cryptoman, This is something the two co-CEOs should have done sometime back but it's also too little. They retired but will stay on the board and their choice for CEO is somebody who is closely associated with them. The first comment from Thorsten Heins, the new CEO, was that nothing would change at the company. The market heard him and the stock price fell nearly 9 percent. That doesn't sound like a good beginning. The former CEOs need to go, away. Then the company should appoint a visionary who is not connected with them and commence the radical steps needed to restore investor confidence.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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