Why Blackberry Settled

There are a few reasons why RIM settled with NTP and paid more than $600 million. RIM lost focus as a result of this lawsuit and the competitors are circling while smelling blood. RIM’s devices need to rapidly improve or they will be left in the dust by the likes of Palm, Motorola and others.

Perhaps the biggest reason is that they see customer sales plunging as the negative press has customers looking under rocks for any other option.

As Russell Shaw points out the stock price gains alone by settling are worth the amount they paid to NTP.

In the end this whole fiasco was a major blunder on the part of RIM. This case should have been settled a long time ago and by now RIM should have been launching new and innovative products at a rate similar to Apple.

What they need to do now is come out with so many different devices that whatever your need, you’ll find the right Blackberry for you.

Russell really went all out with his analysis of RIM’s thinking. Here is an excerpt:

Let me tackle this by detailing what financial types call ROI, or return on an investment.
As a consequence of all this uncertainty, RIM today cut its forecast for net subscriber additions in the current quarter that ends this weekend to 620,000 to 630,000 from its previous forecast of 700,000 to 750,000.

Averaging those two numbers means 100,000 fewer subscribers than hoped. Multiply that by four fiscal quarters. Given carrier revenue splits, that would equal around $35 million in losses per year.
Add to that the fact that 100,000 fewer subscribers would mean 100,000 or so fewer BlackBerry devices sold for the quarter. Multiplying by 100,000 a quarter, that would mean 400,000 for the year. At, say $399 a clip,that’s another $150 million or so.

That four-quarter arithmetic is especially relevant to BlackBerry’s enterprise business- where BlackBerry server and equipment purchases are often negotiated many months in advance. Thus, the continuing effects of uncertainty would be ongoing.

So far we are approaching $200 million, but the main number-crunch is still to come.
The real issues are stock price and enterprise contracts.

Dennis Kavelman, RIM’s chief financial officer, told CNET today that RIM was feeling the effects of enterprise customers waiting for resolution in the case before expanding their current BlackBerry usage or upgrading to new hardware and software.

That’s where the high-dollar ROI really starts to apply.

Then let us look at the stock price. In after-hours trading, RIM stock gained 19 percent to $85.20 a share.
Before the hike, RIM had a $13.32 billion market cap.

Even leaving out the effect of uncertainty on lost revenue, simple math shows that a $612.5 million hole would require only a 4.6% stock price hike to produce a market cap gain that would exceed the money paid to NTP.

Read the rest of Russell’s post.

    March 14, 2006 at 6:32 pm

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