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RIM Left in ‘No Man’s Land’ After Google Cuts Motorola Deal

Research In Motion Ltd. (RIMM), maker of the BlackBerry smartphone and PlayBook tablet computer, may have the most to lose from Google Inc. (GOOG)’s deal to acquire Motorola Mobility Holdings Inc.

Google’s proposed $12.5 billion acquisition would leave RIM a smaller player relative to rivals, which may force it to strike an alliance with another company or sell itself to remain competitive, said Will Stofega, a program director at consultant IDC. With Google’s cash and software expertise, Motorola may present a direct challenge to RIM in its traditional stronghold, the corporate market, he said.

“Now that Motorola has a big war chest behind them, Research In Motion has got to watch out,” Stofega said in an interview.

Already losing market share in smartphones, RIM is seeing several competitors beyond Google and Motorola gain scale and expertise. In February, mobile-phone maker Nokia Oyj struck a strategic partnership with Microsoft Corp. (MSFT), the world’s largest software maker. Last year, Hewlett-Packard Co. (HPQ), the world’s largest computer company, bought handset maker Palm Inc. Apple Inc. (AAPL), maker of the iPhone, briefly became the world’s most valuable company last week, though it hasn’t made major acquisitions.

RIM may need more size and software expertise to compete, said Chetan Sharma, an independent wireless analyst. The Waterloo, Ontario-based maker of BlackBerrys may have to sell to a company such as Hewlett-Packard, Dell Inc. (DELL), Samsung Electronics Co. or HTC Corp. (2498), he said.

“They are in no man’s land at this point,” Sharma said in an interview.

Falling Share

Marisa Conway, a spokeswoman for RIM, declined to comment on the record about the Google deal or the prospect of an acquisition. Michael Thacker, a Hewlett-Packard spokesman; Kim Titus, a Samsung spokesman; and Jess Blackburn, a Dell spokesman, also declined to comment. HTC couldn’t be immediately reached for comment.

RIM is losing market share as consumers turn to mobile phones that can run games, surf the Web and handle other computing tasks. The company’s share of the global smartphone market fell to 12 percent in the second quarter, from 19 percent a year earlier, according to Gartner. Android became the world’s leading mobile-phone operating system over the same period, rising to 43 percent of the market. Apple climbed to 18 percent, from 14 percent a year earlier, Gartner said.

RIM had its stock rating reduced to “sell” from “hold” by Andy Perkins, a Societe Generale analyst in London, who cut his 12-month target for the shares to $20 from $50.

‘Speculative Buy’

Threats to RIM’s BlackBerry Messenger instant-messaging service from Apple’s iMessage service and Facebook Inc. “could reduce demand for RIM’s products even further,” Perkins said in a note today.

The stock fell 18 cents, or 0.7 percent, to $26.93 at 4:29 p.m. New York time on the Nasdaq Stock Market. The shares have dropped 54 percent this year.

RIM rose 10 percent yesterday on the Google news, which may indicate investors think the chances of an acquisition are increasing, said Peter Misek, an analyst with Jefferies & Co. Inc. Though the company has been struggling, it has a strong base of corporate customers and valuable patents, he said.

Patent Battle

As handset makers have sued each other over patents, intellectual property has emerged as critical asset in mobile- computing competition. A group of companies including Apple and RIM agreed to spend $4.5 billion this year to buy Nortel Networks Corp.’s patent portfolio. The BlackBerry maker holds 2,033 patents, pertaining to everything from mobile security to e-mail, according to the U.S. Patent Office.

Google said Motorola’s intellectual property was one motivation for the acquisition. Motorola, which pioneered the mobile-phone business, has more than 17,000 patents, which will help Google and Android supporters in possible legal disputes.

Google’s move may prompt Apple, Samsung or Microsoft to go after RIM for its intellectual property, Misek said.

“Apple has to respond, in my view, and to bulk up its patents a little more,” Misek said in an interview. “They have cash. There has to be a response. So do Microsoft and Samsung.”

Apple spokeswomen Natalie Harrison and Trudy Muller didn’t immediately return messages seeking comment. A spokesman for Microsoft declined to comment.

Investor Pressure

As a patent holder, RIM may be a less attractive acquisition target than other wireless companies, Michael Mahoney, senior managing director at Falcon Point Capital LLC, said in an interview.

“RIM is losing in the marketplace in the developed world,” Mahoney said. “In my view, RIM is highly unlikely to emerge a winner in the technology race. I don’t think their patent portfolio is likely to cover the most cutting-edge technology. The breadth of what Motorola has developed is orders of magnitude higher.”

Investors and analysts have called on RIM to change strategy as it loses ground. In June, shareholder Northwest & Ethical Investments LP proposed splitting the roles of chairman and CEO at RIM to increase board oversight, though the firm later withdrew the proposal to provide time for further study. In July, Mike Abramsky, an analyst with RBC Capital Markets in Toronto, said the company should consider strategic options, such as splitting its network and handset businesses.

Need for Partner

In July, the company announced plans to cut 2,000 jobs, or about a tenth of its workforce. In August, the company announced three new versions of its BlackBerry smartphone in an effort to regain traction.

RIM’s most logical partners are Microsoft and Samsung, said Tavis McCourt, an analyst with Morgan Keegan in Nashville. Still, RIM may not yet be willing to change from its existing strategy, he said.

“RIM’s management needs to come to the conclusion that they need a partner and I’m not sure that’s happened yet,” said McCourt in an interview. “Long term, everybody is looking for a dance partner and RIM had better find one. This is getting to be a business where you need to be really big to compete.”

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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