RIM gets reprieve – now free to fight

This is a column I wrote for The Globe and Mail

Did you hear that giant whoosh, like the sound of air escaping from an enormous balloon? That was the sound of several million BlackBerry users heaving a sigh of relief yesterday, after Research In Motion Ltd. announced that it had finally settled its four-year legal battle with U.S.-based NTP Inc., the company that sued RIM for patent infringement. And there might have been a few sighs of relief in there from co-CEOs Jim Balsillie and Mike Lazaridis, too, who knows — after all, the current settlement is substantially less expensive than the $1-billion to $1.5-billion (U.S.) that some analysts were projecting the Canadian company might have to cough up.

Plenty of RIM investors were relieved, that much is clear. The stock jumped by more than 18 per cent in after-hours trading, erasing about six months worth of selling in an instant and boosting the company’s market value by $2.4-billion. Some professional investors were also glad to see the millstone removed from around RIM’s neck. “I’m glad it’s over,” said Matt Kelmon, a U.S. money manager with 250,000 shares of RIM who said he had been expecting a settlement of as much as $1-billion. “It was definitely an overhang on the stock . . . it was a good call to get it out of the way.”

In many ways, the deal is a win-win for the Waterloo, Ont., company. Not only does RIM only have to pay $612.5-million, less than half the amount of cash it has on hand (it has been building a reserve to pay any final judgment), but it gets a definitive deal instead of a vague agreement to work out a deal, which is what it wound up with last time. And best of all, it puts an end to the uncertainty and doubt hanging over the company like a cloud the past few years.

The impact of that cloud on the company’s business has been all too tangible: RIM also chopped its estimate of subscriber additions by more than 13 per cent yesterday, in part because of the uncertainty over the case, as it has done in previous quarters. And the firm said operating profit in the latest quarter will fall well below expectations, too — as much as 17 per cent below what analysts were projecting, even before taking into account the cost of the legal settlement.

So what happens now? The simple answer is that RIM gets back to business, back to signing up new subscribers and new telecom partners, without having to soothe their fears about the outcome of the NTP litigation. There is also the chance that being free of that cloud of uncertainty might make Research In Motion a more appealing takeover target for someone like Microsoft — until now, the unsettled nature of the case made RIM a very unattractive acquisition. That said, with a market value of more than $13-billion and a trailing price-to-earnings multiple of about 40 times, the company is still far from cheap.

If nothing else, putting an end to the NTP case allows RIM to focus all its energies on remaining the market leader in the handheld e-mail market — and it needs all the energy it can get, as competition grows. Microsoft has released a new upgrade for its e-mail server software with BlackBerry-like functionality, Palm is offering similar services for its new Treo handheld devices — of which it sold almost as many in the most recent quarter as RIM sold BlackBerrys — and Finland’s Nokia is rolling out BlackBerry-style “push” e-mail features to its phones in the next year or so.

In other words, RIM still has a substantial fight on its hands, one that has been going on in the background while it waged its legal war with NTP. Now, at least, it can get both hands into the game instead of fighting with one of them tied behind its back.

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