Thursday, April 19, 2012

Research in Motion's services and software revenue

The new CEO Hines is banking on the success of its next BlackBerry 10 operating system platform to boost smartphone, mobile app development and tablet sales. What happens if it doesn't prompt a massive response? What if it's not a technological break-through. What if it only gets Research In Motion(RIMM) back to where other competitors' products match-up?

Is there a way to break-down how much RIM's business relies on the hardware? Let's begin totaling a dollar value with Research In Motion's patents. In September 2011, one estimate was that they are worth $1B counting $1.5B net cash and $21 per share.
Analyst Peter Misek believes RIM's patents are " relatively weak," with most in security rather than in wireless.

"We believe the liquidation value of RIM's patents is only ~$2.5B. We believe the security patents are worth approximately $500M, RIM’s wireless patents are worth approximately $1.2B ($400M LTE plus 3G, etc.), and we add the $770M worth of patents acquired from Nortel. Combining the various patents, we arrive at the patent portfolio value of approximately $2.5B."

Misek notes that even though the patents may be worth $2.5 billion, keeping an on-going handset business, RIM's patent monetization likely caps out at approximately $1 billion.

The firm sees a "cash cow salvage value" of $21 per share. Calculation: net cash ~$1.5B + patents ~$1B - restructuring ~$700M + subscription business.

Today the earnings and market price has gone down since September, but the cash & equivalent has gone up. I have not seen how much revenue is generated by the Enterprise portion of their products; However, if you eliminated the whole Hardware Division, RIM receives $3.5B in Services and Software revenue.  Caution: There may be some dependencies in those Services & Software dollars not accounted for. This is just a back-of-the-envelope calculation.

Add in $0 total debt and even stripped down, RIM seems undervalued. This morning RIM's market cap was ~$6.95B and the price hovers around $13.00 per share.

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