RIM Bankrupt? How The Story Might End In Chapter 7

NEW YORK ( TheStreet) - Beleaguered technology giant Research in Motion ( RIMM) is mired in a neck-and-neck race to see what will erode first, its entire market cap or its market share.

Meanwhile, I have started to assess a race of my own. Seeing as there is now no light at the end of the tunnel, I have become intrigued at what will now arrive first, an acquisition or bankruptcy?

Buyout or bust?

When discussing RIM and the state of the mobile devices market ruled by Apple ( AAPL) and Google ( GOOG), I have started to realize a change in tone. No longer are investors trying to convince themselves that Wall Street has gotten this story wrong. Instead, it appears people have finally woken up and are no longer in denial, which is good thing.

No longer are we asking the cyclical question of "Can RIM be saved?" Instead, the attention has turned to making its burial plans. The only question is, will it be buried whole, or will some of its parts be kept alive?

Last week, upon releasing worse-than-expected fiscal first-quarter earnings results that further disappointed the market, not only did the stock drop by almost 20%, it served to re-ignite investors' greatest fear -- the possibility of bankruptcy.

At one point this was hard to imagine since the company has over $2 billion in cash. However, during its earnings announcement, in which it said it will reduce its workforce by 5,000 people, Shaw Wu of Sterne Agee reminded investors this layoff will cost the company a significant amount of money.

How much money it costs the company remains to be seen. But of that $2.2 billion in cash that it has on its book, it can possibly see a considerable amount of it erode. Since its earnings announcement, the company has received five downgrades including a $5 price target by a research analyst at Jeffries Group, according to dailypolitical.com.

This target supports what I have been speculating for quite some time, which is whether a RIM buyout arrive before its falls below $5.

Takeover Candidates

Whenever talks of acquisitions come up so do the usual suspects. However, I continue to be a huge supporter of the idea that Microsoft ( MSFT) will come in and close the deal. It make too much sense for it not to happen. The companies have common enemies in Apple and Google. Besides, Microsoft, mired in smartphone disappointments of its own, has not been able to leverage its partnership with another struggling device maker, Nokia ( NOK).

I've said this previously -- with a RIM acquisition, Microsoft would only need to invest another few hundreds of dollars per user towards RIM's existing larger subscriber base and offer replacement phones based on the Windows Mobile operating system. It can then retain the BlackBerry email service as well as the popular BBM messenger service. This has the potential to quadruple its Windows smartphone user base and instantly make it a power among the ranks of Apple and Google.

The other possible candidates that nobody seems to be discussing, in my opinion, are Cisco ( CSCO) and International Business Machines ( IBM).

Mostly it's for the same synergistic reasons as would be presented to Microsoft. By virtue of their strong enterprise and corporate presence, both firms would be able to couple their existing offerings such as networking and servers with RIM's yet significant enterprise footprint with its BlackBerry email service as well as its new Mobil Fusion service. I think both IBM and Cisco has the management expertise in place to squeeze any amount of value RIM still has left.

Bottom Line

Consider that in the most recent quarter RIM only shipped out 260,000 units, a decline of almost 50% from the 500,000 sold last year during the same period. It is remarkable when one considers that Apple sells over one million iPads per week while it expects to sell approximately 30 million iPhones for quarter. Also, RIM logged a loss of $518 million representing 99 cents per share on a GAAP basis. In the same period of a year ago, it reported a net loss of $192 million.

So, as much as I enjoy playing matchmaker with other people's money, it's hard to see that any such deal will materialize -- at least not yet. In other words, they see the trend.

The fact of the matter is, these companies (whether or not they are interested) smell blood. RIM is wounded and the end is inevitable. They know this. So as the stock is trading above $7 at an embarrassingly low P/E of 3, it still does not present the sort of value that these companies feel they can get. So it still leaves the question of what will come first, an acquisition or bankruptcy? At this point, does it really matter?

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, the author was long AAPL and held no positions in any of the other stocks mentioned, although positions may change at any time.