Will RIM Split In Two?

By Nida

The Internet is abuzz with rumors, after an article on Reuters hinting at the possibility that Research In Motion (RIM) would be separating into two divisions.

One of these would deal with manufacturing hardware while the other one would handle RIM’s network and software. The real problem here is that there are rumors that RIM would then consider selling the hardware division to Facebook, Microsoft, or any of the other potential buyers for RIM’s valuable patents. While this could be an option due to RIM’s financial struggles in the last years, these are still unconfirmed rumors.

How Would This Be Good News For RIM?

Many believe that RIM needs to get out of the hardware business. Manufacturing has certainly cost RIM due to increases in labor costs and lower revenues from hardware sales. There is no doubt that RIM is in a state of transition, so we can expect some big, bold moves from RIM in the years to come. Now, while RIM has been responsible for some amazing phones in its history (such as the Pearl and the Curve,) some have been a bit poorly executed or marketed (we’re talking about you, Style!)

The main problem with hardware manufacture is the fact that competition in the hardware field has only increased in recent years while the potential revenues have gone down substantially. In fact, the gross margins at RIM have been tanking due to hardware sales, dropping more than 20% in the last three years. With the strong competition posed by FoxConn (Apple), Nokia (Microsoft), and Motorola (Google), the future for RIM if it stays in the hardware business doesn’t look very promising.

Why This Story May Not Hold Water

However, we still need to remember that the facts are still unsubstantiated and have been reported as possibilities rather than facts. As we have seen before, the media tends to exaggerate or distort these kinds of announcements. First of all, we need to remember that even if RIM reorganizes itself into two divisions, this definitely does not necessarily mean that one of them will be sold off. Plus, all that we mentioned above about RIM’s hardware division actually works against the idea that RIM would be able to sell – not because it wouldn’t be advantageous for RIM, but because we can’t think of anyone that would want to buy it at a price that would make the whole thing worthwhile for RIM.

After all, RIM may be in a bit of trouble, but they are still many years away from reaching such dire straits as having to sell off half the company at a ridiculously low price. Add to that the fact that the potential buyers being tossed around (Facebook and Amazon) really would gain nothing from entering the hardware business at this point and we end up with a case of what is probably media exaggeration.