The real reason why BlackBerry settled

Summary:Late Friday, BlackBerry-maker Research In Motion and patent-holding company NTP announced they have settled their patent infringement dispute.Research In Motion is paying  NTP $612.

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Late Friday, BlackBerry-maker Research In Motion and patent-holding company NTP announced they have settled their patent infringement dispute.

Research In Motion is paying  NTP $612.5 million as a license fee, but it comes across more as payment for them to "go away."

To understand why BlackBerry did this deal rather than stay in fight, you have to cost out the relative cost of each option, and then use a return-on-investment model to apply that cost against the settlement.

As a result of uncertainties surrounding the dispute, RIM also cut its forecast for net subscriber additions in the current quarter that ends this weekend to 620,000 to 630,000 from its previous forecast of 700,000 to 750,000.

Averaging those two numbers means 100,000 fewer subscribers than hoped. Multiply that by four fiscal quarters. Given carrier revenue splits, that would equal around $35 million in losses per year.

Add to that the fact that 100,000 fewer subscribers would mean 100,000 or so fewer BlackBerry devices sold for the quarter, and 400,000 for the year. At, say $399 a clip,that's another $150 million or so.

Now we are crowding $200 million, but the main conjuring is still to come.

The real issues are stock price and enterprise contracts.

As my colleagues Tom Krazit and Anne Broache write today, Dennis Kavelman, RIM's chief financial officer, said RIM was feeling the effects of enterprise customers waiting for resolution in the case before expanding their current BlackBerry usage or upgrading to new hardware and software.

That's where the high-dollar ROI comes in.

Then let us look at the stock price. In after-hours trading, RIM stock gained 19 percent to $85.20 a share.

Before the hike, RIM had a $13.32 billion market cap.

Even leaving out the effect of uncertainty on lost revenue, simple math shows that a $612.5 million hole would require only a 4.6% stock price hike to produce a market cap gain that would exceed the money paid to NTP.

Oh,and did I mention lawyer billable time? RIM uses lots of outside counsel, and that adds up too. 

Topics: BlackBerry

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