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RIMM Divests NewBay Inc.

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Beleaguered handset manufacturer Research In Motion Limited has offloaded its cloud content service unit NewBay to Synchronoss Technologies Inc. (SNCR - Free Report) for a cash consideration of $55.5 million. This divesture is viewed as a part of Research in Motion’s restructuring effort, which includes selling its non-core business.  

NewBay Inc., a wholly-owned subsidiary of Research In Motion, allows its customers to safely store, share and deliver content like photo albums, video social networking across smartphone and tablets. NewBay’s cloud services are delivered to millions of users and have the top telecom carriers of Europe, North America and Asia as its customers.

Waterloo, Ontario-based Resrach In Motion had acquired NewBay in 2011 for approximately $100 million to better compete with the big cloud-based players like Microsoft Corp (MSFT - Free Report) , Google Inc. and Apple Inc. (AAPL - Free Report) . However, the company is offloading it at a much lower price, which translates into a loss of $45 million approximately. The transaction is expected to close at the end of fourth quarter of 2012.

On the other hand, the deal will be quite beneficial for Synchronoss as the integration of NewBay will allow it to become a leader in providing cloud-based mobile content services for mobile carriers around the world. Additionally, they will get NewBay’s rich customer list, which includes Vodafone Group Plc. (VOD - Free Report) , AT&T INC. (T - Free Report) and Verizon Communications Inc. (VZ - Free Report) , among others.

The Canadian company is betting on its new Blackberry 10 OS-based devices, which are slated to release in the first half of 2013. If the new smartphone with its new developed feature is able to lure more enterprise clients then it could be a potential game changer for them, particularly in the lucrative North American market.

The struggling Canadian smartphone manufacturer is going through a restructuring process by reducing its global work force by nearly 2000 and plans to improve the effectiveness of its resources thereby saving $1 billion by the end of 2013.

We believe getting rid of the NewBay business is part of Research In Motion’s broader restructuring plan as the company focuses on offering the right smartphone to its customers. This divesture signals that Research In Motion could offload many such non-core assets in the future which it had acquired during its glory days to improve its ailing cash position.

We maintain our long-term Neutral recommendation on Research In Motion. Also, the company currently retains a Zacks #3 Rank, implying a short-term Hold rating.

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