On Monday, the company announced it had formed a special committee to explore “strategic alternatives” for itself. The company specifically said that it’s trying to “enhance value and increase scale in order to accelerate BlackBerry 10 deployment.” However, BlackBerry noted in the release that alternatives could range from joint ventures to partnerships to a sale of its operation to another firm.
So who might be interested in buying the once-mighty BlackBerry?
That’s the big question. Industry experts speculate that private equity firms may interested in pooling resources to buy the company. Others say the technology may be valuable to some of BlackBerry’s competitors. But one thing is clear: The company is looking desperate. Its precipitous slide in market share as it loses ground to rivals such as Apple, Android, and even Microsoft, is only getting worse. And the company needs to find a way to stop bleeding or risk going the way of other technology companies that have slid into obscurity — for example, think of Palm’s sale to Hewlett-Packard.
BlackBerry has been steadily losing subscribers and market share over the past few years. And in the second quarter of this year, just as it was rolling out three devices that take advantage of its new BlackBerry 10 operating system, the company seemed to be hit the hardest.
According to IDC, BlackBerry’s worldwide smartphone market share in the second quarter was 2.9 percent, compared with 4.9 percent during the same period in 2012.
While clearly Apple and Android have been the primary beneficiaries of BlackBerry’s losses over the past few years, the company is also facing competition from Microsoft and its Windows Phone 8 software, which is slowly gaining momentum.
In fact, in the first quarter of 2013, Windows Phones shipments surpassed Blackberry. And Ryan Reith, an analyst with IDC, said that trend continued in the second quarter and is likely to repeat itself in the third quarter, as Nokia works hard to drive sales of its Windows Phone devices.
Kevin Smithen, an equities analyst from Macquarie Securities, thinks BlackBerry is running out of options. As a result of this highly competitive market, Smithen said in a note to investors Monday that he isn’t optimistic about BlackBerry’s prospects for a sale or even to be taken private by an equity firm.
“Given the high cash burn and large subscriber losses, we are skeptical that financial sponsors will be able to assign leverage in order to take the company private,” he said.
And unfortunately for BlackBerry, he believes that things are likely to get worse for the company now that it’s formally announced it’s looking for a buyer. And if business customers and government agencies that had standardized on BlackBerry for years were debating whether to stick with the company or not, the announcement about looking for a buyer and the uncertainty about its future, could drive them to ditch BlackBerry. Of course, this would result in even more lost market share.
“We are concerned that this formal announcement could spook enterprise and government clients who may now question BlackBerry’s viability,” Smithen said.
Possible buyers
The biggest problem that BlackBerry faces is that it’s very unlikely it will find a buyer for its handset hardware business. And even though the company has a rock-solid e-mail platform that many large businesses have come to rely upon and its new BlackBerry 10 software greatly improves the Web experience, most of the established handset makers in this market don’t really need BlackBerry.
Possible strategic tie-ups with companies, such as HTC or Microsoft, have been batted around. But the truth is that these companies don’t really need BlackBerry’s hardware. And it’s difficult to evaluate the value of the software, which would likely be used in bits and pieces.
Some analysts have suggested that Samsung might be interested in BlackBerry. The company, which has built its smartphone business around the Google Android platform, appears to be trying to distance itself a bit from Google in an effort to differentiate its products from other Android smartphones.
One of the biggest threats to Samsung is that Google now owns Motorola. And as the company rebuilds its business to compete in the smartphone arena, it could put Google into direct competition with its Android licensees, such as Samsung.
Equities analysts at Jefferies believe that Samsung may be interested in BlackBerry to help it boost its own internal operating system. Samsung has been developing an operating system called Tizen, which it plans to use as a low-cost OS that can be used to help combat low-cost device makers in emerging markets.
“Starting a new OS from scratch is unlikely to be successful even for the largest vendor in the world,” the analysts said in a research note distributed to investors Monday. “But BB10 could provide a solid base for Samsung to develop its own ecosystem with its ability to virtualize Android and with around 150,000 apps.”
Still, a sale to Samsung looks like a long shot. And it’s also likely that BlackBerry’s assets could be split among several buyers. For example, the company has many mobile patents that could be attractive to a number of players. And the company’s messaging platform and enterprise server service business could also appeal to some buyers.
Could Chinese companies save BlackBerry? The companies that would likely be the most interested in buying a fully intact BlackBerry are some of the Chinese manufacturers such as Lenovo, Huawei, and ZTE. These companies are aggressively competing in developing markets with low-end devices. BlackBerry has done well in these markets with its lower-end BlackBerry Curve smartphones.
But it’s very unlikely the Canadian or U.S. governments would allow such a takeover to occur, since there would be huge security questions surrounding a merger with BlackBerry and a Chinese device manufacturer.
Such a merger would also doom the company’s sales in the U.S., where the government is already suspicious of these Chinese companies and the telecommunications gear they manufacture for wireless operators.
Last year, the U.S. House of Representatives Permanent Select Committee on Intelligence issued a report in which it warned against the use of any telecommunications gear made by Huawei and ZTE. The report recommended that the “Committee on Foreign Investment in the United States (CFIUS) block acquisitions, takeovers, or mergers involving Huawei and ZTE given the threat to U.S. national security interests.”
Even if the Canadian government allowed Lenovo, Huawei, or ZTE to buy BlackBerry, it would be disastrous for the company’s U.S. business given that its large corporate and government customers, such as the Department of Defense, are even still using BlackBerry phones now because of its strong reputation as a solidly secure mobile e-mail platform. The Defense Department has recently approved the use of some Apple and Android devices.
A quick resolution is best
But one thing is clear: Whatever happens with BlackBerry needs to happen fast. The longer the company’s future is uncertain, the more money and customers it will likely lose, lessening its attractiveness to potential buyers.
“BlackBerry has supposedly been considering all options before,” said Avi Greengart, an industry analyst with Current Analysis. “Now they’ve just issued a formal statement about it. The danger is that the news could significantly weaken the BlackBerry 10 launch, which then impacts the value acquirers would have in the company.”
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