BlackBerry Is Looking for a Sucker

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BlackBerry (NASDAQ: BBRY) said on Monday that it’s looking at strategic alternatives, including a sale of the company.

This should come as no surprise. BlackBerry hired JPMorgan and RBC to review business operations last year, and BlackBerry’s CEO Thorsten Heins has said on numerous occasions that the company is open to “strategic alliances,” including the sale of the company’s hardware unit and the licensing of its software.

The problem is that there is precious little value left in BlackBerry the company. While that does not preclude a sale, it does mean that it will have to find a sucker.

BlackBerry is no longer relevant

The biggest problem for BlackBerry is that it’s no longer relevant in the smartphone sector. Apple’s iOS and Google’s Android have a duopoly, with the former having just over 13% of the market, and the latter nearly 80%.

According to research firm IDC, BlackBerry’s global market share fell to 2.9% in the second quarter, a year-over-year decline of 11.7%.

BlackBerry shares collapsed in June following a disappointing quarter in which the company shipped less than 3 million BB10 handsets. With the company now explicitly announcing that it’s open to selling itself, it’s unlikely that sales have improved.

Who would want to buy it?

But if BlackBerry is getting sold, who would be the buyer? Past speculation has linked BlackBerry to Lenovo (NASDAQOTH: LNVGY.PK).

In March, BlackBerry shares surged after Lenovo’s CEO made some vague comments about a potential acquisition. Lenovo has become one of the world’s biggest PC OEMs, but as that market declines, Lenovo needs to get into mobile devices.

In theory, buying BlackBerry would allow for just that. But there are two problems.

The first is that Lenovo is a Chinese company, which raises some regulatory problems: Canadian government officials may not allow BlackBerry to be sold to the Chinese.

The second is the fact that Lenovo has already gotten into the mobile game, but because the company has kept its efforts focused on Asian markets, many investors likely aren't aware of Lenovo’s mobile offerings.

The company launched the K900 in May. The phone is every bit as big and powerful as its high-end competitors like Apple’s iPhone 5 and Samsung’s Galaxy S4. It runs Google’s Android, and is available in Asian markets like India and China.

Microsoft isn't giving up

If there is room for a third mobile operating system, then it’s likely to be Windows Phone -- not BlackBerry.

Microsoft’s (NASDAQ: MSFT) fledgling mobile platform has surged past BlackBerry, with its market share rising to 3.7%, up 77.6% from the same quarter last year.

As I've written previously, I don’t have much faith in Windows Phone long-term. Yet, that doesn't mean Microsoft’s management won’t throw good money after bad -- and with nearly $80 billion in cash, Microsoft is free to promote Windows Phone as much as it wants to.

Microsoft’s new reorganization has made “devices and services” the focus of the company. That could mean more phones, including, possibly, a phone made by the Windows-maker itself.

A Surface phone has been a rumor that’s appeared repeatedly in the past, though nothing substantial has emerged. There have also been reports that Microsoft was going to buy Nokia outright, using the hardware assets of the company to continue to push Windows Phone.

Microsoft is also said to be working on its own smartwatch, a device that would rival smartwatches produced by Sony, Apple and Samsung. Given the functionality of Sony’s watch (it interfaces with Android phones) it’s likely that Microsoft’s own watch would do the same for the Windows Phone platform.

In its current state, BlackBerry lacks the resources to advance such wearable technology; the company has said it won't be bringing BB10 to tablets anytime soon -- if the company can't compete in the tablet market, how could it expect to do so with other devices?

BlackBerry’s value lies in its software

If there is any value in BlackBerry, it isn't in BB10 or the company’s hardware. Rather, it would be the company’s mobile software -- unique applications like BlackBerry Messenger and its Secure Work Space.

BlackBerry has already brought these applications to iOS and Android. Both mobile applications have value to business users and IT departments, and perhaps a company like Salesforce or IBM would be interested.

But it isn't clear what these applications are worth -- and they might not be worth the stock's current price. Greencrest Capital’s Max Wolf told CNBC on Monday that he doubted the company was currently worth what it was trading at.

Investing in BlackBerry

At this point, investors in BlackBerry have to be hoping that a larger corporation would be interested in acquiring the company. While that’s possible, there isn’t much reason to own the firm.

Its new operating system, BB10, has bombed in the market, selling worse than expected and failing to dent the existing smartphone duopoly. If there is room for a third mobile operating system, it’s Windows Phone -- Microsoft has the resources and desire to keep pushing the platform forward.

Although Lenovo has been seen as a potential acquirer in the past, given that the company has already gone with Android, it’s unlikely that it would buy BlackBerry. The more interesting would-be acquirers are the big business-to-business companies that might get some value from BlackBerry’s unique mobile applications.

Still, the value of these applications is unclear. For now, BlackBerry remains a highly speculative investment.

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Sam Mattera has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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