BlackBerry turns sour as fortunes go into free fall Share

There is no place to hide in the brutally competitive smartphone market. BlackBerry always
faced a hard challenge to claw back market share, but has ultimately been let down by a make-
or-break revamp of its touchscreen devices that met with mixed reviews and poor initial sales. A
plea by chief executive Thorsten Heins at the company’s annual meeting in July to give the
group more time fell on deaf ears among a long-suffering investor base. The group’s share price
has sunk nearly 38 per cent in the past three months, leaving its equity valued at just $5.3bn. As
recently as three years ago, BlackBerry (then called Research In Motion) was worth more than
$41bn and was considered to be Canada’s flagship technology company, following the
bankruptcy of Nortel Networks. An unexpected quarterly loss unveiled in June underlined the
Canadian company’s stalling turnround strategy, with declines in market share in an otherwise
booming smartphone market that left the group behind even the small pack of challengers such
as Nokia. Mr Heins says that BlackBerry is still in the early phases of a transition, but analysts
have warned consistently that the market may not give it time to complete the plan. One question
is whether the group has left it too late. Valuations of its assets, such as its patent portfolio, have
sunk in the past year, and its customer base is quickly losing interest. Analysts at Berenberg say
BlackBerry has some intellectual property – having acquired $4.5bn of intangibles in the past
five years, but some believe that its patents may be worth as little as $1.2bn in today’s market.
Berenberg also points to “some attractive compression and security technology”. BlackBerry
also used to have a loyal worldwide subscriber base, but even that appears to be in free fall.
Subscribers slipped to 72m in the past quarter, a decline of 4m from the previous quarter and 7m
from the quarter before that, as both corporate customers and consumers, particularly in the
fickle US market, jumped ship. “Unfortunately for BlackBerry’s remaining loyalists, this looks
like the writing on the wall for the devices, as sales of its new BB10 devices do not indicate that
the platform will regain meaningful market share,” said Charles Golvin of Forrester Research.
“Still, the company has an array of resources such as its QNX [operating system], BES software,
BBM brand, and intellectual property – these are clearly valuable, but what’s unclear is whether
they all hold value as a standalone entity or as pieces,” Mr Golvin added. Despite the launch of
the BB10 devices, the group shows no sign of making inroads on the market leaders. Google’s
Android operating system, in particular, continues to grow quickly and is now used by four in
every five smartphones sold. Sluggish BB10 sales have so far failed to compensate for slowing
sales of legacy BlackBerry 7s, which were popular among users because of the free and secure
BlackBerry Messenger Service. They were also popular with company IT departments because
of their security and manageability features – advantages that have been steadily eroded by
rivals, including Samsung. Meanwhile, the trend towards bringing your own device to work has
boosted the market share of Apple iPhones and Android-based devices, including Samsung’s
Galaxy family of smartphones, at the expense of BlackBerry, particularly in the US. The
company’s market share declined during the second quarter to less than 3 per cent, according to
IDC, from almost 5 per cent in the same quarter the previous year. The research group said that it
was still early days for its new platform, however, and BlackBerry would need time and
resources to “evangelise more end-users”. Most analysts saw the launch of the BB10 operating
system at the end of January and two new handsets – the Z10 and Q10 – as a make-or-break
effort by Mr Heins and his new management team. Most also cautioned that BlackBerry faced an
uncertain future if BB10 failed to capture the imagination of loyalists and win back some of the
customers the company has lost. Failing that, they warned BlackBerry risked becoming a niche
player in a market driven by scale, or a takeover target. But many potential buyers – including
Samsung, Microsoft, Nokia and Lenovo – have ruled themselves out over the past 18 months. As
a result, recent speculation has focused on a potential buyout backed by private equity. This
speculation intensified on Monday as Prem Watsa, who runs Canada’s Fairfax Financial and is
one of BlackBerry’s biggest shareholders, resigned from the BlackBerry board due to “potential
conflicts of interest.” Mr Watsa, who holds about a 10 per cent stake, said he had “no current
intention” of selling, despite the company’s struggles. However, the difficulties BlackBerry has
faced as a public company are unlikely to be resolved by simply moving to private ownership.
Some bankers ask who would buy the group, given the need for extensive investment. Others
point out that potential suitors might do better to wait until it went bust to buy any of the assets
that they wanted.