Let’s face it. Last Friday’s BlackBerry Q1 2014 earnings report was nothing to write home about. The company lost money – which may have technically been due to a Venezuelan currency exchange issue, but at the end the day the company hardly raked in the cash. Nor did BlackBerry wow anyone with the numbers of devices it sold. We certainly didn’t expect the touch-only Z10 to win over any Android (by which we mean Samsung in this case) or Apple users, and it has been an open question as to how many old BlackBerry users the Z10 would capture.
More than likely the real possible hidden gem is the Q10 – the device that BlackBerry believes the bulk of its existing subscriber base is interested in and really wants. Some people just can’t let go of that physical keyboard, even if in this day and age they simply should let go. We’ve given the Q10 a hands-on run and, quite honestly, it was a depressing thing for us – we were always quickly running out of display real estate, we couldn’t flip the thing into horizontal mode and the physical keyboard simply wasn’t any better at getting words typed up – in fact the physical keyboard is now a hindrance.
Image via Shutterstock
Still, to each his and her own, and if someone loves a physical keyboard, so be it. We expect BlackBerry to sell a healthy number of Q10s into its existing customer base and the next two quarters are likely to look bright on device sales. Bright for BlackBerry, that is – relative to the rest of the smartphone world, BlackBerry will continue to lose its already dwindling market share. And providing different colors for the Q10 case isn’t going to save it.
The problem is that relaying on the Q10 isn’t a sustainable device business. Sooner or later these last physical keyboard hangers-on will indeed move on. Will they move on to the Z10 or a successor BlackBerry full touchscreen device? If the Z10 is any indication the answer is a simple and straightforward no.
The other side of the BlackBerry equation of course is its once-heralded government security certifications, all of which BlackBerry still owns. But these simply don’t have the same value they once did. Back in 2006 when BlackBerry decided to make its consumer land-grab (an ill-begotten $350 million marketing investment at the time) it began to lose its enterprise cachet and has never recovered from it. Apple proved that enterprise security did not trump hardware desire. BlackBerry did not roll with the changing times and the rest is now simply history we don’t need to rehash.
A Little BlackBerry M&A Action?
So what, then, is to become of BlackBerry? Will it simply dwindle, close its doors and fade off into the sunset? Will it become a low-cost acquisition (especially given the current drop in its stock price) for a company with tons of cash? Will the company’s operating system and its security certificates become the only remaining assets? And what company might be interested in buying it?
We did once believe that Samsung would prove to be a BlackBerry white knight – for many well considered reasons. But Samsung has since invested substantially in delivering its own enterprise security - SAFE and Knox - and with greater acceptance of Android in the enterprise marketplace the benefits of BlackBerry to Samsung become much less valuable. Our thinking was that Samsung would build the hardware and BlackBerry would provide the enterprise-secure operating system (and those certificates). And Samsung could probably be looked at as being a safe harbor for BlackBerry’s messaging NOCs.
How about Hewlett-Packard? There would be a huge irony here in that the BlackBerry 10 operating system appears to us to have a fair amount of the same sorts of things HP’s now defunct Palm OS was able to deliver on. Unlike Samsung, HP would probably be able to leverage BlackBerry’s smartphone hardware and would probably be able to – with some substantial dollar investments in hardware design that BlackBerry itself simply cannot muster – get a smartphone out the door with a product suite based on the Z10 and Q10 that is at least now proven and known to 78 million BlackBerry subscribers. And of course HP can be fully trusted with the BlackBerry NOCs.
This would help HP hit the ground running in trying to return to selling smartphones. But quite frankly, we still totally believe that Nokia is the perfect hardware target and partner for HP. The deep integration with Windows Phone 8 (WP8) and Win 8 – which HP totally buys into, is where the real value is. That, and Nokia’s global distribution channels – which are still very valuable.
No, Microsoft makes absolutely zero sense. Microsoft already has its deep enterprise integration with WP8 and Win 8. Adding BlackBerry 10 to the mix would simply lead to schizophrenia at every possible turn. As with Samsung, both the Q10 and Z10 would need to be discarded as devices. BlackBerry would be a disaster in trying to help Microsoft deliver smartphones. Yes, Microsoft could conceivably inject tons of dollars into Blackberry’s hardware business. And of course Microsoft can also be trusted with the BlackBerry NOCs. But that would all completely disrupt its growing relationships with Samsung and HTC on the WP8.
And let’s not forget Nokia and the deep relationship that now exists there. As it would HP, it is Nokia’s global distribution channels that Microsoft most needs – it doesn’t need to build smartphones, it can let Nokia handle that end of it.
That is another reason we love the Nokia-HP M&A idea. It also ultimately benefits Microsoft in that it would be positioned to not only leverage its own marketing and development dollars, but HP’s as well. And yes, this leaves BlackBerry still out there in the cold.
The latest rumors that have meanwhile been swirling since last week’s earnings report is that Chinese giant Huawei might be interested in acquiring BlackBerry. For Huawei, such an acquisition would be nothing more than a rounding error relative to its financial resources – it can easily scoop BlackBerry up. Huawei could in fact make extremely good use of the BlackBerry 10 operating system as a key differentiator from all of its competitors – Samsung, HTC and Nokia chief among them, both on the high and low end the smartphone spectrum.
But here is the one huge issue: who - what business, what foreign government is going to trust Huawei with the Blackberry NOCs? Likely not very many. Certainly the United Stated won’t (but let’s leave out the NSA ironies in that statement!), and we’re not sure the Canadian government would be very happy about it. There is a case to be made for Huawei as the white knight, but it would be fraught with complications. On the opposite side of the equation, Huawei is in a position to pay a premium price to BlackBerry's major shareholers. We need to keep in mind here that a “premium” price for today’s BlackBerry is still a rounding error for Huawei but it would be gold to the shareholders.
We don’t see any other options. It will be an enormously sad day in Canada – where BlackBerry used to be its national pride and joy. That of course is no longer true, but surely Canada will try to find ways to save the business from completely disappearing.
The next several quarters will be critical – BlackBerry needs to show, at the very least, an ability to sell huge numbers of devices to its current subscriber base. It hasn’t yet. But even if it does, will it matter? We can pretty much assume that Huawei won’t care.
We’ll likely be revisiting the BlackBerry situation again just in time to get our 2014 Mobility Predictions pulled together. Stay tuned.
TechZone360 Senior Editor
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