Earlier this year, Lenovo's CEO Yang Yuanqing said his company was open to a combination with BlackBerry (BBRY). Though, I expect that the consummation of such a merger would have just one winner, Apple (AAPL). Guess why. The reason is on the tip of every American tongue this week.
Selling to Lenovo would be bad for BlackBerry for one very important reason, trust. BlackBerry's business was built upon the enterprise, and the last thing corporate America wants is to give a Chinese company access to its internal communications. Lenovo is a top-notch company, without question, but what matters is how BlackBerry's enterprise customers might react to such a deal. In my view, a merger of BlackBerry and any Chinese company would likely result in an immediate bloodletting of BlackBerry customers, and hand over to Apple one of the last bastions of competition left, the enterprise space.
President Obama met recently with China's President Xi Jinping to press the leader on Chinese cyberspying efforts against corporate America. It's a real problem, bad enough that it drove Google (GOOG) out of China. The New York Times reported in February that Mandiant, a U.S. cybersecurity company, said in a 60-page study that it is confident that it has traced a hacking group back to a military building outside of Shanghai. Mandiant reported that the operator seems to have been at it since 2006, and has compromised at least 141 corporations it can easily identify. Others believe the numbers run in the thousands. What's more frightening is this paragraph I quote directly from the New York Times article, which is a must read:
Mandiant has watched the group as it has stolen technology blueprints, manufacturing processes, clinical trial results, pricing documents, negotiation strategies and other proprietary information from more than 100 of its clients, mostly in the United States. Mandiant identified attacks on 20 industries, from military contractors to chemical plants, mining companies and satellite and telecommunications corporations.
Unfortunately for American companies, President Obama was not speaking from a position of strength in his meeting with the Chinese President, given recent revelations about the NSA's monitoring of Americans on Verizon's (VZ) network, and likely other channels as well. That news led me to pen, Sell Verizon - Its Brand Value is Tarnished, on the same issue of broken trust.
Security is one of the top selling points for BlackBerry to corporate America, and is the key reason why many of its enterprise clients remain with BlackBerry today. Obviously, the company understands the importance of security to its customers. So why then would it allow rumors of a merger with any Chinese company to live for even a minute without rejecting the possibility? Perhaps the company hopes another suitor might follow. Let's hope that a company as integrated with American business as BlackBerry is, never merges with a Chinese company, or that our government intercedes first. We can at least take solace in the fact that our government is well aware of the issue, and has been for some time.
I know one thing, no matter how secure the network is, we all know the right hacker with the right resources can break through anything. China has the right hackers, its resources are limitless and its history seems questionable enough.
So, in conclusion, BlackBerry shareholders, whether they are American or Canadian, should insist that their company not entertain an inquiry like this. For that matter, Lenovo or any Chinese company's shareholders should seek the same avoidance, given that the loss of clients I expect would follow would make such an acquisition or merger a value destroyer for each company's shareholders. Follow me for more of the same critical thinking, unless of course you are a Chinese hacker.