On August 12, 2013, BlackBerry (NASDAQ:BBRY) executives announced the formation of a special committee to perform a strategic review of the company. The purpose of this special committee was to evaluate all options for BlackBerry, which would include a break up and outright sale of this business. BlackBerry stock ran up to $10.78 per share in the immediate hours following this strategic review announcement - for a 10% gain on the August 12 trading session. Although investors cheered the move, it has remained an open secret that BlackBerry has been operating beneath the same protocol throughout the past year. On May 29, 2012, Christine Dobby and The Financial Post had already reported that the then Research in Motion hired JPMorgan and RBC bankers to shop the enterprise around. Obviously, there have been no takers, while business conditions continue to deteriorate at Waterloo.
BlackBerry stock is now the domain of speculators, short sellers and arbitrage strategists. The rumor mill has identified Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG), Apple (NASDAQ:AAPL), Lenovo and even IBM (IBM) as potential BlackBerry acquirers. Conservative investors, however, should sell BlackBerry stock, and remain on the sidelines. BlackBerry stock remains overvalued at current levels. Shareholders expecting an acquisition premium will be left behind holding a toxic bag of assets. In the aftermath of the BlackBerry 10 launch, this company has remained a literal non-factor within the smartphone and tablet markets. Thanks, but no thanks, to the prospects of any takeover of BlackBerry.
BlackBerry 10 Smartphones
On August 7, 2013, research firm comScore released its June 2013 U.S. smartphone subscriber market share report. This report presented averages of data collected during the quarter spanning between March 2013 and June 2013. A quick review of this comScore report confirms the presence of another "winner-take-all" technology market. In this case, BlackBerry, Nokia (NOK) and Microsoft have all been boxed out of the marketplace beneath the dominant Google Android - Apple iOS duopoly. Taken together, Google Android and Apple iOS operating systems powered 91.9% of U.S. smartphone subscriptions through this latest quarter. On the handset side of the ledger, Apple and Samsung were the respective first and second headliners above this market. At the bottom of the heap, BlackBerry actually lost ground during the latest quarter to close out the period clinging to a meager 4.4% market share. Microsoft, and its deep pockets, occupied the fourth ranked slot beneath the BlackBerry operating system.
The BlackBerry 10 line of smartphones will ultimately expand to include the Z10, Q10 and A10. These phones have been rolled out at premium price points comparable to the Apple iPhone, Samsung Galaxy and Nokia Lumia. BlackBerry has aggressively promoted the security features that create a firewall separating work and personal profiles accessed through this latest operating system. BlackBerry's reputation for security also helped executives negotiate a deal with Visa (NYSE:V) that transformed these smartphones into virtual wallets through near-field communications technology. As a standalone entity, of course, security features were not enough to lure consumers away from the Google Android - Apple iOS ecosystems. Each wing of this duopoly is a backbone for hundreds of thousands of popular applications.
On June 28, 2013, BlackBerry released its financial report for the first quarter of fiscal 2014, which ended June 1, 2013. During Q1 2014, BlackBerry listed unit sales of 6.8 million smartphones. For the sake of comparison, Apple shipped 31.2 million iPhones through a similar time frame. Apple and Google executives have no reason to integrate additional BlackBerry technologies within their smartphone platforms. Alternatively, smaller rivals may opt to create handset divisions in-house, instead of picking up any scraps of BlackBerry on the cheap. These dynamics are similar for the tablet market.
BlackBerry Playbook Tablet
Upon launch, BlackBerry aggressively marketed the Bridge feature of the Playbook tablet. The Bridge program was designed to facilitate transitions between BlackBerry 10 smartphones and tablets. The BlackBerry marketing team has also played up the ability of the Playbook tablet to convert into a workstation and manage Microsoft Office, Word, Excel and Power Point files. The perceived strengths of this Playbook tablet, of course, have been made redundant with the presence of the Surface. Microsoft engineered the Surface tablet and its Windows 8 software to also close technical gaps separating traditional smartphone, tablet and personal computer interfaces from each other.
On August 5, 2013, Jeff Bezos, Amazon CEO, announced that he wuld be buying The Washington Post (WPO) for $250 million. This deal will allow for even greater integration between Amazon goods, services and digital content. As a standalone e-reader, the Amazon Kindle tablet now poses an even greater threat to the BlackBerry business model. Amazon sells its hardware near cost, in order to create another gateway through which consumers can purchase high-margin product through the retailer. Amazon Kindle prices start off at $69. All prospective BlackBerry acquirers must calculate that thousands of Playbook tablets cannot be realistically written down and sold off. These tablets may either pile up as inventory or be given away to schoolchildren in India after a buyout deal.
On August 5, 2013, research firm International Data Corporation (IDC) released its report summarizing second calendar quarter tablet sales. IDC did acknowledge a decline in tablet shipment growth during this latest quarter. IDC, however, blamed this trend upon Apple's decision to launch iPad upgrades closer to the Holiday Season, instead of during the second quarter. Tom Mainelli, Research Director, IDC, claimed, "A new iPad launch always piques consumer interest in the tablet category and traditionally that has helped both Apple and its competitors."
A quick review of the data, however, would indicate that BlackBerry was a total non-factor within the tablet market. The BlackBerry operating system powered a mere 100,000 tablet shipments during Q2 2013. For the sake of comparison, Android and iOS accounted for a respective 28.2 million and 14.6 million in unit sales. Wayne Williams and Beta News recently described Surface sales as "pathetic." Still, Microsoft managed to ship 2 million units of its much-maligned Surface - Windows operating system last quarter. As original equipment makers, Apple, Samsung, ASUS, Lenovo and Acer were listed as top-five vendors according to unit sales. No tablet competitor maintains both the cash and the necessity to make a serious play to take over BlackBerry.
The Bottom Line
On June 19, 2013, The Wall Street Journal reported that "people familiar with the matter" claimed that Microsoft was engaged in advanced talks to purchase the Nokia handset business. Talks to acquire Nokia allegedly broke down after Microsoft balked at paying a significant premium above Nokia's then $15 billion in market capitalization. In other news, Robert Cyran and The Globe and Mail proclaimed that the patent bubble had burst, as early as January 24, 2012. Cyran cites Google's August 2011 $12.5 billion bid for Motorola as the height of the smartphone intellectual property market. From there, technology analysts, such as Tim Carmody, highlighted the January 2012 Kodak bankruptcy as indicative of patent market collapse. Unfortunately for BlackBerry speculators, the acquisition train has already left the station. At this junction in time, a deal for BlackBerry would make little to no economic sense. If anything, this business would emerge as an albatross - weighing down the sales and profits of its new parent.
On August 22, 2013, BlackBerry closed out the trading session at $10.19 per share, or $5.3 billion in market capitalization. According to its latest quarterly financial filings, BlackBerry recently operated with $9.4 billion, or $18 per share in equity on the balance sheet. Traders literally prefer that this business be broken up and sold immediately instead of continuing to operate as a going concern. Again, thanks, but no thanks, to the market asking price for any BlackBerry acquisition.
For Q1 2014 ended June 1, 2013, BlackBerry posted $84 million in losses, as a follow up to the $518 million in losses racked up during the year-over-year period. In total, BlackBerry endured $627.3 million in 2013 losses. The BlackBerry 10 operating system has failed to re-energize this brand. In theory, BlackBerry intangible assets, and property, plant and equipment, will deteriorate towards zero, if the company cannot leverage these line items to turn a profit. Accountants may also write down BlackBerry inventory while completing calculations to set a price tag on this firm. Valuations, of course, may be moot, as BlackBerry appears headed to bankruptcy court, with no white knight acquirer willing to save the day in sight. This stock is now a strong sell.