Analysts weigh in: BlackBerry now a ‘stranded asset’

‘No competing bids is telling’

 
(Photo by Justin Sullivan/Getty Images)
CEO Thorsten Heins (Justin Sullivan/Getty Images)

BlackBerry’s decision to halt its sales plan and bring on new management is drawing a negative outlook from the analyst community.

On Monday, the Canadian tech company announced it was no longer looking for prospective buyers, and would instead borrow US$1 billion of convertible debt from an investor group led by Fairfax Financial, while replacing CEO Thorsten Heins and board chair Barbara Stymiest. The market response to the news was swift, as BlackBerry shares plummeted 16.4% on the TSX to $6.76.

“The news is out—and it’s not good,” wrote Richard Tse, a technology analyst with Cormark Securities, in a Monday morning note.

“The bottom line, the company has become a stranded asset that’s likely to see continued erosion in value as restructuring(s) whittle away at its assets, including US $2.6 [billion] in cash and investments.”

In late September, Fairfax released a letter of intent to purchase BlackBerry after a six-week period of due diligence, during which the company could seek other offers. The Fairfax bid valued BlackBerry at US$4.7 billion and US$9 per share. Several prospective bidders were rumoured, including BlackBerry founder Mike Lazaridis and Cerberus Technologies Inc., but no official offers materialized. With the number of financial players rumoured to have had access to BlackBerry’s financial data in recent weeks, “the fact that there were no competing bids is telling,” wrote Tse.

In addition to falling share prices and a lack of purchase offers, BlackBerry has also had to make staffing cuts. Its Halifax office, which employs about 350 people, will be shutting down in January, one of a number of lay-offs that will result in about 4,500 fewer BlackBerry employees in total.

“This company has to make some dramatic changes in the way it conducts its business,” Anil Doradla, a research analyst with William Blair, said in an interview Monday.

One sign that the company may already be looking to transform its business model is its hiring of interim CEO John Chen, former head of enterprise mobility specialist Sybase Inc., a company that had its own set of problems before Chen came on board.

Bringing Chen on board means that BlackBerry’s strategic focus could shift more towards its software and services business, said Doradla, which is the right thing to do.

“In our opinion, they should just abandon their hardware business,” Doradla said.

Leaving hardware behind would allow BlackBerry to partner with more successful manufacturers, such as Samsung or HTC, and improve its margins by focusing on its software strengths, he added. BlackBerry could also benefit from refocusing on its enterprise services.

“Perhaps of all the difficult options that they have, this is the best,” Doradla said.

If BlackBerry does plan to transform its business model, it won’t be overnight, said IDC analyst Kevin Restivo. Bringing in John Chen as CEO is likely a reflection of where the company is headed in the future—focusing more on software and enterprise services—but over 70% of BlackBerry’s revenue on a quarterly basis still comes from hardware shipments, he added. Change won’t be immediate.

“You don’t just flick a switch and change your business model overnight,” said Restivo.

“If it’s truly going to become a more service or software-focused company, it has to happen somewhat more gradually.”

 

With files from the Canadian Press.

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