The taste of BlackBerry Ltd. (TSX: BB)(NASDAQ: BBRY) is on the tip of every tech pundit’s tongue these days. The company is getting a lot of ink, or pixels in this case, and I thought we should take a moment to try to clear the air a bit.
The other day, I wrote about the rumour that John Chen will sell BlackBerry. The piece was meant to be somewhat satirical, but some folks read way too much into it.
So, with that lesson in mind, let’s take a serious look at three current BlackBerry myths and decide whether or not there really is any truth to them.
Myth No. 1: Lenovo will buy BlackBerry for $15 per share
It doesn’t matter if Lenovo offers $100 per share; it will not be allowed to buy BlackBerry. The Canadian government has been called protectionist for blocking some previous foreign bids for Canadian companies. Whether or not the criticisms are justified is up for debate.
In the case of BlackBerry, the decision is a no-brainer. BlackBerry’s existence depends on governments and companies that trust the security of its BlackBerry Messenger service. The QNX Software division also has clients in security-sensitive industries such as automotive, industrial, telecommunications, medical, defense, and aerospace. The fact that the company is Canadian is an extremely important part of the trust equation.
Lenovo is a Chinese company. If BlackBerry were to be controlled by Lenovo, there would be no more BlackBerry. The security risks would be deemed too high and customers would simply switch companies. Is this fair to the Chinese? Maybe not, but that’s the way the cookie would crumble.
Any large foreign takeover must pass the “net benefit to Canada” test. There would be no benefit to Canada whatsoever in a Lenovo bid.
Myth No. 2: The Internet of Things (IoT) will save BlackBerry
The general idea behind IoT is that we are headed for an existence where every little gadget we interact with on a daily basis will send data through the Internet. The concept is actually quite frightening from both a privacy and security point of view. BlackBerry’s Project Ion is dedicated to building a secure platform that can be scaled globally to handle all that IoT data.
There is a lot of excitement about the concept and BlackBerry has been at the forefront of the technology for quite some time. Its QNX Software Systems division is building a cloud-based product that will enable developers and companies to efficiently engage IoT.
Here’s the issue. BlackBerry is a small company compared to some of the other tech giants that are also planning to dominate the IoT space. Cisco Systems Inc. (NASDAQ: CSCO) is just one of them. Cisco has a market cap of $120 billion compared to BlackBerry’s $5 billion. At the end of the day, it’s going to be about hiring top talent and BlackBerry just doesn’t have the same financial firepower as its competitors.
In fact, the poaching may already have begun. Earlier this month, Alec Saunders announced his resignation from BlackBerry. Saunders was vice president of Project Ion and considered a critical part of BlackBerry’s IoT initiative.
Anyone want to guess where he might turn up next?
Myth No. 3: John Chen will ultimately fail
A lot of people say Chen is beating a dead horse. I tend to disagree. BlackBerry is now a smaller, more nimble, and extremely focused business. The new Passport smartphone is doing well and the BlackBerry Classic might actually exceed expectations. The potential for revenue generation in the IoT space is still unknown, but BlackBerry just has to carve out a small niche for itself to earn enough to be profitable.
Should you buy BlackBerry?
At the end of the day, investors have to believe in John Chen’s strategy. For the stock to move significantly, one of the new smartphones will need to be a hit and the software initiatives must be successful. At this point, the upside potential probably outweighs the downside risk, but the road could be a rocky one for the next few quarters.
