Apple Inc. (NASDAQ:AAPL) just posted a record-setting quarter thanks to its focus on the Chinese consumer, a market that BlackBerry Ltd (TSX:BB)(NASDAQ:BBRY) has brought up in the past, but has been reluctant to pursue. Will Apple’s latest earnings resurrect BlackBerry’s strategy? Or perhaps push the company into the arms of a suitor?
The Chinese smartphone buyer
China is the world’s largest smartphone market, and buyers want a few things: a big screen and a high level of security. For that reason Samsung has been a noble competitor to Apple’s iPhone in China, whereas Apple has dominated the U.S. market. That was until Apple introduced its largest iPhone to date.
On Tuesday, January 27, Apple reported that in fiscal Q1 it sold 74.5 million iPhones, a 46% increase over the comparable quarter. Sales in China skyrocketed. Revenue from China increased 70% year-over-year. Research firm Canalys estimates that Apple is now the number one smartphone maker in China.
So, what does this mean for BlackBerry?
Just the mention of BlackBerry and China in the same sentence is enough to get investors excited. We saw this last November when BlackBerry’s CEO John Chen went on a business trip to China. The excitement was due to the fact that BlackBerry makes the ideal phone for the Chinese consumer, with its wider screen and rock-solid security. As Chen took part in various meetings, investors anticipated that the CEO was plotting BlackBerry’s entrance into the country.
BlackBerry and China appear to be a match made in heaven, Chinese buyers get the phone of their dreams and BlackBerry gets access to many new customers. There is one large challenge and that is information security concerns. For BlackBerry to meet the information security requirements in the country, it would have to spend a fair amount of time and money. Those reasons are why shortly after the excitement of a potential expansion into China hit, Chen told reporters that expanding into China was “not a top priority”. Instead, other areas of Asia would be explored first.
So perhaps a direct entrance into China is too much for BlackBerry right now, but there is another way.
A merger in the works?
Since November things were fairly quiet when it came to BlackBerry and its expansion plans, but this all changed recently when a report surfaced suggesting Samsung was interested in buying BlackBerry. Both companies denied the report, but as time went on another report surfaced, and then another denial.
When a few separate reports from reputable sources surface, one has to wonder if there is some truth to them. In the case of a potential BlackBerry/Samsung mega-merger the rumour gains traction from the fact that BlackBerry and Samsung could both benefit from a combination.
Samsung has struggled to maintain market share in China, and Apple’s latest results suggest that the competition will only get more intense. Buy purchasing BlackBerry, Samsung would get its hands on BlackBerry’s niche clients, and products that have a huge expansion potential into the Chinese market. For BlackBerry, the deal is a way to expand its reach into China (and all of Asia) without having to take on all the risk by itself. Samsung is already imbedded in those markets.
What does this all add up to?
If Samsung and BlackBerry are not already in talks, Apple’s latest earnings could quite likely encourage them. The Chinese smartphone market is lucrative, but highly competitive. With Samsung struggling to hold market share, and Apple increasing its presence, purchasing BlackBerry, and getting access to products that cater to Chinese customers may be exactly what Samsung needs to do to compete.