After being one of the technology sector’s sexiest names between 2002 and 2007, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has had a long and painful tumble from the top. Most analysts point out the introduction of the iPhone as the reason for BlackBerry’s demise, but there was far more to it than that. BlackBerry’s management team made other strategic errors, like doubling down on its own operating system when Android had already emerged as a market leader. Its decision to introduce a tablet didn’t help, and the company held on to the hardware dream for far too long. Fortunately, those days are behind…
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After being one of the technology sector’s sexiest names between 2002 and 2007, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has had a long and painful tumble from the top.
Most analysts point out the introduction of the iPhone as the reason for BlackBerry’s demise, but there was far more to it than that. BlackBerry’s management team made other strategic errors, like doubling down on its own operating system when Android had already emerged as a market leader. Its decision to introduce a tablet didn’t help, and the company held on to the hardware dream for far too long.
Fortunately, those days are behind the company. BlackBerry has done some very smart things over the past couple of years. It made a series of acquisitions to bolster its software business. CEO John Chen finally made the painful decision to get the company out of the hardware business, choosing instead to license its brand name to other phone makers in regions where the BlackBerry brand name still means something. And the company has put significant resources to work trying to figure out the self-driving car problem.
In fact, some pundits are starting to say these moves were designed to make BlackBerry a good acquisition target. Here are three reasons why they’re on to something.
BlackBerry released its 2017 fourth-quarter earnings on Friday, and investors were impressed with the results. Shares shot up more than 11% to $10.30 each on the Toronto Stock Exchange.
Perhaps the most encouraging sign was growth from the company’s software division. BlackBerry grew software revenue by 30% over the last year and expects to beat analyst expectations of between 10% and 12.5% revenue growth from software in fiscal 2018. There aren’t that many companies that can boast double-digit revenue increases in the rapidly maturing tech world.
BlackBerry still has plenty of cash available to make acquisitions, too. It has US$1.7 billion worth of cash, which is easily enough to gobble up a smaller competitor. And even if it doesn’t make any additional deals, a solid balance sheet is always attractive to potential suitors.
On March 13, Intel Corporation (NASDAQ:INTC) announced it was acquiring Mobileye, a leader in automobile technology, for US$15.3 billion.
Intel’s bet is a simple one. The company thinks auto tech is going to be a huge market, so it wants to make sure it has a dominant position. Mobileye already has several high-profile customers. Remember, it worked closely with Tesla on the automaker’s Autopilot self-driving program before the two companies split very publicly in 2016.
BlackBerry may not have Mobileye’s list of patents or anything close to the excitement surrounding it, but it is still a formidable player in automotive technology. The company, through its QNX software division, currently provides the software for the in-dash entertainment system in more than 60 million vehicles worldwide.
QNX is now working on autonomous vehicle software. This could potentially be very valuable to a suitor looking to bolster its position in this revolutionary new market.
Free cash flow
Finally, BlackBerry announced something on Friday that will likely make it much more attractive to a potential acquirer. It plans to generate positive free cash flow in its fiscal 2018.
No company wants to acquire an asset that is continually losing money. There are already dozens of risks with an acquisition. Besides, it’s really easy for pundits and shareholders to criticize a deal when the company acquired has all sorts of red ink.
The bottom line
It appears the BlackBerry turnaround is close to being finished. The company can now move on to trying to grow its software division.
It’s obvious the company will now start to become attractive to potential suitors. It has a lot going for it. Perhaps the question isn’t if BlackBerry will be acquired. The question is when.
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Fool contributor Nelson Smith owns shares of BlackBerry. David Gardner owns shares of Tesla. Tom Gardner owns shares of Tesla. The Motley Fool owns shares of Tesla. Tesla is a recommendation of Stock Advisor Canada.