Company doesn’t have to be sold off, says an industry analyst. However, the head of a Canadian merchant bank says its time BlackBerry got out of the handset business

 

When a company lets it be known that it is seriously considering all of its options the vultures start circling.

That’s what’s happening with BlackBerry Ltd. now that a special committee of its board of directors has been formed to look at “strategic alternatives” — which can mean anything from selling to a new owner, privatization or breaking up the business.

A year ago it said the same thing, although executives made clear this wasn’t their first choice. What’s different now is that the board is doing something about it.

How dire is BlackBerry’s condition now?

Not very, says industry analyst Carl Howe of Yankee Group.

“Everybody thinks they’re going to be sold, they’re going down the tube, it’s terrible.”

But, he adds, “it’s usually hard to go out of business if you’re making money each quarter.”

On the other hand BlackBerry investor Vic Alboini, CEO Jaguar Financial, says the breakup of the company is almost inevitable.

The options BlackBerry faces come down selling off the pieces (hardware, software and services, patents), privatizing it with private equity alone or with other investors, or selling it to another technology company.

“But in all cases you’re talking about a totally revamped, reconstructed BlackBerry in some or all of its parts.”

Organizations with BlackBerry infrastructure should ignore what’s going on, says Howe. Had Venezuela not held BlackBerry revenue in escrow earlier this year the company would have broken even in the second quarter, he argues.

“I think the doom and gloom is a bit overdone.”

And some of the news reports “are just crazy.” He pointed to one report saying one option BlackBerry is considering “is the auction block … I don’t see that.”

“They don’t have to sell” — at least not a fire sale, he added.

Nor does he think the event that immediately preceded Monday’s announcement, last week’s IDC report that BlackBerry had dropped to fourth place globally in smart phone sales have anything to do with the board’s actions.

Howe doesn’t think market share results are very important. “The real kicker for me is ‘Did people pay money for my product? Did I make money selling those products? Am I making money on the services I sell to them?’ The answers on at least two out of three of those questions has been yes.”

BlackBerry, like Dell, probably wants to go private to overhaul the company out of the quarterly pressure from investors, he said.

The book value of the company’s assets is more than the market capitalization of its shares (about $5.6 billion), Howe says. Taking the company private and straightening it out before going public again in theory allows the market to properly value it, he said.

He disagreed with a suggestion that the company show signs of panic with Monday’s announcement.

CEO Thorsten Heins said a while ago all options would be explored. But the board might have asked him to show more progress in this area, particularly because investors expected more from the last quarterly results.

However, where Howe sees the board gently pushing Heins, Alboini suspects they are very concerned about the company’s health.

“They’re almost out of the smart phone business” he says, referring to the IDC market share report. “It’s time to fish or cut bait.”

He said it’s about time the board signalled it is taking seriously the promise that it is looking at all options for the company.

A vocal critic of the board’s strategy for two years, Alboini noted that only a few weeks ago at BlackBerry’s annual meeting executives were saying “give us time.”

While in the last quarter the company generated $650 million in cash and has $3.1 billion on hand, he suspects the board has seen recent numbers that pushed it to appoint the special committee.

Alboini notes that three of the five board members on the special committee looking into strategic alternatives are recent appointees: Committee chair Timothy Dattels (formerly of investment bank Goldman Sachs, now senior partner of Texas-based private equity firm TPG Capital); Richard Lynch  (president of consulting firm FB Associates and former CTO of Verizon Communications); and Bert Nordberg (former CEO of Sony Ericsson and now chair of a Danish wind turbine manufacturer).

“They’re probably driving this bus,” he said.

He repeated his long-time complaint that BlackBerry [TSX: BB] should get out of the handset and tablet manufacturing business. He believes the company’s real assets are the QNX operating system (used in cars and nuclear reactors) services (the BlackBerry secure private network) and its patents. QNX Software Systems could operate on its own, he added.
[QNX Software Systems Ltd. announced Tuesday that Panasonic Automotive systems Co. has chosen the QNX CAR platform for a new vehicle infotainment system.]

But Alboini also said that if a foreign company is involved in buying parts of BlackBerry the federal government has to find a way to “ring-fence” the technology from leaving Canada, protect employment in the Waterloo, Ont., area and save the BlackBerry name.

As for predictions, Alboini said Chinese manufacturer Lenovo — which has already looked at the opportunity — could save the handset business. Lenovo makes smart phones for emerging markets like China and India, he said, and was “very smart” to stay out of the U.S.

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