Only a limited number of companies have the money to pay for the intellectual property that BlackBerry Ltd. holds and none of them are Canadian firms, according to analysts. Even if the smart phone maker is acquired by Toronto’s Fairfax Holdings Ltd, the company’s patents will likely be sold off to foreign companies, they said.
Think companies like Apple Inc., Lenovo Group Ltd., HTC Corp. or Samsung Group, according to the daily newspaper, the Globe and Mail.
BlackBerry has some 7,500 U.S. granted and pending patents, but they are of limited long-term value to Fairfax. The best move for the company would be to sell them to other smart phone market players. Such players will most likely use the patents in cross licensing deals with other companies or use them for litigation in patent suits.
When Nortel Corp. went on the block in 2009 for $6.5 billion, the majority of its patents went to foreign companies and the Canadian government was not able to do anything to keep the IP in the country.
BlackBerry has been spending from $1 billion to $2 billion each year since the 1990s in research and development.
The loss of BlackBerry’s patents to a foreign firm would highlight the IP drain mentioned in the 2012 Canadian International Council report. The CIC says Canada has one of the largest IP deficits in the world. It pays about $4.5 billion a year in licensing fees to foreign firms more than it collects from overseas companies.
What’s more Canadian taxpayers have paid for BlackBerry’s IP through government research and development tax credit programs. As much as $5 billion a year from the federal government and provinces are given to companies through the Scientific Research and Experimental Development program.
Meanwhile, a financial analyst predicts BlackBerry Ltd. won’t be able to get the US$9 a share Fairfax Financial has offered for the Canadian smart phone maker.
In a report issued Monday morning to investors, Michael Walkley of Canaccord Genuity says that after looking over the company’s books Fairfax will end up buying BlackBerry for just over US$7 a share.
Walkley also agrees with BlackBerry’s plan to get out of the consumer smart phone business to focus on corporate and pro-sumer buyers, essentially becoming a niche supplier. There is now “low probability” BlackBerry 10 devices – on which the company has bet the future – can return the Canadian company to profitability, he wrote. “Given the growing BYOD trend, we view a healthy consumer smartphone business as paramount for a sustainably profitable enterprise franchise,” he added – which BlackBerry doesn’t have.
Instead, the BYOD threat to BlackBerry’s enterprise base could increase as BlackBerry 7 users move to other platforms, Walkley said. The result will be an acceleration in the decline of average revenue from customers that won’t be overcome by BlackBerry’s plant to slash operating expenses by, among other things, laying off 4,500 staff.
Walkley has long argued that BlackBerry’s consumer business no longer has any long-term value. Affordable Android smart phones are eating into its consumer base, he wrote. To keep these subscribers BlackBerry would have had to continue selling low-priced handsets. Canaccord believes already BlackBerry is selling BB7 devices in emerging markets below cost to keep up subscribers.
As for who might like to buy the parts of BlackBerry once its privatized, Walkley estimates that 15 million of the company’s 65 million subscribers are higher revenue customers could be valuable to a Microsoft or an Android handset maker.