Late last week, rumours spread that BlackBerry’s senior management is considering taking the company private.
On Monday, BlackBerry announced a strategic review to consider a possible sale, strategic partnerships and joint ventures. While the review announcement didn’t include a reference to a potential share buyout, if it’s not on the table, it should be.
BlackBerry is severely undervalued: the company’s market capitalization is around $5 billion but, according to reports, the company has up to $3 billion in cash.
By most measures, Blackberry is still a successful company—over 80 million people currently use their products worldwide. And in the second quarter of 2013, they sold 6.8 million devices, at the high end of analysts’ expectations.
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But they’re not selling phones as fast as they used to. In Q1 of 2012, the company shipped almost 10 million devices. And with more and more players getting in to the smartphone space, any drop in sales is magnified by a drop in market share.
Those 10 million devices in 2012 were good enough for a market share of over 6%. A little more than a year later, with sales down by just over 30%, their market share is under three per cent. And, in the highly volatile world of device manufacturer stocks, that’s a death sentence.
The negative media attention that has followed each drop in the share price, has only turned investors further off, triggering more declines. A few internal problems with upper management and some negative headlines related to bad behaviour by executives have only served to accelerate the spiral.
Ultimately, this has left the company with less cash on hand, forcing thousands of layoffs and frantic attempts to play catch-up.
And those attempts have done poorly. The company’s initial touch-screen phones and the PlayBook tablet weren’t well received and seemed to have been rushed to market.
Their newest phone, the Z10, also hasn’t sold well, accounting for less than half of Q2 sales. That might be the problem. BlackBerry’s older phones do exactly what their customers want; they give them quick, easy and secure access to email with a full keyboard. Most of their phones, especially those from a few years ago, are extremely well made and built to last. No one uses a four-year-old iPhone. Many people keep the same BlackBerry for years.
That’s why, even though sales are declining, the company still has more users than ever. But while building customer loyalty through longer-lasting well-made products might be a good strategy for a small privately-held company, it doesn’t work for one of the world’s largest publicly-traded tech giants.
Going private would allow the company to focus on its core business, without the pressure to keep pace with Apple.
It would give them some breathing room to look for new sources of income, most likely on the enterprise side. And it would allow them to conduct some almost certainly needed internal restructuring out of the public eye.
Institutional investors are already taking interest. Some of Canada’s large pension funds might want to get in on a deal, according to an unnamed executive quoted by Reuters.
That’s probably a good thing. A pension fund looking for long-term stability might be a better fit for BlackBerry than stock market investors looking for short-term gains and exponential growth.