Any Juice Left To Squeeze?: Should Lenovo Buy Blackberry?

Chris Lau, Kapitall: BBM'ers could find a light at the end of the tunnel should Lenovo buy Blackberry.

In September, it seemed like BlackBerry (BBRY) could do nothing right. The company underestimated demand for its highly popular BlackBerry Messenger (BBM) app on other platforms, and needed to cancel its release on Apple (AAPL) iTunes and Google’s (GOOG) Play Store.

The company also accepted a $9 per share buyout bid and sales of its new Z10 left a little to be desired.

Shares drifted around the $8 range but are slowly recovering. Lenovo (OTC:LNVGY) was recently mentioned as another company interested in buying BlackBerry. Should investors move on, or keep an eye on the smartphone maker in hopes of expecting a higher bid?

[Read more from Kapitall about Blackberry: BlackBerry Isn’t Private Yet, So Are Shares Ripe for Picking?]

BBM launch successful

BlackBerry learned from its initial botched app release and went on to carefully control the rate of activations the second time around. Within 24 hours, the app was ranked number one in over 75 countries. All in all, 10 million users downloaded the BBM app, and it will continue to be developed on Android and iPhone.

The company will also release BBM Video chat in the months ahead. Though the messaging market is very crowded, and dominated by Apple’s iMessage, WhatsApp, and Microsoft's (MSFT) Skype (to name a few), there is still room for BBM for two distinct reasons. 

First, there are no ads on BBM. This means that the company is already sitting on what could potentially be a very large revenue stream, as well as a way for it to reach new customers who are still partial to other models. 

Second, users are identified by a PIN, not by a phone number (WhatsApp) or email (Skype). In an age when scarcely a day goes by without some sort of new privacy or spying scandal – the ability to set up a messaging account without supplying any private information is still going to become more and more valuable to consumers.

Click on the interactive chart to see data over time. Sourced from Zacks Investment Research. 

Lenovo proved itself capable of reviving a brand. The Chinese-based company is one of the world's top sellers for laptops, after IBM sold the unit. Lenovo could theoretically do the same for BlackBerry.

However, the deal could face significant blowback from BlackBerry's home country and one of its largest customers: Canada and the US. Canada may not have the political will to allow a foreigner to buy BlackBerry, even though it might be in the best interest for the company and for shareholders. It would seem like one of their biggest corporate success stories was waiving the white flag of surrender. 

And the US government is one of BlackBerry's biggest customers – no doubt in part because of the firm's corporate culture and enhanced security. However it stands to reason that Uncle Sam might not be so warm and fuzzy equipping its spies with Chinese-controlled phones. It's easy to see how government interests might come before the company's.  

Higher bids possible

A final hope is that Lenovo’s interest in buying BlackBerry would spur other bids. Lenovo has lots of cash and could raise funds to take over and right the BlackBerry business. Lenovo has a good history with the consumer market, through the revival of the ThinkPad laptop. But is the popularity of BBM enough to boost BlackBerry’s market share in Asia, the Middle East, and finally North America, with or without a buyout?


Disclosure: Author has a long position in BlackBerry

(Written by Chris Lau, a Kapitall Contributor. All data sourced from Zacks Investment Research.)


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