Could BlackBerry Be Worth More Sold in Pieces?

NEW YORK (TheStreet) -- The only thing that can be said with any kind of certainty about BlackBerry (BBRY) is that there's little about the company's future that's entirely certain.

"It's about as hazy as it can get for a company," noted Brian Colello, an equity analyst at Morningstar.

In a statement emailed to TheStreet, BlackBerry says that while devices remains important for the company, it's focusing on a variety of services and solutions.

"While the BlackBerry namesake handset is what made us a leader in mobile communications, the company today provides solutions across devices, messaging, enterprise software and services, and embedded systems through our QNX Software Systems technology," the company said. "Devices remain an important part of our end-to-end offering, and we are continuing to build this business while focusing on professionals and business customers who require secure technologies that drive productivity, communications and collaboration."

BlackBerry said that no other company is in a better position to provide customers, particularly those in regulated industries, with a secure enterprise mobility solution.

"We have a clear vision for the future and a sound platform that will help customers capitalize on future opportunities such as the Internet of Things."

It remains to be seen how the company approaches monetizing that security technology; whether it will sell the technology itself or partner with an IBM (IBM) or Accenture (ACN) to get it to market. Since this is a very niche area that hasn't been commoditized like the consumer devices market, chances may be higher that BlackBerry may be able to find success and profitability there. But profitability will likely extend into the millions, rather than billions of dollars, given the size of the market.

With that, the surest future for Canada's BlackBerry may be a scenario where a number of suitors for its enterprise security business come forward. Meanwhile, the company may wind up ceding full or partial control of its consumer devices name and business to a big manufacturing partner in the process of deepening its enterprise services.

Hon Hai/Foxconn, which partners with Apple (AAPL) on the iPhone, already has a manufacturing partnership with BlackBerry that allows BlackBerry to focus on its core competency in security and enterprise mobility management.

"Simultaneously, EMS/ODMs like Hon Hai have been looking to move up the value chain and already has 'white label' device manufacturing arrangements with a few Telcos, so it wouldn't be a huge step to envision a future in which Foxconn acquires the [BlackBerry] handset business and brand name," says Reuben Chaudhury, a partner with A.T. Kearney and leader of the Americas communications, media, and technology practice. "This would give BlackBerry a valuation based on a potential future volume that is significantly higher than the current volume and allows it to focus on its core competency."

Chaudhury noted that the millions of dollars in profitability that the security business could bring would equal a small subset of the broader enterprise security solutions offered by vendors like Symantec (SYMC) and solutions providers like CSC (CSC) and HP (HPQ) and could pique the interest of these companies into buying the security business as an additional feature to an existing solution. A Microsoft (MSFT) or Nokia (NOK) with a strong embedded enterprise base would be intrigued by the security platform and pay a higher value for it than Symantec, CSC and HP.

"I'd be surprised if the security component exists under the BlackBerry name or brand," said Chaudhury.

BlackBerry shares have been on a roller coaster ride in recent years. Investors are for one scratching their heads at the widely-publicized launch of the low-cost Z3 smartphone in Indonesia in May, given that the company's message has been that it's turnaround plan is supposed to involve a lessened dependence on devices and reinvigorated focus on high-end enterprise services. Meanwhile, the financial community continues to await proof of a viable, high-end enterprise business model plan. Recent investments in the BlackBerry 10 line of products have been unsuccessful.

The only saving grace for the company has been a strong balance sheet and good cash management. "Bankruptcy is not on the table in the near term for sure," says Colello.

BlackBerry's move recently into the budget smartphone segment of the emerging markets, beginning with its last consumer "stronghold" of Indonesia has had the unintended consequence of giving BlackBerry skeptics more fodder to support views that the BlackBerry name will never be able to shake off its reputation as a waning smartphone devices maker. AFP described the Z3's May 16 to 18 launch reception in Indonesia as "muted."

Euromonitor International senior analyst Mykola Golovko summarizes that along with the iPhone, an ever-growing array of Android-based devices spanning the entire price spectrum have eroded BlackBerry's share even in markets where it had a significant, loyal user base, such as Indonesia. On the low-cost end, BlackBerry simply lacks the scale to compete with the local $100 Android-based phones. The Z3 was going no lower than $190 at the time of its launch. "In Indonesia, BlackBerry accounted for over 40% of smartphones in 2011 and less than 30% in 2013," said Golovko.

If BlackBerry has indeed been trying to foster a rebound starting with the emerging markets, there's no unanimous sign that it's working. On the other hand, Colello says that the Z3 may have been part of a strategy that was already in the pipeline prior to the arrival of new CEO John Chen and just needed to be flushed out. If the strategy failed for sure, Chen, with his enterprise background, would certainly turn all his focus towards the high-end enterprise plan.

The plan puts a sharp focus on providing advanced encryption technologies to enterprise customers that value top-notch security, rigid certifications and approval. The selling point is that BlackBerry is in fact, able to provide highly secure and unique communications technology. Enterprise mobility management is also part of the plan.

-- Written by Andrea Tse in New York

Follow @AndreaTTse

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