BlackBerry sells itself for $US4.7b; seen crashing out of device business by mid-2014

Analyst sounds death knell.

BlackBerry has signed an agreement to be acquired by Canadian private investment company Fairfax Financial Holdings for $4.7 billion - the troubled smartphone maker's market cap after its 17% fall on Friday as it announced sales had halved, and a pending $US1 billion loss. It said it would lay off 4500 or about 40% of its remaining staff.

At its height, BlackBerry [NAS:BBRY] had a market cap north of $US70 billion.

The deal is subject to due diligence, but BlackBerry is already partly locked in. It will have to pay a $US150 million break fee if it finds another buyer before November 4.

Surprising strength in enterprise
BlackBerry put itself on the block six weeks ago following a series of poor financial results, and market share that has cratered from 50% to 3% in just three years on the smartphone market overall, according to market tracker IDC.

The platform has held up better in large organisations. BlackBerry still has a market share of about 38% among businesses with more than 10,000 employees, as well as more than a 33% share in government and financial institutions, according to Steve Brasen, managing research director at Enterprise Management Associates, which analyses the information technology industry.

Part of the Canadian company's new strategy is to withdraw from the consumer market in favour of focussing exclusively on its corporate business - both phones and the server software that manages them and locks them down. 

But cratering device business will bring everything down
Jan Dawson, chief telecoms analyst at Ovum, is pessimistic about BlackBerry's renewed business focus, and the Fairfax deal.

"Taking BlackBerry private doesn't solve the fundamental problems at the company," he says.

"First, the company's device sales are cratering, and its announcement last week that it no longer intends to pursue the consumer market is essentially the death knell for this business. BlackBerry's supply chain relies on scale for profitability, and it will never again be able to achieve the scale necessary to make money on devices. It's likely that BlackBerry will be out of the device business entirely by the middle of next year."

The next challenge is that BlackBerry's other businesses are all to a greater or lesser extent dependent on its devices business, Mr Dawson says.

BlackBerry Messenger's installed base is entirely on BlackBerry devices, and its launch BBM on iOS and Android was aborted over the weekend.

"It's mobile device management business is entirely based on its ability to manage BlackBerry devices, and its cross-platform management is much less well established than those of major competitors like MobileIron and Airwatch," the Ovum analyst says.

"If you strip out BlackBerry's use of its QNX operating system for BlackBerry devices, you're left with a business that's worth less than $US100 million. About the only part of BlackBerry that looks to be worth a significant amount at this point is its patent portfolio, and that certainly wouldn't justify the purchase price on its own." 

$US2.6 billion cash, and patent goodies
BlackBerry also holds $US2.6 billion in cash, its patent portfolio has been valued at $US1 billion, and its security network is said to be worth the same amount - numbers that have guaranteed several private equity suitors.

But beyond those goodies, Mr Dawson sees no coherent business strategy.

"Normally, companies are taken private in order to give a long-term strategy time to payoff without the hassles of short-term investor scrutiny," he says.

"But BlackBerry's key problem for the last couple of years has been the lack of such a long-term strategy. It simply hasn't articulated a way to rebuild its business as its device sales drop precipitously. Unless Fairfax plans to radically change or accelerate BlackBerry's strategy, it's unlikely to be able to turn the company around. And that means we're likely seeing the beginning of the end for one of the most iconic brands in mobile technology."