BlackBerry considering sale, other options as gadgets take a back seat to software

August 12, 2013

Smartphone maker BlackBerry said Monday that it may sell the company or form a joint venture, an acknowledgment that its newest phones may not be enough to revive its fortunes.

The Canadian company has struggled to regain market share against bigger, slicker competitors and had hoped to leverage its reputation for security and two new phones with more modern features into a comeback. But with even its core audience — security-conscious government agencies — straying, BlackBerry’s options have become limited.

The company’s shares rallied on the news, jumping more than 10 percent Monday to close at $10.78 per share. The company’s stock took a dive in late June after it reported disappointing sales figures.

The smartphone industry has entered an era in which software, not gadgetry, is the key to smartphone sales — a tough arena for BlackBerry to make up ground. Even as manufacturers prepare to show off their latest technological achievements at a major Berlin trade show next month, analysts say that gee-whiz gadgetry does not offer manufacturers much of an edge in the market anymore.

“Hardware matters, but it’s hard to differentiate because there’s such fleeting leadership,” said Charles Golvin, a technology analyst at Forrester.

Having the latest chip or crispest screen, he said, typically buys a smartphone maker only a few months in the spotlight. Adding specialized features such as an advanced camera lens can make a phone stand out from the pack but can also turn it into a niche product.

Consumers stick with a brand to protect their investment in apps, music and movies, Golvin said. For smartphone makers, deepening those relationships is more valuable than hardware sales, he said.

That has been a tough hurdle for BlackBerry to clear with its newest operating system, BlackBerry 10, and its newest smartphones, analysts said.

BlackBerry has a devoted but shrinking customer base from which to build that loyalty. Smartphones running operating systems from Google and Apple account for more than 90 percent of the U.S. market, according to the data firm ComScore. But despite strong reviews for its phones, the once-dominant BlackBerry captured just 5.2 percent of the market at the end of June.

The firm disappointed analysts with its last earnings report, a loss of $67 million on $3.1 billion in revenue. That fueled investors’ concerns that the company may run out of time to see whether its fledgling platform can sustain BlackBerry.

At an annual shareholders meeting in July, investors asked whether BlackBerry chief executive Thorsten Heins would consider partnerships to tie the company’s success less closely to the success of its phones. Heins said he would be “100 percent” open to a partnership.

For a potential buyer, the most valuable part of BlackBerry may be the cloud services it provides to businesses, not its smartphones. The firm’s reputation for security remains one of its strongest selling points, and the company has started to offer some of its software on competing devices.

“They are one of the early cloud players and have a mature cloud offering that has been refined over the years, that can benefit from new investment and scope,” said IDC analyst Al Hilwa. “Enterprises are looking at cloud solutions intensely, and so a buyer with deep pockets can build on what BlackBerry has today.”

In its statement, BlackBerry stressed that it is only exploring its options and will not be offering updates on its process unless there is major transaction. The company will continue to produce its phones and consumers will not be affected during the review process, BlackBerry said.

BlackBerry will also continue to roll out new products and market its existing lineup, Heins said.

“We continue to see compelling long-term opportunities for BlackBerry 10, we have exceptional technology that customers are embracing, we have a strong balance sheet, and we are pleased with the progress that has been made in our transition,” he said.

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Hayley Tsukayama covers consumer technology for The Washington Post.
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