BlackBerry – Roller-coaster.

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There is no reason why Samsung would want BlackBerry.

  • BlackBerry has had a wild couple of days as rumours surfaced that Samsung was willing to buy BlackBerry for around $7.5bn or $14.4 per share.
  • This is what was responsible for a 29% rally in the share price only to be almost all given back today after both Samsung and BlackBerry denied the rumours.
  • They were categorical in their statements in saying that no discussions relating to an acquisition of BlackBerry by Samsung had taken place.
  • In this case the swings have been particularly wild because of the very high level of short interest that exists in the stock.
  • Currently, Bloomberg estimates that there are short positions (sold the stock without owing it) that are equivalent to 26% of the number of shares in issue.
  • To close these positions, 26% of the shares in existence would need to be purchased explaining the panic buying when there was a possibility that holders of short positions would incur nearly a 50% loss.
  • This also explains the degree of scepticism in the market with regards to the possibility that BlackBerry can make a profitable recovery.
  • The emphatic denials on both sides confirms my opinion that there is no reason why Samsung would want to buy it.
  • The opinion that Samsung would want to buy BlackBerry for its patents is a non-starter for two reasons:
    • First. BlackBerry’s patents are not actually worth that much. RFM has previously estimated that the portfolio could be worth around $1bn which has been independently corroborated by industry practitioners.
    • Second: If Samsung was desperate for patents it could have purchased Mototola Mobility from Google for a third of the price or taken advantage of the ongoing disintegration of Rockstar (see here).
  • Consequently, I can see no reason why Samsung would want to buy BlackBerry as:
    • There is no synergy in terms of platforms or costs.
    • Samsung already has an enterprise offering through KNOX and could take customers from BlackBerry organically, obviating the need to buy them.
    • Samsung itself is trying to right size its ship for the likelihood of much lower margins going forward and is in no position to take this on, even if it could find a good reason to.
  • Samsung has managed to hold its handset business steadier than I thought during Q4 but remains very far from a recovery.
  • This combined with my concerns around the long term outlook for BlackBerry leads me to steer clear of both of them for now.

 

 

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.