Why Acquiring BlackBerry Would Make Sense For Samsung

On Wednesday, Reuters reported  – citing unnamed sources and documents that it had reviewed – that Samsung (PINK:SSNLF) had made an offer to buy BlackBerry (NASDAQ:BBRY) for as much as $7.5 billion. ^[1] Although both companies quickly issued statements denying the reports, we believe that a potential combination, even at a later date, could be mutually beneficial. The benefits for BlackBerry shareholders are straightforward, since they would potentially receive a premium over the current market price, while also removing the risks and uncertainties associated with the company’s ongoing turnaround. While a potential deal may not have an immediate financial benefit for Samsung, considering BlackBerry’s plummeting revenues and market share, it would make sense from a strategic perspective given BlackBerry’s strong reputation for security, its software assets and deep patent portfolio. In this note, we take a look at the reasons why acquiring BlackBerry would be a good for Samsung broader business strategy.

See our full analysis for Samsung Electronics

Trefis has a $1170 price estimate for Samsung, which is slightly below the current market price

1) Bolstering Samsung’s Presence In The Enterprise Mobility Space: Samsung’s handset business, which was once a reliable cash cow, has been struggling over the past year. The company’s lead in the global smartphone market has been quickly shrinking, challenged by the likes of Xiaomi in the low end and Apple in the high end of the market. Samsung has reported four consecutive quarters of profit declines and looks set to report a disappointing holiday quarter. By acquiring BlackBerry,  Samsung could find new avenues for growth, gaining credibility and deeper relationships with enterprise customers and users in highly regulated verticals. BlackBerry has a reputation for cutting edge security with its strong encryption technology, enterprise mobility management software and other business-focused products such as BBM protected and BlackBerry Blend. While the enterprise smartphone market isn’t as large as the consumer market, it is likely to be more profitable and less volatile, making it an important growth area for Samsung.

2) Changing The Perception Of Samsung Devices: Despite its troubles in the smartphone market, BlackBerry has built a strong image as a provider of secure communications solutions, and the company has a roster of users that is reported to include the U.S. President and the German Chancellor. Mobile security is beginning to receive a lot of attention in the wake of increasing hacking attacks, as well as concerns of electronic eavesdropping, surveillance and data theft. Mobile technology companies have been emphasizing on security in order to acquire new customers, and BlackBerry could help to give Samsung a leg up over Apple and Android devices, which still trails behind BlackBerry in terms of security. The smartphone market has been maturing, and brand perception and positioning are becoming key selling points. Thus far, Samsung has been viewed as a follower of sorts in the smartphone market. By acquiring BlackBerry, the company could bolster its brand cachet around the theme of secure communications.

3) BlackBerry’s Intellectual Property Is Valuable: BlackBerry has a valuable patent portfolio comprised of around 44,000 patents which are believed to include technologies relating to security and basic wireless communications. While BlackBerry’s patents had a net book value of around $1.43 billion as of August last year, their market value is likely to be significantly higher. ^[1] BlackBerry’s security related patents, which include advanced encryption technologies, are likely to be highly valued given the increasing concerns of security breaches and data theft that smartphone users are contending with. Additionally, BlackBerry’s basic patents, which are likely to cover some foundation mobile communication technologies, could prove useful as a bargaining chip for Samsung in the event of litigation with rival manufacturers. While the mobile patent wars appear to be subsiding after several settlements were reached between companies in 2014, BlackBerry’s deep patent portfolio is still likely to be more valuable to Samsung than to BlackBerry, given that Samsung’s smartphone business is over 30x the size of BlackBerry’s.

4) Software And Expertise To Drive Samsung’s Bet On IoT: Samsung is making a big bet on the Internet of things (IoT) space, intending to equip 90% of all its devices with IoT capabilities by 2017. The term Internet of things refers to the idea that everyday products such as home appliances and industrial equipment are connected to the Internet and are able to communicate with one another, while potentially being controlled through a hub. Samsung is an ideal company to drive the adoption of IoT, given that it manufactures everything from home appliances to sensors to embedded processors. However, software and services represent a crucial part of the IoT puzzle, and Samsung has a mixed history of delivering robust software and services. This is a key area where BlackBerry’s technology could come into play. BlackBerry has a tried-and-tested operating system that can power networked devices, in the form of the QNX embedded systems software. QNX is known to power embedded systems in cars, industrial applications, medical devices and other mission-critical applications. BlackBerry also has its roots in the efficient and secure delivery of data, via the messaging and security functions of its secure global network infrastructure. Additionally, the company’s experience in developing operating systems and user interfaces could also prove valuable to Samsung.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Exclusive: Samsung talks to BlackBerry about $7.5 billion buyout – source, Reuters, January 2014 [↩] [↩]