The man billed as Canada's answer to Warren Buffet is preparing to take a gamble on technology industry basket case
BlackBerry is changing fast: not so long ago, it was a go-go smartphone firm with two bosses and two private jets. Now, following the collapse in sales, there is just one boss and this week it emerged that his (new and bigger) jet will soon be sold. Further down the food chain, however, the changes have been more painful. Come next summer, the firm will employ 9,500 fewer full-time staff than it did in 2012.
But by then, Canada's biggest technology group may no longer exist in its current form. Prem Watsa, the hedge fund boss with an appetite for distressed assets, is ready to spend $4.7bn taking BlackBerry private. The man billed as Canada's answer to Warren Buffet is preparing to take a gamble on the technology industry's biggest basket case.
Opinion is divided on whether Watsa's hedge fund and insurance group, Fairfax, will actually succeed in raising the required funds. But if BlackBerry is privately acquired, there are those who believe the time has come for it to stop making its email phones completely, and focus instead on less competitive fields.
"It is very difficult to see how BlackBerry's devices business is sustainable in the long term," says Ben Wood, chief of research at CCS Insight. "A BlackBerry is a phenomenal phone for email but the world has moved around them."
In the last quarter, it has been marketing improved phones. But it has been aiming at a largely uninterested public and the effort put a $500m dent in BlackBerry's kitty. It now has cash reserves of just $2.6bn to see it through the tough times ahead, which at the current rate of spending will not last long.
"We estimate that without another major round of layoffs, BlackBerry may run out of cash in 12 to 24 months," Mark Sue, an analyst at RBC Capital Markets, predicted. He warned up to 3,000 more jobs may need to go "to right-size the organisation".
If Watsa's offer materialises, investors are being urged to accept it. "It's still a long shot that new owners can turn the company around," said Kris Thompson at National Bank in Montreal. "Shareholders should take the money and run."
Apple and Samsung are too far ahead. Nokia is bailing, selling its phones arm to Microsoft. Sony is still trying, with some success, to kindle interest in its handsets. But these are all multinationals whose activities range from making fridges and televisions (Samsung) to Hollywood studios (Sony), to one of the biggest digital shopfronts for music and TV series (Apple's iTunes).
Like the troubled Taiwanese specialist HTC, BlackBerry no longer has the cash needed to give it a fighting chance in the smartphone world war. But if it pulls out, there are at least three other ways it could generate value.
The most achievable, if least exciting, would be selling and managing secure mobile phone servers to companies and government agencies. The new generation of BB10 servers can be used to send encrypted emails, over BlackBerry's own secure network, to a whole range of phones including Apple and Android devices. In a world where many people now use their personal phones for work, these servers solve a headache.
Microsoft is pushing into this space, and IBM, alongside smaller groups like Citrix, but BlackBerry has a head start. It claims 90% of America's top 500 companies already use its technology, and 25,000 customers are currently on its new generation enterprise servers.
Watsa has not set out his plans in detail, but on Monday night he indicated the firm's future lay with business customers, saying the focus would be "on delivering superior and secure enterprise solutions to BlackBerry customers around the world."
If Fairfax decides to close the handset business, it could afford to auction much of BlackBerry's intellectual property, most recently valued in company accounts at $3.4bn. The true worth is disputed, with Bernstein Research putting the total at between $800m and $1.5bn, with a discount for redundant 2G technologies.
But there is value in the inventions of BlackBerry's founder, Mike Lazaridis, and the portfolio was boosted in 2011 when BlackBerry joined a consortium to buy up patents once owned by telecoms equipment firm Nortel. It spent $775m picking the bones of the last big Canadian technology group to fall on hard times.
Then there is BlackBerry's Messenger service, to which an estimated 60 million active users devote an average of 90 minutes a day. Their numbers may be thinning, but those who remain make full use of the grapevine that was once so dominant that politicians blamed it for sparking the London riots. BBM carries 10 billion messages each day.
WhatsApp, which offers a similar free service via a smartphone application, has 300m active users, and is considered a likely candidate for an Instagram-style billion dollar takeover. BBM could be worth a similar sum if spun off to shareholders or sold.
"This is a break up story," says Benedict Evans, mobile expert at Enders Analysis. "There is nothing a new owner is going to do to make people start buying BB10 devices in enough volume to be viable. They should have built on top of Android two years ago."
BB10 was in fact built on QNX, software produced by a company BlackBerry acquired for the purpose. Some say its future lies with QNX. The technology is already used in cars, medical machinery and even military drones and air traffic control towers. BlackBerry may no longer be able to afford the company jet, and its future in mobile phones hangs in the balance, but it could live on in the skies.
• This article was amended on Wednesday 25 September 2013 to make it clear that HTC is Taiwanese not South Korean.
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