Mobile security

A Good Deal for BlackBerry?

BlackBerry reckons its $425 million takeover of Good Technology will sweeten a business that continues to sour, in the view of many investors. But the all-cash deal, announced at the tail end of last week, seems unlikely to produce the bountiful harvest BlackBerry craves, even if it does help the beleaguered smartphone maker to achieve its target of generating $500 million in software revenues next year.

Based in Silicon Valley, Good Technology Inc. develops mobile security software for enterprise and government customers and has been a thorn in the side of BlackBerry for many years. The two players have previously clashed in the patents arena and BlackBerry was lambasting Good Technology's products as recently as January this year. The harsh words, though, concealed plenty of admiration for Good Technology's expertise.

Besides eliminating a key software rival, the takeover should strengthen BlackBerry's own enterprise mobility management (EMM) platform. Good Technology appears to serve vertical markets where BlackBerry has been comparatively weak, such as the aerospace and defense sectors. Perhaps more importantly, it should also help BlackBerry to cater to emerging Internet of Things (IoT) devices and opportunities, according to Christy Wyatt, Good Technology's CEO.

Want to know more about the Internet of Things? Check out our dedicated IoT content channel here on Light Reading.

All this fits snugly into BlackBerry's strategy of becoming a bigger software company. John Chen, BlackBerry's current CEO, reckons the company's technology stands it in good stead to play a pivotal role in the IoT industry. Seeking to extend and improve BlackBerry's EMM smarts, Chen has already negotiated a string of takeover deals in this space, acquiring companies such as AtHoc, Movirtu Ltd. , SecuSmart and WatchDox. BlackBerry made $235 million from software sales in its 2015 financial year, but Chen wants to see that figure rise to $500 million in 2016. (See Loss-Making BlackBerry Flags Software Gains and Should Samsung Buy BlackBerry?)

The target looks plausible. In the first quarter of its 2016 financial year, BlackBerry made $137 million in revenues from software and technology licensing -- 150% more than in the same quarter of 2015. It does not expect to complete the takeover of Good Technology until late in its third quarter (which runs from October to December) but says the transaction will be "accretive to earnings and cash flow within the first year after closing." It also thinks it will realize about $160 million in revenues from Good Technology in the first year.

Even so, the deal will not be enough to offset the decline in revenues from the hardware and legacy services businesses, according to Michael Genovese, an analyst with MKM Partners. "BlackBerry is trying to shore up its core knitting but on a $3 billion revenue base it isn't likely to move the needle meaningfully," said Genovese in a research note. "Moreover, while the acquisition takes out one competitor, it does little to improve the EMM competitive landscape, which is rife with both private and public companies gunning for share."

Indeed, BlackBerry's devices business continues to flounder. In the April-to-June quarter, hardware revenues fell by 31%, to $263 million, compared with the year-earlier period, while service revenues dropped by 51%, to $252 million. The company's results statement focused heavily on progress in the software market, which Chen described as "key to BlackBerry's future growth." Yet this currently accounts for just a fifth of overall sales.

Chen has insisted that BlackBerry is "taking steps to make the handset business profitable," but it continues to lose out to Apple Inc. (Nasdaq: AAPL) and handset makers using Google (Nasdaq: GOOG)'s Android operating system and its market share has dwindled. Earlier this year, press reports even suggested the company was working on a device that would use Android, rather than its own BB10 operating system. Such a move would represent an embarrassing climbdown.

It would, however, rather neatly tally with the takeover of Good Technology, which boasts "expertise in multi-OS management" as well as a "broad Android and Windows customer base." The goal is to have a unified platform up and running in a year or so as Chen works on moving the EMM technology to a "software subscription model," says Genovese. Small as it may be, BlackBerry's software business is thriving. But without a miracle on the devices side, the company's decline looks set to continue.

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

mendyk 9/8/2015 | 11:50:49 AM
Re: title Apple has done a remarkable marketing job in creating a demand among its users that it make its products obsolete on a regular basis. And as Tim Cook was eager to point out to Jim Cramer, there are lots of new customers for Apple to harvest in emerging economies. All that said, at some point all products reach a saturation point.
brooks7 9/8/2015 | 11:41:17 AM
Re: Money down Blackberry is sitting on about $1B in Net Cash according the latest data I could find.  However an all cash deal is rather interesting from a Sellter's standpoint.  Essentially, it cashes them out of the combined entity so that they have no future risk in ongoing declines in Blackberry stock.



Catherine M 9/8/2015 | 10:42:50 AM
title I hope it is a good deal for BlackBerry. I really miss my old BlackBerry Curve and I'd be truly happy to see more model on the markets nowadays. I've read on this essay website that in two or three years selling of the iPhones will dramatically decrease. What do you think about that?
mendyk 9/8/2015 | 9:59:01 AM
Re: Money down Yes -- I would think BB's credit-worthiness is somewhere south of Greece at this point.
Phil_Britt 9/7/2015 | 6:03:49 PM
Re: Money down Mendyk,

Not sure it would be more surprising if BlackBerry had the cash or if it could find a creditor to advance it the cash. If the company can stay solvent long enough, perhaps it can successfully transition into a data security company and away from its current business.
mendyk 9/7/2015 | 5:12:54 PM
Money down Is anybody else surprised that BlackBerry had $425 million in cash to make this deal happen?
iainmorris 9/7/2015 | 11:40:12 AM
BlackBerry a takeover target Seems unlikely that software revenues will be able to compensate for what BlackBerry is losing on the hardware front. The other question is whether BlackBerry itself becomes a takeover target in future. 
Sign In