When I came back home to Lebanon for Christmas vacation in 2009, I was amazed by how popular Blackberry was in my little country especially among kids and teens, the most unlikely customer base for the most popular business phone. 8 months earlier when I first left, the smart phone was virtually non-existent in our market. I returned back to the USA after the holidays just in time to witness Blackberry’s downward spiral in Northern America while at the same time their global market share peaked. Blackberry’s 5 minutes of fame was short lived and what was once an owner of 43% of the US mobile phone market is now struggling to sell a few million devices with studies showing that they now barely control a little of 3% market share. Imagine yourself skydiving and for some reason the parachute doesn’t open; this is how fast Blackberry went down. Attributing this decline to the I-phone is not accurate or nowhere near the truth because in 2010, apple’s iconic product had already been there for 3 years and it was struggling for taking the scraps of blackberry.
Of course the ailing giant is now an easy target for interested investors but for some reason it is not really attractive. Those who seriously considered making a bid can be counted on one hand; a main reason behind that is the Canadian’s Government intervention and their close eye on all possible candidates. The reasons are obvious; it is still the device of choice for all Canadian and US governments and for most North American companies which raises lots of flags related to safety, security and confidentiality. One of the biggest candidates – Microsoft – is out of the game after they purchased the Finnish Panda Nokia. I called Nokia a Panda because just like the Pandas, they were on the brink of extinction due to continuous failures in delivering competitive new products and losing market share so fast and they still are not officially saved. Of those candidates, 2 names stand out: Fairfax Financial Holdings and the Chinese computer company Lenovo. Not surprising at all is that the Canadian government favors Fairfax because it is a Canadian company first and second because they have bitter memories from when the Chinese targeted another Canadian giant – Nortel – and tore it down until it filed for bankruptcy in 2009.
Yet, the wise decision would be to allow such a transaction to happen if the Canadians are serious about saving the company. Unlike the late 90’s and early 2000s when Chinese companies were merely copycats (remember the fake nokia, sunny and many others?); Chinese companies have recently proved that they are hungry to develop themselves, differentiate their products and invest more in R&D to become more creative and the best part of it all is that they have tons of cash and/or access to massive funds when needed.
Lenovo specifically is a great example because what was formed originally by the Chinese government to organize the selling of imported computers in the Chinese market evolved into a giant that ended up purchasing IBM’s personal computer division with all the benefits and privileges that came with such a purchase. 8 years after the purchase, Lenovo has not destroyed IBM’s Think Pad as some skeptics might think; instead Lenovo prides itself with owning the best business laptop currently in the market. And this is exactly why the purchase makes perfect sense. Ever since rolling out its first smart phone with push email service on it in 2000, Blackberry enforced its image as the provider of the cell phone with the best business solutions and strongly capitalized on this image. It was a regular phone with all the other features that cell phones at the time had including games (remember the long hours you spent playing brick breaker and almost breaking the phone whenever you missed a ball?). To make a long story short: the business pc maker will be marrying the business cell phone maker, a happily ever after story?
One of the reasons behind blackberry’s demise is their failure to acquire big market shares in the big and growing Chinese market, whether it was because of a weak marketing network or in failure to appeal to the young Chinese consumers, Lenovo can circumvent that with its strong marketing network and its privileged position that it currently enjoys. It can increase brand awareness in China and it definitely has more access to a wider sales network.
In 2009, President Obama imposed a 35% tariff on Chinese tires imported to USA, the direct reason was to implement a safeguard provision to protect US manufacturers that were under the threat of losing their jobs. Of course the real reason is very different from that and it has to do with the silent economic war going on between the 2 countries; those same reasons banned a Chinese company from buying Hummer from troubled GM in 2009 and banned Huawei and ZTE from competing for US government contracts. By purchasing Blackberry, Lenovo will be able to avoid any possible embargo and enjoy better access than its Chinese counterparts to the North American market.
It is true that Lenovo does currently have a mobile device unit, but how many of you have actually heard of it? What is its market share? And what are its sales numbers? If Lenovo wants to be successful in that division and obviously this is where the future is now, they need to differentiate themselves and have a unique product. With its unique features and massive amount of patents, Blackberry can be Lenovo’s answer. Sure they can use android OS just like Samsung, LG, ZTE, Huawei, Sony, and Motorola….. Should I go on?
A few days ago, Blackberry announced that it has scrapped its plans to sell itself and instead they have resorted to re-financing themselves and try to save the company on their own through a cash flow offered by Fairfax. But despite that had they gone forward with their selling plan, most probably the Canadian government would have interfered to stop the sale to Lenovo because of their tight relationship with the Chinese Government. But for once, this would have been a purchase that would have actually made sense and would have worked – Anyone following Volvo’s news recently?