Blackberry designs, manufactures and markets wireless solutions for the worldwide mobile communications market. The company supports multiple wireless network standards by developing integrated hardware, software and services. RIM provides platforms and solutions for seamless accessing information, including e-mail, voice, instant messaging, short message service (SMS), internet and intranet-based applications and browsing. Founded in 1984 by Mr. Michael Lazaridis and Mr. Douglas Fregin, the firm has grown from a small company to a multinational firm in rapid decline. The company recorded revenues of $11,073 million during the fiscal year ended March 2013 (FY2013), a decrease of 39.9% compared to FY2012. The revenues decreased primarily due to lower shipment volumes and lower average selling prices of hardware products. The operating loss of the company was $1,235 million during FY2013 compared to an operating profit of $1,497 million in FY2012. The net loss was $646 million in FY2013 compared to a net profit of $1,164 million in FY2012. In August 2013, CEO Thorsen Heins stated that the board of directors agreed to put Blackberry up for sale. On September, it reached a preliminary deal with one of its biggest shareholders to take the company private for about $4.7 billion. Fairfax Financial Holdings Ltd, a Canadian insurance firm, signed a letter of intent with the BlackBerry board under which it could pay $9 a share in cash for the 90% of BlackBerry shares it doesn't already own. The hastily arranged deal came after BlackBerry announced it had nearly $1 billion in unsold phones and would slash 40% of its workforce. The stock plunged 17% that day to below $9. But the deal is far from complete. It is subject to six weeks of due diligence, and BlackBerry can shop the company during that period. Fairfax would still have to arrange financing. The agreement also doesn't compel Fairfax to ultimately come forward with a firm offer, underscoring the weak negotiating position BlackBerry finds itself in. BlackBerry, on the other hand, would have to pay a breakup fee of more than $150 million if it turns to another buyer by Nov. 4. We recommend not investing in BlackBerry because all of its value is reflected in the stock price and the company has no more room for growth.
Key Value and Risk Drivers
Before making an investment decision we need to identify the key drivers of value and risk for the smartphone industry as well as BlackBerry as a company.
When conducting the industry analysis we would use resources like IBIS world reports and similar market analysis firms. Included in this analysis would be a study of the historical financial performance of firms in this industry as well as future projected growth for the industry. We would also examine the regulatory environment for this industry. If a more stringent regulatory environment is on the horizon for the industry then that may give pause to the investment; conversely, if the industry is on the precipice of de-regulation that could provide additional incentives to invest. Another area to examine is if there are special tax provisions for this industry in the U.S. code. Policy makers continue to debate long term tax reform and, before making a final investment decision, it would be critical to know if certain tax incentives for research and development in this industry are likely to be removed from the code.
Another option for company level due diligence is to perform and Strength, Weakness, Opportunities, Threats (SWOT) analysis like the one below from MarketLine (with a few added pieces by our team):
BlackBerry Inc. SWOT analysis:
Strength: Enterprise niche provides a favorable competitive environment. Strong product design, engineering and R&D capabilities. Well established cell phone brand and cellular solution company. Extensive expertise in the wireless market space. •Over the years Blackberry has built up...