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Tuesday, September 3, 2013

For BlackBerry, Bad News in the Microsoft-Nokia Marriage

OTTAWA â€" If misery loves company, BlackBerry had a friend in Nokia while both companies were struggling to adapt to a changed mobile phone world.

But Microsoft’s purchase of Nokia’s handset and services business, some analysts said on Monday, may now make it harder for BlackBerry to find its own savior and will only underscore the Canadian company’s fundamental problems.

“BlackBerry always looked small fry,” said Nick Spencer, the senior practice director for ABI Research in London. “Now they look even more small fry. They’re up against three of the biggest companies in the world.”

Once the dominant maker of smartphones, BlackBerry has spent the last couple of years vying with Microsoft’s Windows Phone operating system for third place in a market overwhelmingly dominated by Apple’s iPhones and phones using Google’s Android operating system. The general indifference that greeted a new line of BlackBerrys introduced earlier this year, along with a new, more sophisticated BlackBerry operating system, led the company to say last month that it is “exploring strategic options” including a sale.

Reports, which were never confirmed, said Microsoft had at least kicked BlackBerry’s tires at some point but decided not to bid for the company. But its purchase of Nokia, which had already adopted Windows Phone for its handsets, rules out any slim hope that Microsoft’s wealth and other resources might provide a solution to BlackBerry’s problems.

While Mr. Spencer believes that BlackBerry is most likely to be broken into separate pieces of varying interest to buyers, he said the Microsoft transaction could provide BlackBerry with a new, if slim, hope for salvation. Apple, like BlackBerry, has always designed and controlled both its handsets and operating system. Google acquired Motorola just over a year ago. With the Nokia purchase, Windows Phone is also allied to a hardware brand.

That makes Samsung, which mainly uses Android in its market-leading handsets, the odd man out, Mr. Spencer said. There is, he said, the possibility that it might consider buying BlackBerry “if it also decides end-to-end software and hardware is the way to go.”

But Samsung is already a member of a consortium creating a new platform known as Tizen, and, perhaps as a warning to Google, its executives have suggested that the company has big plans for that operating system.

The exceptional financial strength Microsoft brings to Nokia may also make it more difficult for BlackBerry to go private through a private equity buyout. Several Canadian news media outlets have reported that Fairfax Financial Holdings of Toronto, which is BlackBerry’s largest institutional shareholder, is trying to form a consortium to buy the company. But that might leave BlackBerry in a similar position as Chrysler after it was taken private by a group led by Cerberus Capital. Undercapitalized, Chrysler was forced into bankruptcy and a government bailout after the auto market slumped in 2008.

“The additional resources Microsoft is putting into this business, that might be the bigger problem for BlackBerry,” said Brian Colello, a technology analyst at Morningstar. “This deal has to be considered a negative for BlackBerry.”

Since BlackBerry’s announcement last month, several financial analysts have declared the company’s handset business to be of no value to any potential buyer. But there has been speculation that its wireless security systems, unique global data network and software used by businesses to manage employees’ mobile phones could become viable businesses on their own.

“Microsoft is still fairly weak in device management, especially beyond Windows Phone devices, and the Nokia acquisition doesn’t help much there,” said Jan Dawson, an analyst with Ovum. “So BlackBerry still has an advantage there.”

He did, however, add the major caveat that BlackBerry’s current software is “is still only really good at managing its own devices.”

A major technology shift introduced in the new BlackBerry 10 operating system has also clouded the value of BlackBerry’s network and the distinctiveness of BlackBerry security.

Like Android and Apple’s iOS, the new BlackBerrys rely on ActivSync software licensed from Microsoft to coordinate e-mail and other data with servers and users’ other computers. The consumer versions of the BlackBerry 10 phones no longer use BlackBerry’s special network, making them no more, or no less, secure than competing phones. Corporate customers that license special server software from BlackBerry gain added security and access to that network. But Microsoft has its own security products as well as a large cloud computing network.

BlackBerry declined to comment.