Samsung (NASDAQOTH:SSNLF) might be interested in acquiring BlackBerry (NYSE:BB), according to a recent Reuters report. The rumored offer, worth up to $7.5 billion, could represent a premium of up to 47% over BlackBerry's closing price of $10.56 on Jan. 28.
BlackBerry has denied receiving an offer from Samsung. Moreover, Globe and Mail claims that BlackBerry rejected several comparable offers in recent months, but that its board and largest investor believe that its restructuring strategy offers better shareholder value than buyout offers.
Within all of this speculation, there are three possible reasons for Samsung to buy BlackBerry. First, BlackBerry's patents could strengthen Samsung's defenses against Apple (NASDAQ:AAPL) and other rivals. Second, Samsung needs to diversify away from the Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android market, which has been flooded by cheaper Chinese competitors like Xiaomi. Acquiring BlackBerry's OS could also complement its own fledgling OS, Tizen. Lastly, Samsung could piggyback off of BlackBerry's reputation to expand into the enterprise market.
While those reasons all make strategic sense, I believe that Samsung won't buy BlackBerry for three simple reasons.
1. Lack of market share growth
One of Samsung's biggest problems is its loss of market share. IDC reports that between the third quarters of 2013 and 2014, Samsung's market share dropped from 32% to 24%. Last June, Samsung's new flagship S5 failed to outsell the older iPhone 5c and 5s, while other high-end device launches were overshadowed by the arrival of the iPhone 6 and 6 Plus. Last August, Xiaomi toppled Samsung as China's top smartphone maker.
Meanwhile, IDC expects BlackBerry's global market share to slide from 0.8% in 2014 to 0.3% in 2018. Therefore, acquiring BlackBerry won't help Samsung gain any meaningful market share at all.
By comparison, Samsung's rumored plans to launch new Microsoft (NASDAQ:MSFT) Windows Phones makes a lot more sense. IDC and Gartner respectively predict that Windows Phones will account for 6.8% and 10% of the smartphone market by 2018, up from 2.7% in 2014. Returning to that market would be a much simpler and cheaper way to grow its market share beyond Android.
2. No pillars of growth
Last quarter, 46% of BlackBerry's revenue came from hardware, 46% came from services, and 7% came from software. During that quarter, hardware, services, and software revenue respectively declined 24%, 42%, and 4% year over year.
Hardware and services were expected to decline, but CEO John Chen previously declared that BlackBerry could double its software revenue from $250 million at the end of fiscal 2015 to $500 million at the end of fiscal 2016. But during the first nine months of fiscal 2015, BlackBerry's software revenue fell nearly 7% year over year to $167 million.
Chen claims that three things -- BlackBerry Messenger (BBM), BlackBerry Enterprise Service (BES), and QNX -- will reverse those losses. Unfortunately, there are big problems with that plan. Monetizing BBM with News Feed ads, sponsored channels, and paid stickers remains a murky long shot. Recent growth in BES mainly comes from granting free trial licenses to businesses instead of paid user growth. QNX is the dominant embedded OS for connected cars, but BlackBerry reportedly receives a pittance (which IHS estimates at $3) per vehicle sold.
Therefore, acquiring BlackBerry simply doesn't add any "pillars of growth" to Samsung's struggling mobile business.
3. Samsung already has KNOX
BlackBerry won't significantly improve Samsung's reputation for security among enterprise customers, because the two companies already teamed up last November to beef up Android security. That partnership will add BES 12's end-to-end encryption to Samsung's own mobile secure work-space platform, KNOX, this year.
KNOX has been gaining traction in enterprise as an alternative to BB10. Even the U.S. Department of Defense approved KNOX devices for use on unclassified networks last June. KNOX was previously restricted to a handful of Samsung's flagship devices, but Google integrated some of KNOX's security features into Android 5.0 last year, indicating that new Android devices could be more widely accepted for enterprise use.
Since Samsung already has existing KNOX partnerships with BlackBerry and Google, acquiring BlackBerry just to gain its "enterprise-grade" security doesn't make much sense.
Better companies to buy
There are plenty of better companies Samsung can buy for less than $7.5 billion.
Acquiring Nuance Communications, which has a market value of $4.5 billion, would give Samsung a firm foothold in voice recognition software. Buying Box, which recently went public with a market value of $2.6 billion, could help Samsung expand into cloud storage without relying on Dropbox as the default app on select devices. Samsung could even make a bid for rival HTC, which only has a market cap of $4.3 billion. With so many better deals on the market, I seriously doubt that BlackBerry tops Samsung's shopping list.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Nuance Communications. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Microsoft, and Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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