BlackBerry (NYSE:BB) stock recently jumped on rumors that Apple (NASDAQ:AAPL) might buy the fallen smartphone maker. But this isn't the first time BlackBerry shares have moved on buyout buzz -- earlier this year, reports claimed Samsung (NASDAQOTH:SSNLF) was interested in buying the company for $7.5 billion.
However, investors shouldn't buy shares of BlackBerry expecting these rumors to bear fruit. Let's discuss why these new reports are likely baseless, and why it doesn't make much sense for Apple, Samsung, or other tech giants to buy BlackBerry.
Rumors based on rumors
The reports about Apple buying BlackBerry all point to a single blog post by Zacks Equity Research. which simply cited other "rumors."
This sounds similar to the Samsung buyout rumor that drove BlackBerry stock up by 30% on Jan. 14. Both Samsung and BlackBerry denied those reports, but someone likely made a big profit on that rumor. In February, the SEC reported that a big spike in BlackBerry call options trading occurred a few hours before Reuters reported that Samsung was in talks to acquire the company. CNBC estimated the buyer could have made a $490,000 profit on a $20,000 investment if the options were sold immediately after the spike.
Reuters later corrected its article with statements from executives at both companies, but the incident shows how vulnerable distressed stocks such as BlackBerry are to takeover rumors.
Why would anyone want to buy BlackBerry?
Both the Apple and Samsung rumors claim BlackBerry could be bought for its presence in the enterprise market. Unfortunately, today's BlackBerry is a shadow of its former self in that market.
The relaxation of bring your own device, or BYOD, rules over the past few years means more employees can use their personal devices at work instead of company-issued BlackBerrys. That's bad news for BlackBerry, which finished 2014 with just 0.4% of the global smartphone market, according to IDC.
By comparison, Google Android controlled 76.6% of that market, Apple iOS devices accounted for 19.7%, and Microsoft's Windows Phones claimed 2.8%.
In response to that shift, BlackBerry expanded BlackBerry Enterprise Service, or BES -- its control panel for monitoring employee devices -- to Android, iOS, and Windows Phone devices. That move made BES a leader in the fledgling mobile device management, or MDM, market, which research firm MarketsandMarkets forecasts will grow from $1.01 billion in 2013 to $3.94 billion by 2019. Based on the growth of BES, BlackBerry Messenger, and its embedded OS QNX, BlackBerry expects to more than double its annual software revenue to $600 million in fiscal 2016.
The software segment represents a green shoot for BlackBerry, but it only accounted for 7% of its revenue in fiscal 2015. Meanwhile, its core hardware and services businesses are still falling apart. Last year, hardware revenue plunged 62% annually as services revenue fell 40%. On the bright side, aggressive cost-cutting measures narrowed BlackBerry's net loss from $5.9 billion in 2014 to $304 million in 2015.
Why no one needs BlackBerry
A recent report from Good Technology found that iOS devices accounted for 72% of enterprise device activations in the first quarter of 2015, compared to 26% for Android and 1% for Windows Phone.
The study doesn't include BlackBerry figures, but those new activations highlight how popular iOS and Android devices have become among the BYOD crowd. That's why Google recently introduced split profiles in Android, which "containerize" personal and work profiles for secure BYOD use.
BlackBerry remains a top choice among government employees, thanks to its robust security features. But in 2013, the U.S. Department of Defense granted security clearance for the iPhone, iPad, and Samsung KNOX devices for nonclassified communications.
BlackBerrys are approved for classified communications as well, but Apple and Samsung's expansion into high-security sectors can't be ignored. Apple also partnered with IBM to sell iOS devices preloaded with Big Blue's cloud-based enterprise apps, which undermines the need for dedicated MDM solutions such as BlackBerry's BES.
Some investors believe BlackBerry's portfolio of over 44,000 patents holds value for potential suitors. Yet Apple's prior acquisitions, such as Siri, have been more about adding new tech to its ecosystem than about claiming more patents. Since Apple and Samsung have dropped all patent lawsuits against each other outside the United States, there's also less pressure for both companies to claim more patents.
The key takeaway
I'm not saying BlackBerry will never be bought out. However, it doesn't make strategic sense for Apple, Samsung, Google, or other tech giants to buy BlackBerry when their products and services are already eroding its presence in the enterprise market.