BlackBerry Brushes Off Sellout Rumor, Shares Nosedive

As per the latest market buzz, BlackBerry Limited (BBRY) shrugged off the rumor concerning the sale of its entire business to Samsung. This has led to a sharp decline of nearly 19.8% in the company’s stock price to $10.10 in yesterday’s trading session. This is in sharp contrast to a 29.7% rally witnessed by the stock the day before.

BlackBerry’s plummeting smartphone sales coupled with a deteriorating handset market share have raised considerable concern among industry analysts.

In the recently concluded third quarter of 2015, BlackBerry sold 1.9 million smartphones against Samsung and Apple Inc.’s (AAPL) tallies of 73.2 million and 38.2 million, respectively. Unlike Google Inc.’s (GOOG) Android and Apple’s iOS platform, BlackBerry lacks a popular operating system, which has been largely affecting its sales.

Despite the launch of the user-friendly QNX platform, BlackBerry failed to reinvigorate sales. This has led to a shift in strategy at the company, which is currently focusing on its enterprise security business. The popular BlackBerry Enterprise Service 12 (BES12) solution offers flexibility, scalability, high security and cost-effectiveness to customers. In line with its latest plan, the company bought Secusmart, a leader in high-security voice and text encryption, in Dec 2014.

This has helped the Canadian handset manufacturer return to profit after an extended slump. Reflecting this strength, the company surpassed the bottom line of the Zacks Consensus Estimate in the reported quarter.

Meanwhile, the world’s leading smartphone maker, Samsung, is facing the brunt of stiff competition from low-cost Chinese handset manufacturers like Huawei and Lenovo. As per Gartner research, Samsung lost nearly 8% market share in the third quarter of 2014 to reach 24.4%. Moreover, its strong foothold in the Indian and Chinese markets is faced with intense competition from local brands like Micromax, Oppo and Xiaomi.

As a result, Samsung has seen a persistent drop in operating profits for the last four quarters and apprehends a further 37% year-over-year fall in the approaching fourth quarter.

Most importantly, Blackberry has a very powerful patent portfolio consisting of about 44,000 patents worldwide in the areas of data security and basic wireless technologies. The company’s prime intellectual properties such as predictive typing on a keyboard or setting up meeting schedules are highly recognized intangible assets for a mobile handset developer.

Thus, acquiring BlackBerry would help Samsung make a turnaround in its finances and counter competition faced in emerging nations. Moreover, BlackBerry’s partnership with Indonesian electronic components manufacturer, Foxconn, makes BlackBerry an attractive acquisition target for companies eyeing the emerging markets in Southeast Asia.

In addition, BlackBerry is actively targeting the developing economies of China and India. The company expects its enterprise service business to witness strong growth in these countries owing to the high demand for efficient communication system security in the corporate sector. Thus, acquisition of the Canadian device maker may help Samsung strengthen its position in these nations.

Despite such rumors, there is always a possibility of a merger in the near future as collaboration is likely to be a strategic fit for both the companies.

BlackBerry currently has a Zacks Rank #2 (Buy). Another stock related to the same sector include Aruba Networks, Inc. (ARUN) which sports a Zacks Rank #1 (Strong Buy).