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Here’s Why A BlackBerry Partnership In China Can’t Possibly Work – Seeking Alpha (registration)

Summary

  • BlackBerry phones with BlackBerry Enterprise Server are one of the world’s most secure end-to-end mobile communications systems.
  • John Chen is interested in partnerships to expand in China and has met with the heads of Xiaomi and Lenovo.
  • Many of Google’s applications and services are blacked out in China following the government’s Internet Crackdown.

BlackBerry (NASDAQ:BBRY) smartphones have long been recognized as one of the most secure consumer-oriented smartphones in the world. Modified versions often make their way into government and the military.

This week, BlackBerry CEO John Chen spoke candidly about meetings with the heads of Xiaomi and Lenovo (OTCPK:LNVGF) while attending the Asia-Pacific Economic Cooperation CEO Summit:

It does seem that a more efficient way is to have a good partner (in China) … It’s a huge market but it’s a very highly competitive market too … What I’m doing is to explore what is the right approach to the market given what we do well and I’m not shutting any doors.

It would indeed be welcome news to BlackBerry shareholders if the company could meaningfully enter China, the world’s largest smartphone market, with roughly 400 million smartphone and 600 million feature phone users. The potential is enormous. However …

Censorship and robust security don’t mix.

One of the stumbling blocks for BlackBerry’s successful move into China isn’t the competition, it’s the Chinese government.

China recently clamped down on Google (NASDAQ:GOOG) (NASDAQ:GOOGL) blocking “every single Google service … in China in early June in the run-up to 25th anniversary of the 1989 Tiananmen Square incident.”

Why is this important to BlackBerry? It is a widely held opinion that these blockages are related to Google’s decision to begin encrypting users’ searches and results early this year. China’s response? To block access to Google websites.

And the pain is not only Google’s; it’s widespread. According to a September report in The New York Times:

Two popular messaging services owned by South Korean companies, Line and Kakao Talk, were abruptly blocked this summer, as were other applications like Didi, Talk Box and Vower. American giants like Twitter (NYSE:TWTR) and Facebook (NASDAQ:FB) have long been censored by China’s Great Firewall, a system of filters the government has spent lavishly on to control Internet traffic in and out of the country.

The Chinese BlackBerry dichotomy

How will a BlackBerry with state-of-the-art security function in China where censorship trumps just about everything? And what could John Chen possibly license to Lenovo and Xiaomi for meaningful revenue if it’s not security?

I have a tough time believing the Chinese government will allow secure BlackBerry smartphones and BlackBerry’s secure mobile device management for enterprise to function in any way similar to how they function today in the U.S. and the rest of the world.

What possible marketing campaign could Lenovo and Xiaomi craft for a phone that remains entirely transparent to the Chinese government?

Conclusion

I see little if any value in a Chinese BlackBerry partnership since the company’s whole value proposition is security. It would be different if BlackBerry had one million native apps and an army of developers working for the platform. If this were the case, I could see Lenovo and others licensing BB10 for that value alone. But this is not the reality.

I rate BBRY a sell at these $11.00 levels until we have a clearer picture of Passport sales and BES uptake. BlackBerry is a speculative play in any case.

Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Disclosure: The author is short BBRY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More…)

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