As we get bombarded with a slew of quarterly reports from the likes of NetEase and Tencent about their health in the present, I want to turn my attention to the future with a look at an interesting report on potential Chinese suitors for tumbling smartphone maker BlackBerry. The report that caught my attention mentions PC giant Lenovo and telecoms equipment maker Huawei as two leading candidates to buy BlackBerry, which formally put itself up for sale earlier this week.
While either combination would be intriguing, the former seems the most likely, as the latter might meet with political resistance. But I would advise either of these Chinese companies to do some serious homework before considering a bid for a company that could easily be broken beyond repair.
The logic behind a Lenovo or Huawei bid for BlackBerry is quite straightforward. Both Chinese companies are making a serious push into the smartphone business, and have made huge progress by flooding the market with low-cost models. But in order to survive over the longer term, each company will need to move into the higher end of the market, where brand value becomes much more important and profit margins are much fatter.
That’s where BlackBerry can help. Despite its tumble in the last 2 years, the Canadian smartphone maker still commands a relatively premium image due to its pioneering role as developer of models optimized for email functions. After all, who can forget the pictures of Barack Obama constantly using his BlackBerry during the campaign for his first US presidential election in 2004?
Lenovo has said repeatedly that its main future rivals are Apple and Samsung, two of the most premium brands in smartphones, rather than traditional PC competitors like Hewlett-Packard and Dell. It has even made some fledgling moves to cultivate the higher end of the smartphone space. It is currently developing its Think line of products as a premium brand that could include smartphones. It was also in talks to buy the relatively premium smartphone business of Japan’s NEC, though those talks ultimately fell through.
So the questions become: What is the likelihood of either Huawei or Lenovo bidding for BlackBerry, and what are the chances for success if such a bid does come? Let’s start with Huawei, as the chances of a bid from this company are the least likely and would most probably fail anyway. Huawei historically hasn’t been an acquisitive company, even though its name occasionally comes up in M&A rumors. The firm also doesn’t enjoy a reputation for transparency, even though it is trying hard to change that image. For that reason alone, a bid could face stiff political opposition from the Canadian government.
A Lenovo bid looks much more possible, and I would bet the company is almost 100 percent likely to submit its name to be included in the initial list of possible buyers. Unlike Huawei, Lenovo has been a very acquisitive company, making major purchases in Japan, Germany, and Brazil over the last two years. The company also has a better track record of completing M&A in the politically tough North American market, following its landmark purchase of IBM’s PC assets in 2005.
If Lenovo decides to go ahead with a bid, I would give it a strong chance of success at winning the auction for BlackBerry, perhaps at 80 percent or higher. I don’t particularly think such a deal would be wise for Lenovo, since BlackBerry has many problems that would be hard for Lenovo to fix. But those kinds of problems have never stopped Lenovo before, and I doubt they will stop the company this time in its pursuit of a premium name to boost its image.
Doug Young lives in Shanghai and writes opinion pieces about tech investment in China for Techonomy and at www.youngchinabiz.com. He is the author of a new book about the media in China, “The Party Line: How the Media Dictates Public Opinion in Modern China.”