BB - BlackBerry

[mcliu]

I think you should look at the BBRY investment with respect to equity and not just the investment portfolio. I mean if this thing goes to $0, it will have a huge impact on book value given the inherent leverage.

 

That said, I think the path is probably somewhere between a turnaround and a liquidation. There's probably value (?) that you can strip from the company if you manage it as a declining business while extracting whatever cash flows you can. BBRY is a tough one, but PW has a pretty good record of catching falling knives.

[Guest wellmont]

Looking at Chen's history with Sybase leads me to wonder if there is some notion afoot to re-position BBRY by  making some sort of acquisition. That might explain why they are raising $1 billion. Is that a crazy idea?

 

if you ask me yes. :) umm why did you change the subject?  :-\

[rjstc]

Gio, Of his stock investments it represented I believe 22% or so of his portfolio as of June 2013. What happened to his Due Diligence?

 

...and where the entire stock portfolio, of which BBRY makes up 22%, is only 1/10th of the entire assets.  So BBRY makes up 2.2% of all assets! 

 

Yes, this was a mess!  Yes, I still don't know why they don't allocate such sums to other great businesses!  But c'mon guys, stop over-reacting.  Cheers!

 

Parsad; This is what I posted earlier

 

 

"I was being facetious. Sometimes when someone becomes mentally entrenched in their thinking. Especially after having past success they become very stubborn. I'm sure PM will at some point start doing well again. But it's very frustrating for investors in the meantime. I have no position in FFH or BBRY."

 

As I said I have no position in FFH or BBRY. So I don't think I'm overreacting. I think :o I know of the totality of FFH, the stock investing portion is miniscule. But I can see where investors could expect for a better outcome for even that small portion of the investment pie. If it's a random mistake which it probably is and in the long run is not repeated then as I said FFH will do fine. Even Buffett hasn't had a perfect record. He admits it openly and quickly. I'm just wondering if PM isn't being a little stubborn on this.

  A bit of advice I was once given is "Don't do something you wouldn't want to see printed on the front page of a newspaper". As you said, "This is a bit of a mess".

 

 

[rpadebet]

They are now selling a 6 quarter turnaround story. There is nothing which inspires confidence that they will be able to pull it off. This was always a breakup and sell parts play for me and it looks like the board and managment is too emotionally/patriotically invested to allow that to happen. Unless the latest move is another "bluff" to get the bidders waiting for the fire sale price to come out and bid, I dont see a point really in hoping for a turnaround*

 

BBRY's only strength was the govt and businesss consumers who were slow to move and were dependent on BBRY devices to function. It is more likely that in the next 6 quarters even these slow moving consumers will find a way to transition away. That is a far more likely outcome than the "turnaround" being sold now. As they lose these entrenched consumers their valuation becomes less and less.

 

I was wrong in assuming that PW et al would find a way to auction off parts and I have no problem now admitting my mistake in judgement.(valueinv can rub it in all he wants!!  :) ) Losses are not that big in the grand scheme of things, thanks to the 8ish purchase price, but they are losses nevertheless and they did hurt. I will now have to find my way out of this soon.

 

* I could be wrong again and this could turn around like another Apple, but that would be complete speculation at this point.

[Guest wellmont]

if they actually believe they can turn this around in 6 quarters, $2b of cash would have been plenty with no debt. yet they raised $1b with the potential to dilute the equity 16% if it gets over $10. follow what they do not what they say. I am just going by what you guys post. because I don't Read their press releases and I won't listen when their mouths are moving on TV.

[rjstc]

Ron,

That's exactly what I mean!

Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand.

 

giofranchi

 

Gio; I am sure that in the long run you will do well with this investment. Right now I am just more comfortable with some other ones that others might not be. LRE.L; LUK; EXOR.M; BDVSY; BAC; MKL; BOL.P; & AIT Corp.Tokyo. All long

[Guest valueInv]

Ron,

That's exactly what I mean!

Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand.

 

giofranchi

 

Because they're on track to make the same error three times.

[txlaw]

Looking at Chen's history with Sybase leads me to wonder if there is some notion afoot to re-position BBRY by  making some sort of acquisition. That might explain why they are raising $1 billion. Is that a crazy idea?

 

I doubt they would be raising cash to make some big $1 billion acquisition.  If they are planning on using that cash for investment, it would be expensed via R&D or spent on capex and intangibles.

[txlaw]

http://www.theglobeandmail.com/report-on-business/watsa-high-debt-deal-not-right-for-blackberry/article15242905/

 

Now, finally we get some commentary from the guys themselves.

 

“We looked at it and said, ‘Hey, a high-debt situation was not appropriate,’” he said in an interview with the Globe and Mail, adding that insight was gleaned by his advisers during a due diligence that began after the company tabled a conditional offer in late September.

 

Hmm, okay.  The notion that it took some due diligence to figure out that putting debt on the books in order to effect a turn around at BBRY would be a bad idea is . . . well, let's just say that that doesn't appear to be great advisory work.  I could understand putting debt on the books as a bridge to breaking BBRY up.  But putting debt on for a long term turnaround?  At a company like BBRY?

 

Not sure I believe that this was the main reason why the deal was abandoned.  I get that there is a need to regain some credibility because of the public statements regarding obtaining financing, but unfortunately, this doesn't ring true to me.  Or perhaps FFH just doesn't want to acknowledge that they were considering breaking the company up.

 

Mr. Watsa revealed his financing plan is intended to offset a “cash burn” that is expected to last for the next four to six quarters, depleting the company’s $2.6-billion in cash and investments as of Aug. 31, and acknowledged the uncertainty stemming from the sale process had hurt the company’s business.

 

Okay, based on the talk about cash burn lasting 4 to 6 quarter, it seems that possibility 3 -- that there will be some "shocking" cash burn this next quarter -- is unlikely.  PW also acknowledged that the way the sale process went down was not good for the biz, which is good.

 

In a brief interview, Mr. Chen said BlackBerry had “different buckets of good assets,” including its business serving corporate and government customers, its secure network, its patent portfolio, BlackBerry Messenger instant messaging service and software developed by its QNX division that enables machines to communicate with each other wirelessly, such as systems in automobiles that can interact with dealerships. “We have all the ingredients to become the leader in that embedded machine-to-machine space,” he said. “I figure with our focus and [by thinking] long term, do the right thing today, a step at a time, I think we’re going to build tremendous value for shareholders.”

 

This I find very interesting because it means that Mr. Chen and I are on the same page in terms of the value of BBRY's technology with regards to M2M and IoT. 

 

I just wish they had put this guy in here months ago.

[Parsad]

In a brief interview, Mr. Chen said BlackBerry had “different buckets of good assets,” including its business serving corporate and government customers, its secure network, its patent portfolio, BlackBerry Messenger instant messaging service and software developed by its QNX division that enables machines to communicate with each other wirelessly, such as systems in automobiles that can interact with dealerships. “We have all the ingredients to become the leader in that embedded machine-to-machine space,” he said. “I figure with our focus and [by thinking] long term, do the right thing today, a step at a time, I think we’re going to build tremendous value for shareholders.”

 

Blackberry is changing its name to Cyberdyne Systems as well.  Now we all know what is going to happen next...Skynet!  :o  Cheers!

[wknecht]

Ron,

That's exactly what I mean!

Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand.

 

giofranchi

How much time do you think Prem and others at Fairfax have spent on Blackberry?

 

I don't know, but I would roughly guess "quite a bit". And probably not just him. So I would think it's not just another "1.9% position" to them.

[ageofsocrates]

just my 2 cents. Spent a fair bit on time studying Android and IOS systems. I think BB has alot of potential as a software company (not a manufacturer of mobile devices). Their patents are alone worth their current share price (so it's v little downside). it has tremendous franchise value for corporates looking for a more secure mobile channel. Android is tied to Google which leaves a lot of companies  skirmish. IOS is not compatible in most corporate environments which are primarily running on Windows OS.

 

 

[T-bone1]

In a brief interview, Mr. Chen said BlackBerry had “different buckets of good assets,” including its business serving corporate and government customers, its secure network, its patent portfolio, BlackBerry Messenger instant messaging service and software developed by its QNX division that enables machines to communicate with each other wirelessly, such as systems in automobiles that can interact with dealerships. “We have all the ingredients to become the leader in that embedded machine-to-machine space,” he said. “I figure with our focus and [by thinking] long term, do the right thing today, a step at a time, I think we’re going to build tremendous value for shareholders.”

 

Blackberry is changing its name to Cyberdyne Systems as well.  Now we all know what is going to happen next...Skynet!  :o  Cheers!

 

+1

[cogitator99]

Seems like a disaster. Declining tech companies don't seem to be great areas for value investors to ply their trade, especially on the hardware side. DELL is another example. (Let's not get started about retail...)

 

Even if BBRY is a full bankruptcy, it won't be a massive hit to FFH's book value. And BBRY has raised cash and is taking steps to mitigate its burn. FFH still has an investment team with a great long-term track record which will create value over time. They will get over this; it's far from fatal. 

 

What probably takes a hit is PW's reputation because of all the confident statements he made at the outset. I think he made the best decision he could under the circumstances though.   

[Guest wellmont]

Note I did not say epic cash burn next quarter. I said QuarterS. And their own quote seems to be validating exactly what I said: that the reason they raised the money was to mitigate expected cash burn. So that statement validates point 3, not negates it. But then again we've always kind of differed on how we see this company, haven't we?

 

The money they just raised is to replace burned cash; not for new investment. And if they expect cash burn for 6 more quarters (they are always optimistic), this is no 6 quarter turn around. If they are admitting to 6 quarters of cash burn, this is going to be an epic disaster. You can't turn around a tech company like that. if they ever get it to break even it will be a zombie. I've seen the movie over and over.

 

 

[alertmeipp]

BBRY is selling below liquidation value.

So are most of us expecting all the money BBRY is going to put next couple years is going to get negative ROI? Even under the new management?

 

 

[Palantir]

Scott Forstall may be looking for a job....

[Guest valueInv]

just my 2 cents. Spent a fair bit on time studying Android and IOS systems. I think BB has alot of potential as a software company (not a manufacturer of mobile devices). Their patents are alone worth their current share price (so it's v little downside). it has tremendous franchise value for corporates looking for a more secure mobile channel. Android is tied to Google which leaves a lot of companies  skirmish. IOS is not compatible in most corporate environments which are primarily running on Windows OS.

http://www.apple.com/ios/business/

[giofranchi]

Ron,

That's exactly what I mean!

Despite BBRY, FFH's equity investments were up 6% in Q3 2013, better than the 5% achieved by the S&P500... I am not saying they didn't make mistakes with BBRY... I am only saying, who cares?! They have made many other errors in the past, they will make many more errors in the future! Why everyone is so obsessed with BBRY?! I cannot understand.

 

giofranchi

 

Because they're on track to make the same error three times.

 

Could you please explain what you mean?

If you mean they will invest more capital in BBRY equity, I don't think it is likely: if they haven't done so yesterday, they most probably won't do it in the future.

If you mean they are making other bad investments a là BBRY, well that's exactly my point: once again, they have made a lot of bad investments in the past, they will do more in the future. I simply don't understand all the fuss about BBRY...

 

giofranchi

 

 

 

[giofranchi]

Sorry kumar… I know my English is bad… So, please, just have some patience with me… What I meant is that I wouldn’t be surprised if many other investments in the past hadn’t worked out well, exactly like BBRY has not worked out well… When you employ a basket approach to investing in equities, I guess that’s just the rule of the game: some investments go to zero, some others go nowhere, a few skyrocket… Am I wrong? :)

 

Just curious: are you selling FFH short?

 

giofranchi

 

[Alekbaylee]

Beijing-based computer manufacturer Lenovo Group Ltd. actively considered a bid for BlackBerry Ltd., but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.

 

Ottawa made it clear in high-level discussions with BlackBerry that it would not approve a Chinese company buying a company deeply tied into Canada’s telecom infrastructure, sources said. The government made its position known over the last one to two months. Because Ottawa made it clear such a transaction would not fly, it never formally received a proposal from BlackBerry that envisioned Lenovo acquiring a stake, sources said.

 

http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/lenovo-considered-a-bid-for-blackberry-but-ottawa-wouldnt-accept-chinese-takeover/article15256976/?cmpid=rss1&google_editors_picks=true

 

 

[txlaw]

Note I did not say epic cash burn next quarter. I said QuarterS. And their own quote seems to be validating exactly what I said: that the reason they raised the money was to mitigate expected cash burn. So that statement validates point 3, not negates it. But then again we've always kind of differed on how we see this company, haven't we?

 

I assume you are talking to me?

 

I guess I took your statement regarding "shocking negative prints" and massive restructuring charges "that are going to scare everybody" to mean that you were predicting a huge cash burn in the next quarter or two. 

 

Because cash being used up over a year to a year and a half would not be unexpected -- and certainly not "shocking."  My apologies if I misconstrued your post.

 

The money they just raised is to replace burned cash; not for new investment. And if they expect cash burn for 6 more quarters (they are always optimistic), this is no 6 quarter turn around. If they are admitting to 6 quarters of cash burn, this is going to be an epic disaster. You can't turn around a tech company like that. if they ever get it to break even it will be a zombie. I've seen the movie over and over.

 

You're playing with words here.  Cash burn just means that their cash position will be going down, right?

 

The cash position has already been going down as a result of not just purchase commitments and restructuring charges, but also R&D and investment on the CFS.  As another board member already pointed out, the press release (and the last CCs) also indicate that cash burn will result from transformation efforts in addition to rationalization and restructuring.  Presumably, John Chen and BBRY management are expecting a return on such investments.  And if they really are planning on spending all that money on transformation, it is proper for them to raise a cash buffer now. 

 

You've got it backwards on tech turnarounds as well.  You can't turn around a tech company by not spending cash.  The positive net cash flows resulting from your proposed action would be the result of run off, not turnaround. 

[txlaw]

Beijing-based computer manufacturer Lenovo Group Ltd. actively considered a bid for BlackBerry Ltd., but the Canadian government told the smartphone company it would not accept a Chinese takeover because of national security concerns, according to sources familiar with the situation.

 

Ottawa made it clear in high-level discussions with BlackBerry that it would not approve a Chinese company buying a company deeply tied into Canada’s telecom infrastructure, sources said. The government made its position known over the last one to two months. Because Ottawa made it clear such a transaction would not fly, it never formally received a proposal from BlackBerry that envisioned Lenovo acquiring a stake, sources said.

 

http://www.theglobeandmail.com/report-on-business/international-business/asian-pacific-business/lenovo-considered-a-bid-for-blackberry-but-ottawa-wouldnt-accept-chinese-takeover/article15256976/?cmpid=rss1&google_editors_picks=true

 

Makes sense.  It was always unclear whether a Chinese hardware manufacturer would be allowed to buy BBRY in its entirety.  However, I wonder whether this forecloses the possibility of Lenovo partnering with someone else for a bid -- like an IBM, for example.

 

Also, this doesn't necessarily foreclose partial break up of BBRY, with the most national security sensitive aspects of the BBRY biz remaining in Canadian hands.  If Lenovo really did see value in the hardware/OS, particularly with regards to enterprise, it could actually market to enterprise how the software and services component of the Blackberry solution is still operated by the Canadians (with Lenovo earning royalties, of course, on software and service sales).  That might actually be a plus for biz.  On the other hand, the Chinese government might not like that sort of strategy on Lenovo's part. 

[Alekbaylee]

Also, this doesn't necessarily foreclose partial break up of BBRY, with the most national security sensitive aspects of the BBRY biz remaining in Canadian hands.

 

That looks the more probable scenario to me. They need more time and efforts than they previously estimated I guess. They would divest the pieces they don't need/see as strategic and retain just a "core" business and built it over time like a small start-up.

Keep the most promising parts/talents if you want to come up with some revolutionary technology sometime in the future. In other terms, back up to make a bigger leap.

Could turn out very profitable if well executed but won't be tomorrow.

[Guest wellmont]

"negative prints" implies multiple quarters of losses and cash burn, which would be a shock to most investors who assumed that was all behind them.

 

In normal functioning companies R & D is an expense against earnings. That's the way rimm did things for all those years when it was a highly profitable company. If a once profitable, mature tech company is burning cash because it is investing in r & d and "transformation", I have another euphemism for it. I call it "Awful Money Losing Business".  And that's unsustainable. You are repeating the euphemisms of all failed managements: "investment and transformation". This is the tripe readers are spoon fed by bbry, in press releases and management interviews.

 

As for the amount of cash burn expected, the market did not expect 6 quarters of cash burn, which will likely turn into more. It was surprised by that, as was everybody on this thread. Nobody expected a company with $2b in the bank and no debt to raise another  $1b. That's why it's down 15% from last week.

 

Mature companies that lose their way don't just go from burning cash for two years, to profitability. You don't just flip a switch and say "Hey look at us! We've been awful for two years now but we're suddenly crazy profitable". These kind of technology companies fall further and further behind their successful competitors, and eventually get dropped from the conversation. They become zombies, like sun micro and silicon graphics, which actually filed for bk.

 

If their plan really is to try to maintain status quo and operate the company as a device business, it is Still a great short. It could end up being a zero, which btw would give PW total control of the bk process, and leave current shareholders with squat.