BlackBerry adds to its war chest with $815M win
Refund from Qualcomm over royalties expected to be used for acquisitions
BlackBerry Ltd.’s stock price spiked Wednesday after it won US$815 million in a dispute with Qualcomm over royalty payments, a cash influx that analysts anticipate the former smartphone titan will use to make acquisitions.
The companies had agreed to binding arbitration to resolve a disagreement over royalties BlackBerry prepaid Qualcomm for technology in a specified number of handsets from 2010 until the end of 2015.
BlackBerry fought for a refund after its device business collapsed in the face of competition from Android and Apple smartphones, successfully arguing it overpaid the chipmaker given that it didn’t expect its sales to plummet when it signed the deal. Indeed, it sold about three million smartphones in 2015, down from about 37 million in 2010, according to company documents.
The arbitration hearing was held in San Diego from Feb. 27 to March 3, with the final award expected to rise to include interest and attorneys’ fees after a hearing in May.
In a statement, Qualcomm said it does not agree with the decision, but acknowledged it is binding and cannot be appealed. BlackBerry CEO John Chen indicated he wants to continue the pair’s long relationship as his company
We are pleased the arbitration panel ruled in our favour and look forward to collaborating with Qualcomm in security ... for the automotive industry. JOHN CHEN, BlackBerry CEO
shifts its focus to software.
“We are pleased the arbitration panel ruled in our favour and look forward to collaborating with Qualcomm in security for ASICs and solutions for the automotive industry,” Chen said in a statement.
BlackBerry’s shares soared 16 per cent on the news, less than two weeks after it jumped 11 per cent on the back of quarterly results that suggested its strategy to ditch smartphones and become a multi-faceted software company is starting to work.
Numerous analysts raised their price targets for BlackBerry given the finality of the arbitration.
CIBC analyst Todd Coupland upgraded BlackBerry to neutral from underperformer, writing in a research note that investors still have to wait for evidence that growth is materializing in enterprise device management and the auto sector.
Others expect BlackBerry will use the cash to restart acquisition activity.
“With BlackBerry planning to invest for growth in its software businesses, the surprising arbitration award and $815M in cash from Qualcomm will bolster BlackBerry’s balance sheet and increase the likelihood of acquisitions to augment growth,” Canaccord Genuity analyst Michael Walkley wrote in a note to clients.
Canaccord maintained its hold rating for the stock as it looks for more disclosure surrounding BlackBerry’s new software offerings.
TD Securities analyst Daniel Chan also expects BlackBerry to use the cash for acquisitions in the Internet of Things and security industries.
“We believe any acquisitions to build out BlackBerry’s IoT sales channels would be attractive,” Chan wrote in a note to clients. “Moreover, the cash could be used to continue to build out the company’s own sales team.”
In a media roundtable after the latest round of results, BlackBerry’s CEO told reporters he’s once again open to making acquisitions after a hiatus to integrate previously purchased companies. He also expressed interest in expanding his sales force.