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  • About Buying Failing Companies

    May 26th, 2015

    There’s something about the way Apple acquires technology. In recent years, dozens of small companies have been purchased, but not because they were in danger of going out of business. In large part, it’s because they had one or more technologies that would be useful for Apple’s portfolio. Don’t forget that the A-series chips that power the iPhone and the iPad incorporate technology as the result of buying such chip designers as PA Semi.

    Over the years, Apple has been urged to spend huge bundles of money to acquire one company or another, although the reasoning isn’t always quite clear. After all, Face-book, Google and Microsoft spend tons of money buying up companies that may or may not have useful technologies, a decent product portfolio or, perhaps, the potential for something-or-other. So why not Apple?

    Quite often those acquisitions don’t go as planned. One notorious failed merger was AOL’s purchase of Time Warner for $164 billion in 2010. But it was mostly done through inflated dollars that resulted from AOL’s artificially high market cap at the time. It didn’t take long for the deal to be essentially undone by spinning off AOL, which was finally sold this year for a “mere” $4.4 billion to Verizon.

    It doesn’t mean AOL was necessarily unsuccessful. A fraction of its former self, with over two million remaining dial-up Internet subscribers, AOL had become a fairly successful online information portal that included The Huffington Post and Engadget.

    I won’t go into the intricacies of HP’s $25 billion acquisition of Compaq in 2001. Eventually the CEO who pushed for the merger, Carly Fiorina, was ousted from her post; well, technically the board of directors lost confidence in her. In passing, this failed executive tried to reinvent herself when she ran for the U.S. Senate in 2010. Having lost that race by a huge margin, she has decided to try politics again, but not for a city council seat or something better suited for the first-time office holder. Why not go for the top? So she’s one in a long list of possible Republican candidates for President?

    Once king of the mobile handset hill, Motorola Mobility was losing money when it was acquired by Google for $12.5 billion in 2012. The former’s huge patent portfolio was given as one reason, although many of those patents covered set-top boxes and other products rather than cell phones. No matter, Google demonstrated it couldn’t find the silk purse in a sow’s ear and unloaded the company in 2014 to Lenovo for $2.9 billion.

    Then again, the $50 million that Google spent to acquire Android in 2005 did reap benefits, but not until the release of Android OS handsets that closely resembled iPhones.

    Microsoft may have done better with the $7.2 billion purchase of Nokia’s handset division in 2013. However, a healthy portion of the 32,000 employees who joined Microsoft as a result of that deal found themselves with pink slips during the next corporate bloodletting. Although Microsoft’s newest Lumia smartphones have received good reviews, it’s not at all clear how well the deal will pay off on the long haul. The Windows mobile OS is still an afterthought for most customers.

    Now there’s a published report, still no more than a rumor, suggesting Microsoft may be looking to acquire yet another failing mobile handset maker, none other than BlackBerry.

    Who?

    At one time, BlackBerry, then Research In Motion, ruled the roost when it came to smartphones. No self-respecting executive left home or office without one, and even government officials used them, largely because of first-class enterprise security tools. Indeed, despite BlackBerry’s fall from grace, President Barack Obama still has his BlackBerry.

    Unfortunately, BlackBerry’s founding executives totally misread the direction of the smartphone market, and were late to the party reacting to the iPhone onslaught. Efforts to build touch-based handsets were too little and too late. It didn’t help that there were a few serious outages of the company’s enterprise email systems.

    BlackBerry isn’t exactly out of business, however. By focusing more on software and services, it remains somewhat successful. But a mere 1.6 million handsets were sold during the company’s fiscal fourth quarter, a fraction of what Apple and Samsung routinely do in a single week. Aside from loyal enterprise users, there’s not a whole lot of interest in BlackBerry these days.

    But the company’s email and messaging systems, and a big patent portfolio, may be in Microsoft’s sights to enhance the company’s corporate footprint. Even though the BlackBerry OS is totally incompatible with the operating system formerly known as Windows Phone, taking over BlackBerry’s services might enhance Microsoft’s mobile presence in the enterprise. I suppose they could continue to sell BlackBerry handsets for the small number who care. The price would probably fall in the low billions, which would be chump change for Microsoft.

    While I wouldn’t presume to tell Microsoft what to do — and they do appear to be getting better at working well with others these days — I wonder if it wouldn’t be more sensible, and much cheaper, to simply license BlackBerry technologies, and not worry about having yet another line of mobile handsets to sell. I’m assuming it would be possible to somehow incorporate the technology in the mobile version of Windows 10.

    Or maybe it’ll be yet another example of a failing company getting swallowed by a tech giant with little evidence that it’ll actually improve the combined company’s prospects.



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