Fairfax Not Shedding Light on BlackBerry Deal

Fairfax

 

There is no update from Fairfax today on its buyout of BlackBerry. Since the initial offer much has changed:

Google and Everything Android are part of lawsuit with BlackBerry’s consortium partners, Rockstar:

https://pfcsystems.wordpress.com/2013/11/01/google-samsung-sued-by-consortium-owned-by-apple-microsoft-blackberry-sony/

and BlackBerry may be looking for a better partner:

https://pfcsystems.wordpress.com/2013/11/01/blackberry-looking-for-a-mutually-beneficial-partnership/

 

By Will Connors

Investors hoping to get an update on the deal to take BlackBerry Ltd.BB.T -1.34% private during Fairfax Financial Holdings Ltd.’sFFH.T -2.86% earnings call Friday morning were likely disappointed.

Fairfax, the Canadian insurer led by Prem Watsa, in late September struck a preliminary $4.7 billion deal to buy the shares of BlackBerry it didn’t already own and take the troubled smartphone company private. Since the announcement of the deal, which Fairfax can walk away from at no penalty, investors have reacted skeptically, sending BlackBerry shares down more than 11%.

On Friday, Fairfax held a conference call to discuss its own third-quarter financial results. As soon as the call was opened to analysts’ questions, a request for an update on the BlackBerry bid was put forth.

Mr. Watsa, Fairfax’s founder and chief executive, declined to comment and quickly moved on. Investors will have to wait til Monday, when the due diligence period for the BlackBerry deal expires, to get an update.

Source: http://blogs.wsj.com/canadarealtime/2013/11/01/fairfax-declines-to-shed-light-on-blackberry-deal-for-now/

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Google, Samsung sued by consortium owned by Apple, Microsoft, BlackBerry, Sony and Ericsson

Google, Samsung sued by consortium owned by Apple, Microsoft, BlackBerry, Sony

Reuters, November 01, 2013

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The group that owns thousands of former Nortel patents filed a barrage of patent lawsuits on Thursday against cell phone manufacturers including Google, the company it outbid in the Nortel bankruptcy auction.Rockstar, the consortium that bought the Nortel patents for $4.5 billion, sued Samsung Electronics Co Ltd, HTC Corp, Huawei and four other companies for patent infringement in U.S. District Court in Texas. Rockstar is jointly owned by Apple, Microsoft, Blackberry, Ericsson and Sony.Google is accused of infringing seven patents. The patents cover technology that helps match Internet search terms with relevant advertising, the lawsuit said, which is the core of Google’s search business.A Google spokesman declined to comment. Representatives for Samsung, Huawei, HTC and Rockstar could not immediately be reached.Samsung, Huawei and HTC all manufacture phones that operate on Google’s Android operating system, which competes fiercely with Apple and Microsoft mobile products.

In 2011 Google placed an initial $900 million bid for Nortel’s patents. Google increased its bid several times, ultimately offering as much as $4.4 billion.

After losing out to Rockstar on the Nortel patents, Google went on to acquire Motorola Mobility for $12.5 billion, a deal driven partly by Motorola’s library of patents.

“Despite losing in its attempt to acquire the patents-in-suit at auction, Google has infringed and continues to infringe,” the lawsuit said.

Rockstar is seeking increased damages against Google, as it claims Google’s patent infringement is willful, according to the complaint.

The Google case in U.S. District Court, Eastern District of Texas is Rockstar Consortium US LP and Netstar Technologies LLC vs. Google, 13-893.

Source and © Thomson Reuters 2013

The lines are drawn and the sides for battle have been determined!  The Rockstar consortium including the partners, Apple, BlackBerry,Microsoft, SONY and Ericsson, are engaged in a lawsuit against Google and everything Android (Samsung, HTC, Huawei);

BlackBerry has new BFFs in its consortium partners, and one of these companies, or Lenovo, or Facebook, is on the right side to help BlackBerry, as discussed:

BlackBerry Looking For A Mutually Beneficial Partnership

https://pfcsystems.wordpress.com/2013/11/01/blackberry-looking-for-a-mutually-beneficial-partnership/

BlackBerry: Looking For a Mutually Beneficial Partnership

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by Darryl McKinnon and Fernando Commodari

Recently we’ve posted about why BlackBerry should remain publicly traded & in Canada:

https://pfcsystems.wordpress.com/2013/10/19/a-letter-to-members-of-the-canadian-parliament/

https://pfcsystems.wordpress.com/2013/10/27/blackberry-an-alternative-reality-an-alternative-future/

It’s not clear what the next few days will bring, but there are several options:

http://crackberry.com/here-s-what-happens-blackberry-november-4th

Fairfax

FAIRFAX

Looking at the Fairfax deal we can try to understand the synergies to it.  We can try to figure out why it may or may not make sense. With the facts being that if the BlackBerry management team, and the army of employees under them, were not able to complete the transition to date, why would Fairfax be able to do so? What mobile technology background does Prem Watsa have that BlackBerry currently doesn’t? There is none!  What social media/network experience with on site ads for BBM Channels does this deal bring to BlackBerry?  Again, none!

The Fairfax deal makes no sense except for Fairfax to get their original investment back out of BlackBerry. Firstly, the Board (with Prem Watsa, as a member) put the incentive in place for Thorsten Heins to sell BlackBerry and receive a massive payday by doing so. Then, in return, the BlackBerry CEO agrees to an ultra low sales price, a day after the stock price was trading higher.  Within the agreement to sell BlackBerry to Fairfax is a financial clause that if BlackBerry was to take another offer for the company, Fairfax is to receive $150 million. We’ve seen deals where if the buyer backs out there is a financial penalty to be paid to the company that was to be bought.  We’ve never seen a deal where if the seller finds a better offer they have to pay the original buyer! This clause is simply ridiculous! It’s set to ensure Fairfax gets paid handsomely for their efforts. Yet there’s no benefit for your average shareholder that has been vested in BlackBerry during the difficult times and still truly believes in the company and their technology!

http://empowerednews.net/nasdaqbbry-investor-alert-investigation-of-potential-takeover-of-blackberry-at-9/1845143/

Understanding the above, one asks the question, “Why would Fairfax set up a deal that begs for a superior offer?”- Fairfax has no interest in BlackBerry. They are a financial insurance company. They want their money back; and they’ll get it. It helps greatly if you’re at the table on both sides of the deal.

So what’s the end game then? Is it a sale of BlackBerry by any means possible? The assets are clear, the value is obvious, to those select companies that make it their business to know, BlackBerry’s current competition: Google, Apple, Microsoft, Facebook, Lenovo among others. All these companies have been or are currently rumored to be looking at BlackBerry to buy the company for its assets that the Fairfax deal has priced at half of book value. A steal by any assessment!

Knowing we are fast approaching November 4th, barring direct government support:

https://pfcsystems.wordpress.com/2013/10/19/a-letter-to-members-of-the-canadian-parliament/

there is more than one form of support that could work.

This support could come from one of the aforementioned prospective BlackBerry suitors. One can make a clear business case for anyone of these potential suitors to take a substantial stake in BlackBerry, instead of buying the company. Supporting the company with an infusion of cash and the perceived stability created from the newly formed partnership, would substantially lead to gains for both partners in the resurgence of BlackBerry.  A partnership has to be a match or fit that works for the two parties, and allows beneficial gains for each, from the union. With “partnership” being the key word, let’s, for the sake of a number, select a 49% stake from all of the current potential bidders and look at what the mutual benefits might be.

Facebook-Logo

Facebook

The synergies between BlackBerry & Facebook make sense, so let’s start there as many of the benefits can be repeated with some of the other prospective partners.

“A strong partner like FB would ensure the cash they need to complete transition while maintaining R&D, it would bring a fresh new appeal to the BBRY brand and surely increase device sales. It would bring Instagram, followed by other top apps and stop the BBRY’s dead news but hopefully it will force a radical change of management. I think the German guy failed and he was still too close to Mike Lazaridis. BBRY needs new and outsider blood in the management team and surely a brand new marketing team made of under 35’s super talented people.”

http://crackberry.com/node/182125

[We take issue with the under 35 part of the quote—LOL!]

Let’s say Facebook bought a 49% stake in BlackBerry and that the two companies started to work together. Facebook doesn’t make hardware. It’s not in their DNA. The deal instantly gives FB a huge stake in a massive hardware market with fantastic potential. Let’s admit it, hard work has been done with BB10. The foundation has been laid. The future is bright, yet again what BlackBerry needs is a bit more time and more intelligent and sustained marketing across the globe.

“They’ve [FaceBook} been pushing for their own platform for a while, and are obviously not thrilled with how Google is dealing with them. They pushed an update that allowed Facebook to bypass the Play Store as far as updates are concerned, and Google changed the terms of service on them, forcing apps to go through the Play Store for updates. Seems like they’re trying to get away from Android, they just don’t have any other option. Not sure BlackBerry would be a good fit, but maybe they just want to keep their options open?”

http://crackberry.com/node/182125

Time and marketing are what Facebook can provide for BlackBerry. By doing so they can drive the value of the deal and return huge value in their new hardware alliance/division. Facebook speaks to over 850 million users. They are in a premium position to get the much needed word out about BB10, with direct marketing and ads on their pages.

Facebook could also bring the mobile advertising expertise to assist the emerging BlackBerry Social Network, BlackBerry Channels. Facebook could even have its own exclusive channel!

applelogo

Apple

Let’s say Apple takes a 49% stake in BlackBerry. Even though Apple is ultra popular, the fact remains that they are losing the battle to Google and Android (think Samsung!). By supporting BlackBerry, Apple could again provide the time and money needed to complete the transition, that BlackBerry needs. Apple, by doing so, acquires a second front to battle Android. BlackBerry and Apple could work together improving Apple’s security. As BlackBerry grows, Apple retains the 49% of revenues.  This would be similar to the rescue that Microsoft and Bill Gates offered Apple, years ago.

googlelogo

Google

Let’s say Google buys a 49% stake in BlackBerry. This, as with the other prospective partnerships, would provide the time and funding for BlackBerry to market its new OS. Google could retain extra revenue, and share patents (so could any other partner!).  Google could advertise on BlackBerry Channels exclusively, using it’s expertise in on-line ad placements.  Additionally, Google is still first and foremost a service provider. They could develop their apps for BlackBerry and Google could be rewarded (like any other partner) with BlackBerry’s security/BES10 & enterprise offerings. If Google were to do this, it would lessen the view they might be approaching monopoly status with Android.  This is similar to the incentive Microsoft had with Apple back in the late 1980s.

new-microsoft-logo-600

Microsoft

Let’s say Microsoft invests in a 49% stake in the company.  A non-compete agreement and cross IP sharing deal could be made, as with Google and Apple, or even Lenovo. This would give MS a serious new suite of security and MDM offerings to give it an edge over its competitors, Apple’s, iOS and Google’s, Android. Microsoft could seed BlackBerry OS10, diluting Android’s and iOs’ reach. Honestly, though, with its own strategy of seeding Windows 8, cross platform, we don’t see Microsoft buying a stake in BlackBerry for anything but the patents and BES10/NOC.

Samsung logo

Samsung

It is not clear that Samsung would want to partner with BlackBerry, as it has no more to gain than say Microsoft, Apple or Google.  Samsung is developing its own OS and already has its own version of Android that is very successful. It is neck and neck in the running with Apple for shear volume of hardware out in the global market.

Sony-logo

Sony

This company is like Lenovo, but with a bigger hardware presence outside its own borders. Sony could benefit from the new BlackBerry 10 OS on its handsets, helping to differentiate it from Android and iOS or even Windows 8. Also, Sony, like Lenovo, would have security advantages using the BlackBerry OS10 on cell phones, which might lead to easier access to the BlackBerry NOC/BES10 than for even Lenovo. Sony had a partnership with Ericsson which never amounted to larger market shares.  It might be willing to take a chance with a new BlackBerry partnership.  We note that BlackBerry OS 10 phones were left out of the Japanese market by BBRY.  Could this be a way to entice Sony with exclusivity in Japan, in exchange for its financial backing?

lenovo-logo-1

Lenovo

Let’s say Lenovo took a 49% or less  stake in the company. Currently Lenovo has no mobile OS to call its own. Gaining a toe hold into BB10 may actually benefit them the most. By only having a 49% or less holding in BlackBerry,  the security regulators would be hard pressed to frown upon the deal, if BlackBerry retains confidential the NOC and security side of the business.  Together, BlackBerry and Lenovo, could  dominate the Asian markets. Lenovo (like Facebook) would benefit in new ways that all the others wouldn’t, via the much needed mobile hardware/software and services expertise that BlackBerry would bring.  BlackBerry would gain the financial backing it needs to finish its transition to BlackBerry 10 and machine to machine ventures with the new BBM, NOC/BES10 services. This partnership offers both sides benefits, as in the case with Facebook, whereas any prospective Microsoft, Google, Apple partnership, would most benefit BlackBerry. Any control of BlackBerry by the latter three companies or even Samsung, would most likely lead to a sell off and break up of BlackBerry.

Maybe, in the end, the biggest motivator that each one of these prospective partners has to enter into a new partnership with BlackBerry is to simply stop one of the others from accomplishing it first. Also, any prospective partner could get an advantage, in addition to the patents, and NOC/BES10, in the new machine to machine world via BlackBerry’s QNX:

https://pfcsystems.wordpress.com/2013/10/27/blackberry-an-alternative-reality-an-alternative-future/

News is breaking everyday that supports BlackBerry’s market offerings of Security first, with its unique MDM able to control not only Blackberry devices, but also iOS and Android devices. A cloud capability is also coming soon. Security is a marketable feature and BlackBerry needs to do a better job of advertising it, not only to enterprise grade customers but also to their everyday consumers who would be leery to learn about the databases of SMS and e-mail messages Google collects.

In summary, BlackBerry needs capital to market its new BlackBerry 10 portfolio and to buy it time to do so while completing its transition to the new platform while bringing new NOC services to the public/enterprise, BES10, BBM and BBM Channels.  The two most obvious/often recognized suitors that would also gain most from a partnership with BlackBerry, are Lenovo and Facebook.  Sony would also gain as much, if not as prominent a suitor. It’s not likely that Facebook has the assets on hand to flat out buy BlackBerry.  Even if Lenovo could do so, it would face regulatory issues in Canada and the USA, leaving a partnership option the only path to move forward.  Apple, Microsoft and Google, would have less to gain from a partnership with BlackBerry, having their own hardware/software vertically integrated, already.  These three companies, as well as Samsung, would most likely use the patent portfolio and the NOC/BES10 secure servers/software to their advantages in gaining access to enterprise clients.

Stay tuned, as the cat will be let out of the bag, on or before November 4, 2013!  Ofcourse, BlackBerry may decide to stay the course, on its own, public and Canadian, having acquired a second wind.  Or, perhaps Mike Lazaridis might come into the picture, as part of the Fairfax deal or with other partners. What does your crystal ball say will happen?  Tell us below in the comments!

UPDATE November 1, 2013 11:00 am:

The lines are drawn and the sides for battle have been determined!  The Rockstar consortium including the partners, Apple, BlackBerry,Microsoft, SONY and Ericsson, are engaged in a lawsuit against Google and everything Android (Samsung, HTC, Huawei);

BlackBerry has new BFFs in its consortium partners, and one of these companies, or Lenovo, or Facebook, is on the right side to help BlackBerry as discussed above!  Check this out:

Google, Samsung Sued by “Rockstar” Consortium

https://pfcsystems.wordpress.com/2013/11/01/google-samsung-sued-by-consortium-owned-by-apple-microsoft-blackberry-sony/

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Verizon Will Offer The BlackBerry Z30 in November

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In the USA, Verizon will offer, in November, just in time for the holidays,  BlackBerry’s latest cell phone offering, the all new 5″ super AMOLED,for $199 with a two year contract. We previously provided details on the new hardware, and 10.2 software:

https://pfcsystems.wordpress.com/?s=z30&submit=Search

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New Z30 (right) shown next to the Samsung Galaxy S4 (left)

One cool feature of OS 10.2 is the “Adaptive Share” where the software on being requested to “share” something, learns your favorite “share” sites like BBM friends, BBM Channels, FaceBook and presents the top share selections as top suggestions with larger icons and top line placement of a users favorite sharing habits.  For a recent media interview see the story below.

BlackBerry introduced the BlackBerry 10 platform in January, and in September showed off the Z30, its final smartphone for the year and one that completes the BB10 portfolio with now two touchscreen-focused options and two QWERTY hybrids, Vivek Bhardwaj, BlackBerry’s head of software, told journalists during a briefing Oct. 28. BlackBerry is hoping to stir up a bit more user interest in several ways. There’s that large, vibrant display; a battery that, in mixed-use scenarios, can last more than 24 hours, according to Bhardwaj; and new antenna technology from BlackBerry-acquired Paratak. “They have a very unique solution we’re using for the first time,” Bhardwaj explained. “Most antennas in phones are fixed, or calibrated for a few conditions. But what the Paratek solution does is re-tune on the fly, depending on the conditions. If you’re in a low-coverage area … it recalibrates the antenna so it’s optimized for that lower-coverage area.”

BlackBerry also gave the Z30 six microphones, which circle its exterior. On a conference call, “you can actually tell where people are sitting, it gives you such a strong spatial awareness,” said Bhardwaj. Called BlackBerry Natural Sound, it can better capture audio in a video at a concert, say, but also drown out ambient noise during a call to someone in a busy place.

On the software side, BlackBerry upgraded the Z30 to BB 10.2. One major change in the OS addresses a challenge so many apps are lately out to solve: sorting through too much email. In the Hub, 10.2 features a Priority Hub. The OS learns, as you use it, what’s a priority to you, though it’s easy to also designate contacts or conversations as Priority.

Also new are notifications that run at the top of the device, enabling a user to see a communication that comes in—a text, or an email, for example—while doing something like taking photos or reading in the browser. Without ever leaving the app, one can also respond.

Another little time-saver is on the locked screen. Where before a user could see, without unlocking the screen, that she had new emails and Tweets, now she can even read them, or parts of them.

They’re nice improvements, but are they enough? And why another touchscreen-focused device, when BlackBerry’s last earnings report made clear the Z10 isn’t selling? (The company sold 3.7 million smartphones during the quarter, the majority of which were running Blackberry 7, and posted a quarterly loss of $965 million.)

“It’s about the complete portfolio, and being able to offer it as a choice,” Bhardwaj said again. Maybe a customer goes into a store for the Z10 but decides he likes the Z30 better, or vice versa. “We’d rather we cannibalized by our own products.”

While he wouldn’t talk about the company’s pending sale, Bhardwaj suggested it was nothing that should keep buyers away.The average buyer, he said, just wants a great phone, he or she isn’t asking about the company’s financial standing. The idea that people are looking beyond product shelves into the details of companies is wrong, he said. “We have to break some of that distortion.”

 

Source:http://www.eweek.com/mobile/blackberry-z30-exclusive-to-verizon-wireless-coming-in-november.html

Reuters Reports Cisco, Google, SAP discussing BlackBerry Bids

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According to a recent report from Reuters, BlackBerry is entertaining other bids from several entities:

By Nadia Damouni, Soyoung Kim and Nicola Leske

NEW YORK/SAN FRANCISCO | Fri Oct 4, 2013 9:35pm EDT

(Reuters) – BlackBerry Ltd, on the block as its smartphone business struggles, is in talks with Cisco Systems, Google Inc and SAP about selling them all or parts of itself, several sources close to the matter said.

Such a deal would be an alternative to the preliminary agreement reached weeks ago with a group, led by BlackBerry’s biggest shareholder, Fairfax Financial Holdings, to take the company private for about $4.7 billion, a bid which has faced some skepticism because of financing questions.

The company, based in Waterloo, Ontario, has asked for preliminary expressions of interest from potential strategic buyers, which also includeIntel Corp and Asian companies LG and Samsung, by early next week.

It is unclear which parties will bid, if any. But the potential technology buyers have been especially interested in BlackBerry’s secure server network and patent portfolio, although doubts about the assets’ value remain an issue, the sources said.

Google, Intel, Cisco, LG and SAP declined to comment. Samsung was not immediately available for comment.

Possible bidders are proceeding with caution given the uncertainty around BlackBerry, which last month reported a quarterly loss of nearly $1 billion after taking a writedown on unsold Z10 phones.

The value of BlackBerry’s patent portfolio and licensing agreements is likely to halve in the next 18 months, a company filing from this week shows, potentially limiting its attractiveness.

According to analysts, BlackBerry’s assets include a shrinking yet well-regarded services businessthat powers its security-focused messaging system, worth $3 billion to $4.5 billion; a collection of patents that could be worth $2 billion to $3 billion; and $3.1 billion in cash and investments.

Adding to the company’s woes, it’s likely to burn through almost $2 billion of its cash pile in the next year and a half, Bernstein analyst Pierre Ferragu wrote on Thursday after studying the filing.

Private equity firms that have showed interest in BlackBerry – which also include Cerberus Capital Management – have asked the company and its advisers to provide additional financial details about its various business segments, two of the sources said. That process could take another few weeks, as BlackBerry focuses on taking bids from industry peers, the sources said.

In August, the company said it was weighing its options, which could include an outright sale, after Reuters first reported BlackBerry’s board was warming up to the possibility of going private.

At that time, it formed a five-member special committee chaired by board director Timothy Dattels. Other members include Chairman Barbara Stymiest, Chief Executive Thorsten Heins, Richard Lynch and Bert Nordberg.

A spokesman for BlackBerry said in an emailed statement to Reuters: “The special committee, with the assistance of BlackBerry’s independent financial and legal advisors, is conducting a robust and thorough review of strategic alternatives.” He declined to provide further comment.

JPMorgan Chase & Co and RBC Capital Markets are advising BlackBerry. The board is being advised by Perella Weinberg Partners, the sources said. Skadden, Arps, Slate, Meagher & Flom LLP and Torys LLP are providing legal advice.

(Additional reporting by Alastair Sharp in Toronto and Alexei Oreskovic, Poornima Gupta and Noel Randewich in San Francisco; Editing by Christian Plumb and Prudence Crowther)

(Source: http://www.reuters.com/article/2013/10/05/us-blackberry-buyers-idUSBRE99400220131005)

It’s Time for BBM for All

It’s time to go to your Google Play and iTunes  store and download the best instant messaging app. September 21,2013 for the Android app and September 22,2013 for the iPhone app. Surely BlackBerry is using BBM as a way to market OS 10 or introduce people on Android and iOS to the BlackBerry OS 10 UI. Perhaps this might motivate consumers to look at the new BlackBerry 10 phones such as the Z10, Q10 and upcoming large screen, all touch Z30? Let us know what you think in the comments below!  Take our poll below!

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Check out a cool video comparing BBM on different platforms from N4BB.com and don’t forget to take our poll below:

 

So What is Nokia Up To?

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I have been with T-Mobile for about ten years, and my first phone was, if I recall correctly, a Nokia candy phone of the Symbian  60 model 3300 variety.  I learned to text message on this device. Along the way, I have also had a Samsung SGH-R255M, pictured above, that fits the palm of my hand, and a Sony Ericsson T80.  I have had a Nokia slider Music 5300 that also fit nicely in the palm of my hand, that I still carry with me when I travel to Canada or Europe and slip in a local SIM card.  I must say that I do like the ability to easily slip my phone in my pocket.  The 5″ sized Samsung of late boggles my mind, as one needs a purse for such a phone.

My introduction to smart phones, was really, I guess,  a pseudo smart-phone, the Nokia 5230 Nuron, which I was (I hate to admit it, but it is true..) using until I finally cut the SIM and stuck it into the OS 10 Dev Alpha device a few months ago.  Having been using the BlackBerry OS 10 device, it is not likely that I will go back to Nokia, especially with the Windows partnership.  None the less, I recently decided to buy some Nokia stock to balance my BlackBerry holdings.  At $3.32 it is a bargain, and I think it can only increase in value over the long term.

Nokia 5230 Nuron shown above

So, I thought that I would write about what Nokia is up to, near as I can see.  It seems like the company is betting on volume sales by making an innovative phone that will sell for $20. The Nokia 105 features preloaded games, a color screen, a radio, a speaking clock and a flashlight. The phone, Nokia’s cheapest ever, has been available for a few weeks in India and Indonesia and will soon start selling in Europe.  The phone is expected to have margins of 20% and compete with the Chinese entries from ZTE and Huawei Technologies Co. that have whittled away at Nokia’s volume sales of low end phones.  The same can be said about what is now happening to BlackBerry’s OS 7 base.  The idea is to build brand loyalty at the low end to carry through to the higher end Lumia lines.  From the Bloomberg article referenced below:

“The low-end, high-volume part of the mobile-phone market is a huge opportunity for Nokia (NOK1V) in developing countries,” said Francisco Jeronimo, an analyst at IDC in London. “These users will be likely to upgrade to more expensive phones over time, so it’s a good strategy to keep a high market share in this segment. The 105 is “very competitive” and should help Nokia with its low-end recovery effort, said Neil Mawston, an analyst at researcher Strategy Analytics in London. A predecessor to the 105, called the 1280, sold more than 100 million units over three years. Simpler phones have “been the bedrock of Nokia’s business for the past decade,” Mawston said.

Nokia’s expertise in handset production makes it possible to turn a profit on a $20 phone, Jeronimo said. For years the world’s largest mobile-phone maker and now No. 2, Nokia makes more than 600,000 phones a day in seven factories around the world, using parts from suppliers it knows well. Chinese rivals may be able to make a device as cheap as the 105, but they lack the features and services from Nokia, Jeronimo said.

The candybar-shaped 105 is 25 percent cheaper than the Nokia 1280, yet its battery lasts 56 percent longer — 35 days. The phone is resistant to water and dust and comes with text- message-based tools that teach English and provide basic health- care advice.

Despite such features, the company sought to simplify the phone’s software, which in turn allowed it to use cheaper parts, said Dirk Didascalou, head of R&D for Nokia’s mobile-phone business.

“To be successful at the low end, one needs to explicitly do innovative work with a focus on delivering value,” he said by phone from Nokia’s research facility in Beijing. “If you don’t, you get in a cost spiral where you’re always a bit too expensive compared to somebody else.”

Even as the slump in simple handsets has stolen investor attention, Nokia’s main goal is to make a full recovery in smartphones, where profit margins are widest. Apple (AAPL)’s 32- gigabyte iPhone 5 sells for $750, while Samsung’s Galaxy S4 goes for $640 and Nokia’s flagship Lumia 920 is $450.

Nokia sold 5.6 million Lumia phones, which run on Microsoft Corp. (MSFT)’s Windows, in the first quarter, up from 4.4 million in the previous three months. But the iPhone and Android control more than 90 percent of the smartphone market, while Nokia has just 3 percent, according to Strategy Analytics. So it’s far from clear Nokia can break that dominance even if its low-end devices recover, said Mikko Ervasti, an analyst at Evli Bank in Helsinki.

“Nokia may still be the second-biggest phone maker in the world,” Ervasti said. “But if it’s going to have a chance at long-term success it needs to make sure it also has the right smartphones.”

Nokia Sees Revival With Handsets at 97% Discount to IPhone

Nokia 105 shown above

Disclosure: I am long on BBRY & NOK.

No implicit or explicit suggestions for stock purchases are made herewith or anywhere on this site.

photo and quote source: http://www.bloomberg.com/news/2013-04-28/nokia-betting-on-20-handset-as-it-loses-ground-on-iphone.html