STRICTLY CONFIDENTIAL
Pitch: Blackberry Limited
October 16th, 2014
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Table of Contents
SECTION 1
Market Overview
SECTION 2
Company Overview
SECTION 3
Investment Thesis
12-21
SECTION 4
Valuation
22-25
SECTION 5
Catalysts and Risks
26-28
1-6
7-11
1
SECTION 1
Market Overview
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Global Technology Industry Overview
One of the strongest themes affecting the economy today is arguably the widespread adoption of technology products and
related services – Wells Fargo
Transaction
Processing
Consumer
Internet
Software
Enterprise
Technology
Internet
Infrastructure
IT
Computing
Semiconductors
Hardware
Communication
Hardware
 Large industry with vast growth potential, however sometimes subject to volatile cycles
 Due to this winners and losers usually don’t last too long within the industry
 As a whole the tech industry is extremely competitive
 The technology sub-segments have widely varying business models but benefit from many of the same major technology
trends, such as the growth of the Internet and Cloud Computing
 Investors can expect large portions of equity to be focused on R&D and ultimately the production of new products
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Software Sector Overview
 What is software? The language that makes hardware work
 $400 billion industry
 Taking over the roles of hardware to some extent (cloud storage)
 Traditional Valuation metrics (P/E) are being overlooked when investing in new software anomalies
 Frequent Mergers & Acquisitions
Key Players
Theme
 Ongoing shift to cloud computing
 Proliferation of mobile devices
 Ongoing social adoption
 Move to mobile apps
 Growing business adoption of engagement apps
 Widespread growth in data
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Hardware Sector Overview
 What is hardware? Skeleton of the organization and the software gives the hardware instructions on how to perform
 Hybrid of Software + Hardware is needed
 Many businesses now sell both Hardware and Software: Google, Apple, Microsoft
 Argued by some to be a commoditized market
 Sensitive to a cyclical market due to heavy reliance on consumer spending
Key Players
Theme
 Ongoing theme to reduce the size of hardware
especially for mobility
 Mobility is a major factor, constant movement towards
battery operated devices that are comfortable for on the
go use
 Outsourcing of labor towards countries like China has
always produced high profit margins
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Information Technology Overview
 Enterprise IT: Approach to managing all technology across an organization (financials, security, human resources…)
 Objective is to have a company’s technology requirements under one umbrella
 To be successful in this industry you need to be a niche player
 IT departments are found within nearly every business while some often outsource this job. IT specialists are needed
everywhere to control the flow of data from different pieces of hardware within an organization and also handle jobs that deal
with security to some extent.
 Global IT spending is in the trillions ($3.7)
Key Players
Theme
 Due to an increase in breaches, more focus is being
directed to IT security
 Recent security breaches of the cloud storage systems
have highlighted privacy concerns in the industry
6
SECTION 2
Company Overview
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Business Overview
Company Summary
 BlackBerry Limited designs, manufactures, and markets wireless solutions for the worldwide mobile communications market.
The Company provides platforms and solutions for access to email, phone, SMS messaging, Internet, and Intranet-based
applications. Since RIM launched BlackBerry in 1999, it has sold more than 200 million BlackBerry smartphones
 BlackBerry’s current focus is on serving enterprise customers, particularly in regulated industries including financial services,
government and healthcare
 The Company’s goal is to maintain its market leadership in the enterprise mobility segment by continuing to extend the
functionality of its BES infrastructure beyond enterprise mobility management
Company YTD Stock Performance
Sept 23rd: Entrance into letter of
intent with consortium led by Fairfax
Holdings.
Nov 25th: Change in
CMO, COO, CFO
12
September 11th: Movirtu Acquisition
July 29th: Secusmart GmBH Acquisition
Jan 8th: Fairfax Announcement
of Debenture Purchase
14
25
Nov 13th: USD 1 Billion
Private Placement of
Debentures
10
20
8
15
6
10
4
5
2
0
21-Aug
Volume (Millions)
Price / Share
Jan 21st: Announcement of sale for majority of
Real Estate Assets
0
21-Sep
21-Oct
21-Nov
21-Dec
Volume
21-Jan
21-Feb
21-Mar
Last Price
21-Apr
21-May
21-Jun
21-Jul
21-Aug
Events
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Business Overview II
Company Description
Revenue by Segments
1%
Blackberry Ltd.
Ticker
TSX: BB
Stock Price
3%
NASDAQ: BBRY
$11.02 USD
IPO Date
40%
October 28, 1997
Market Cap
$5.72 Billion
Revenues
$6.86 Billion
P/E
-
Revenue by Geography
Hardware
Software
Other
Core Operational Areas
Device
Business
•
Delivering smartphone products that
highlight BlackBerry technology strengths
and areas of differentiation
•
BES 10 represents a consolidation of
BlackBerry's enterprise mobility
management product portfolio, which
includes MDM, security, infrastructure and
application management.
•
QNX enables multimedia features and can
be found in a variety of products from
automotive infotainment systems to casino
gaming terminals.
•
BBM mobile to mobile private messaging
service, BBM, is utilized by over 85 million
monthly active users
16% 7%
20%
13%
9%
Enterprise
Service
35%
Canada
UK
Latin America
Service
56%
US
Middle East and Africa
Asia Pacific
 Revenue generated within the emerging market
region makes up for just under 65% of the total
revenue
QNX
Messaging
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Sources of Revenue
Hardware
Software
 Generate hardware revenue from sales, primarily to
carriers and distributors.
 Generate revenue through licensing QNX software and
providing professional services to support customers in
developing their product
BB 7
BB 10
 Software that is installed at the companies. It is charged
for each subscriber using the BB service via BES,
maintenance and upgrades to software and technical
support
Service
Other
 Billing BB subscriber monthly infrastructure access fee
charged to carriers or resellers, who in turn bill the
BlackBerry subscriber
 Revenue generated from non-warranty repairs and
sales of accessories
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Business Overview III
Management Team
Ownership Overview
Invesment Advisor
Hedge Fund Manager
8.78%
Individual
9.48%
Insurance Company
Bank
12.50%
64.16%
John Chen: (Interim CEO, Executive Chair of Board of Directors)
Government
•
Led the turn around of Sybase (From $362 million to $5.8 billion)
Pension Fund
•
Serves on the board of directors for The Walt Disney Company and Wells
Fargo & Co
Other
Institution Breakdown
Primecap Management
11%
9%
3%
FairFax Holdings
Toronto Dominion Bank
Marty Beard: (Chief Operating Officer)
•
Previously served as CEO of LiveOps (Grew the cloud applications
business over 50% CAGR)
•
President of Sybase 365, subsidiary of Sybase
77%
Other Institutional
Investors
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SECTION 3
Investment Thesis I
Macro Tailwind
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Argument I: Favorable Industry Trends
Proliferation of Enterprise Mobility
 Traditionally, the wireless communication industry has been highly segmented between enterprise users and average
consumers. However with the proliferation of the sector, we are starting to see a significant overlap between the two
segments.
– Particularly in 2014, the enterprise market is now characterized by a combination of enterprise deployed devices and
devices that are purchased by consumers but also used in a corporate environment (BYOD)
– With the utilization of BYOD, companies now need to place more emphasis on mobile device management (MDM) backed
by advance security system
– North America is expected to be the largest in market size, while Europe and APAC are expected to increase in market
transaction.
BYOD Expected Market Size
Key Competitors
 AirWatch: Innovative, up to date with new technologies,
presents modern features, great iOS and Android
support
Industry Size ($Billion)
250
200
 MobileIron: Wide range of features and deployment
options
CAGR: 21%
150
$226
100
50
 Citrix: Similar to MobileIron, full range of features and
deployment options
 IBM MaaS 360: The best cloud MDM, solid features, run
exclusively on cloud with no premise option
$72
Where does BlackBerry stack against these:
0
2013
2019
 Great separation between corporate and personal data
 Secure Work Container for iOS and Android
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Argument I: Favorable Industry Trends Continued
Increased Focus on Security System
Company
Date Initialized
Target
Dec 15
Cost
Description
$148 million



110 million affected
Capital was spent on security beforehand
Profit declined 46% after responding to the breach
Home Depot
April 2014
Up to $3 billion


56 million debit and credit cards were affected
Same system of attack as Target experienced
eBay
May 2014
Operating Margin was down 1.9%

150 million eBay users were affected
JP Morgan
Oct 2014
New security initiatives, costing $250
million per year

76 million households and 7 million small business information
was leaked
Average Spending on Data Protection
 Due to a rise in security breaches, it is estimated
the global security spending will hit $86 Billion in
2016
# Security Breaches
Key Competitors
 Secure Work Container
 AES-256 Standard Encryption
 No separate VPN infrastructure required
 All outputted through single output port via BES10
600
27% Increase
450
579
456
300
2013
2014
14
SECTION 3
Investment Thesis II
Turnaround Story
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Argument I: Strong Management Team
Strong management is the backbone of any successful company
 Buffet’s Investment criteria is to look for solid stable management that stick with their companies for the long term.
 Prior to joining BlackBerry, John Chen served as the CEO of Sybase. When he first joined the company it was estimated
worth just under $360 million, but after 13 years it was acquired for $5.8 billion.
– After leaving Sybase, Chen joined SilverLake as a senior advisor to the firm. One file he is reported to have worked
closely on is the privatization of Dell.
 Marty Beard was appointed as COO for BB on June 30 th. Prior to joining BB, he served as CEO of LiveOps (Could app
comp). Prior to that he worked with Mr.Chen for a decade and served as a president of Sybase 365.
Incentive Program
 It is also important have a strong incentive program
tying to the performance of the company. This is
geared to keep the management onboard for the
long run.
- Chen gets compensation worth US$88 million
(13million RSU, vested over 5 years)
BB Benchmarking Analysis
120%
80%
40%
0%
-40%
Nov-13
Jan-14
Blackberry
Vmware
Mar-14
Motorola
Citrix
May-14
Google
IBM
Jul-14
Sep-14
Cisco
SAP
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Argument II: Turnaround Strategy: Focus on Long Term Revenue
Perpetual to Subscription
 The market is not compensating for BB’s intrinsic value because it is short term focused. BB’s current strategy is to
aggressively shift the software business from perpetual license to a subscription base. As a result, subscription will have a
lower revenue in the current quarter but can generate a much larger and repeatable revenue stream
 Revenue is further compressed because implementation of programs like the EZ Pass
EZ Pass is a incentive program that provide users with free perpetual BES10 Silver license
 Even though the program compresses current margins, but it is prudent to expand its current enterprise user base
– By the end of Q1, BB had 1.2million license trade in, by the end of last quarter 3.4 million license has been issued
– Out of the 3.4 million license, almost one third license has been traded in from competitors, such as Mobile Iron, Good
and AirWatch
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Argument III: Turnaround Strategy: Focus on Cost
Real Estate
Reduction of OPEX
 Divested majority of its Canadian commercial real
estate portfolio in Waterloo, Mississauga, Cambridge
and Ottawa. Sold $278 million and lease back a
portion of the space, on Jan 2014.
– Doing so will free up cash on hand and the
company will also benefit from tax savings
 Reduction of R&D cost (decreased by 48.3% in the Q2
2015)
– The company announced a 40% slash in workforce.
The decrease in salaries and benefits
 Selling, Marketing and Admin Expense decreased by
51.3%
4000
2000
3000
1500
2000
1000
1000
500
0
0
2011
2012
2013
Cost of Revenue
2014
2015
Operating Expenses
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Argument IV: Turnaround Strategy: Focus on Enterprise and Security
Growth by Acquisition
Company
Time
Company Overview
Rationale

Jul 2014


Sept 2014


A partner since 2009. Primary solution is
the encryption of voice and data


CloudPhone: Allow to use mobile numbers
on non-SIM platforms

Automates bill split on personal device

between private and business
Allows use to have multiples numbers
without swapping SIMs
Fits well with Blackberry’s current portfolio that focuses on
security.
This acquisition can potentially make Blackberry the leader
in secure phone calls
Anti-Eavesdropping market is beginning to show moment
(NSA – German Chancellor incident)
Acquisition addresses the increase adoption of BYOD
Fits well with BES (Secure Work Space & Balancce) as BB
continues to improve its ability to manage not only BB
devices but also devices on other platforms
 These acquisitions are complementary to Blackberry’s overall business and assets. It also reassures the company’s renewed
focus on its core strengths of enterprise and security
 As Blackberry moves towards a cash flow breakeven point, there will be more strategic acquisition which will enhance the
value of the business
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Argument V: Turnaround Strategy: Device
Change to Device Business
 Previously BB tried to compete with Apple and Samsung in the consumer mobile market, by introducing the Z10. Failed
miserably, as a result, the company recorded a write down of $934 million.
 As a result, BB teamed up with Foxconn. Under this new partnership, Foxconn is jointly developing and manufacturing
certain new BB devices and managing the inventory associated with those devices
Google Search Analytics
A shift of focus towards emerging market by implementing Z3
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Argument VI: Turnaround Strategy: Organizational Structure
Transition to Operating Unit Organizational Structure
 In 2013, the company has announced that it is planning to transition to an operating unit organizational structure consisting
of: Device, Enterprise, QNX, and Messaging. This was very similar to what John Chen did back at Sybase: as he broke the
structure down into smaller chunks, so it allowed the company to react quickly to changes and decisions
 By allowing each operating unit to focus on its own operations will provide strategic flexibility and the ability to move quickly
and swiftly in this changing environment
– Starting to see a trend of organizational restructures
Company
Date
Description
Market Reaction
Sep 30
Ebay spinning off PayPal as separate company
+9%
Oct 6
Split into 2 companies, HP Enterprise & HP Inc.
+5%
Oct 10
Split into 2 companies, one focus on security and other focus
on storage
-2%
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SECTION 4
Valuations
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Valuations: Peer Group Comparable
Company (Ticker)
Market Capitilzation
Apple
Google
IBM
Average
Median
Cisco
SAP
Vmware
Average
Median
Motorola
Citrix
Blackberry
HTC
US Cellular
Mobile Iron
Average
Median
Enterprise Value
2014E EV/Sales 2015E EV/Sales
2014E PE
2015E PE
2014E P/B
2015E P/B
EV/2014E FCF
EV/2015E FCF
15.89
21.01
10.38
15.8
15.9
13.79
17.69
9.39
13.6
13.8
5.07
3.48
7.21
5.3
5.1
4.46
2.94
5.89
4.4
4.5
11.7
32.2
12.6
18.8
12.6
11.3
22.1
10.3
14.6
11.3
612,207
407,078
223,044
414,109.6
407,078.1
605,682
351,966
215,242
390,963.3
351,966.1
0.0
6.6
2.2
3.0
2.2
Large Cap
10.2
13.4
8.1
10.6
10.2
131,438
86,794
40,338
86,189.8
86,793.5
100,988
87,398
35,592
74,659.4
87,398.2
2.1
4.0
5.9
4.0
4.0
Mid Cap
6.5
11.2
17.0
11.6
11.2
10.83
15.76
25.77
17.5
15.8
10.21
14.43
21.70
15.4
14.4
1.97
3.59
5.09
3.6
3.6
1.92
3.19
4.21
3.1
3.2
9.0
23.3
17.1
16.5
17.1
8.1
20.9
15.0
14.7
15.0
15,506.99
14,786.59
5,862.23
3,593.48
3,147.49
976.83
7,312.27
4,727.85
15,339.99
13,966.19
4,672.23
1,973.48
3,620.15
829.99
6,733.67
4,146.19
2.58
4.38
1.20
0.32
0.94
6.84
2.71
1.89
Small Cap
12.92
13.43
12.35
13.60
11.06
N/A
12.67
12.92
24.68
20.27
N/A
113.74
N/A
N/A
52.90
24.68
17.30
17.48
N/A
122.18
N/A
N/A
52.32
17.48
2.58
5.12
1.44
1.37
0.77
6.61
2.98
2.01
4.63
4.24
1.44
1.37
0.76
7.81
3.38
2.84
24.66
17.78
24.15
(13.23)
(5.65)
(110.67)
(10.49)
6.06
15.06
14.79
66.37
84.34
6.15
(97.65)
14.84
14.92
2015 EV/EBIT
2014 EV/EBIT
2015 P/B
2014 P/B
2015 EV/Sales
2014 EV/Sales
$0.00
$10.00
Min to 25th
$20.00
25th to Median
$30.00
Median to 75th
$40.00
$50.00
75th to Max
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Valuations: DCF Analysis
DCF Valuation
Enterprise Value
Implied Share Price
Exit Multiple
9.0x
9.5x
10.0x
10.5x
11.0x
23.4
9.0x
9.5x
10.0x
10.5x
11.0x
14.0%
13,165
13,754
14,342
14,931
15,520
14.0%
21.92
23.04
24.15
25.27
26.39
14.5%
12,980
13,561
14,142
14,723
15,304
14.5%
21.57
22.67
23.77
24.88
25.98
15.0%
12,798
13,372
$13,945
14,519
15,092
15.0%
21.22
22.31
$23.40
24.49
25.58
15.5%
12,620
13,186
13,752
14,318
14,884
15.5%
20.88
21.96
23.03
24.11
25.18
16.0%
12,444
13,003
13,562
14,121
14,679
16.0%
20.55
21.61
22.67
23.73
24.79
Model Inputs
WACC
WACC
13,944.9
Exit Multiple
Assumptions
 MD&A: Cash Flow break even by 2012
WACC Calculation
Rf
1.9%
B
1.7
Market Cap
5,397.2
Debt
1,627.0
Rm
9.5%
Total Cap
7,024.2
Cost of Equity
18.2%
% Equity
76.8%
Tax Rate
28.0%
% Debt
23.2%
Cost of Debt
6.0%
WACC
15.0%
Share Price
10.3
Exit Multiple
10.0x
Shares Outstanding
526.6
 Q2 Transcript: Monetization of EZ Pass will kick off
beginning of 2015
 14 Annual: Workforce reduction program is likely to be
discontinued, however the CORE restructuring will
continue to incur a cost up until 2016
 OPEX reduction will likely to slowdown.
 End of inventory writedowns
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Portfolio Analysis
Price / Share
Bull, Base, Bear Analysis
30
25
24
20
18
15
12
10
$10.25
$23.4
$20.5
$8.5
6
0
21-Aug
5
0
21-Nov
21-Feb
Volume
21-May
21-Aug
Last Price
Scenario Analysis
Bull
$23
123%
Base
$21
95%
Bear
$9
-19%
Current Price
$11
Weighted Average
$17
66%
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SECTION 1
Catalysts / Risks
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Risks and Catalysts
Risk
 Failure of the widespread penetration of BES 12 into the Enterprise software market
 Failure of a divestiture to materialize
 Decline in Service Revenue market share
 Hardware fails to provide free cash flow- a catalyst for turnaround
 Increase of external offshore suppliers bargaining power - increasing costs of revenue
Catalyst
 Success launch of BES 12
 Strong reception of BB Classics
 Can implement a stock repurchase program
 Divesting its hardware business, and reinvest the cash in to the software/service side of the business to further encourage
organic growth or look into potential acquisition. *Please refer to Case Study for additional information*
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Case Study: 2004 Lenovo & IBM- Hardware Divestiture
 Background, why are they loosing market share, ultimately why they decided to sell
 Signalled an industry titan’s leave out of a niche market that it once dominated with a competitive advantage
 A mutually beneficial transaction that held future benefits for both parties
 Start of a restructuring program that initiated a 6.9% CAGR to date
 Market failed to price in the future benefits of an immense restructuring program
Lenovo’s Synergies
Overview
$1.75B USD
$1.25B Cash | $0.5B Equity
 Brand Recognition which allows a penetration into wider
geographic markets

IBMs former sales channels. R&D, existing
infrastructure
IBM’s Divestiture Benefits
IBM Personal
Computing
 Strategic partnership with Lenovo

Removal of an operating segment that had minimal
profit margins
 Establishment within the lucrative Chinese market
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