BlackBerry's 'NSA-proof' encryption a valuable asset for buyers

BlackBerry's 'NSA-proof' encryption a valuable asset for buyers

BlackBerry's possession of one of the few networks in the world that can't be hacked by the U.S. National Security Agency is a major asset for companies looking to buy the struggling smartphone maker, says one analyst who expects the enterprise IT services portion of the once mighty company will attract big players such as IBM, Cisco and Microsoft.

Peter Misek of the U.S. investment banking firm Jefferies says that despite reports alleging the NSA has been able to bypass the security measures intended to protect data on iPhones, BlackBerrys and Android devices, his company, based on conversations it has had with the NSA, is convinced that the security agency has not successfully cracked BlackBerry's custom cryptography.

"We think it's NSA-proof," Misek told CBC's business program Lang & O'Leary Exchange. "That security is so good, it takes four million years on brute compute force to hack it."

There has been much speculation in recent weeks on the future of BlackBerry, whose share of the smartphone market has dwindled to 2.7 per cent, according to IDC, as Apple iPhone and Google Android devices have became dominant.

The company has been undergoing restructuring since July and just this week announced another 60 layoffs at its Waterloo, Ont., headquarters. The company's shares closed at $10.43 US on the Nasdaq Thursday, a slight increase from Wednesday's close but down from a 52-week high of $18.32 in January when its new smartphones were launched, and far below its peak share price of $148 in June 2008.

BlackBerry has been reportedly courting potential buyers, and the speculation about who they are has been fluctuating wildly. Canadian pension funds and Microsoft have both been mentioned as potential buyers and just as quickly dismissed as not interested in the financially troubled company.

Misek expects BlackBerry will be sold off in three pieces: the BlackBerry Messenger service; the enterprise IT services; and the handset and operating system part of the business.

"The crown jewel of all crown jewels is the services business," he said on Thursday's edition of the Lang & O'Leary Exchange.

The access BlackBerry's Enterprise customers get to its network of ultra-secure servers is extremely valuable in a world where cloud computing, which allows users to access computing power from anywhere in the world using any device, is playing more and more of a role, Misek said.

He expects that many of the big players that currently provide IT services and software to businesses could potentially bid on that side of BlackBerry's business, including Microsoft, IBM, Cisco, Oracle and SAP, while Asian manufacturers such as Lenovo, ZTE and Samsung could stand to benefit from BlackBerry's handsets and operating system.

Some analysts see Microsoft's recent $7.6 billion purchase of Nokia as an impediment to any BlackBerry acquisition, but Misek sees Nokia and BlackBerry as both fitting nicely into Microsoft's evolution from a PC-focused company.

"Microsoft had to buy Nokia. It was really no choice. If they didn't have a presence in mobile, it could be game over for their Windows franchise," Misek said. "But also very important is having a role in enterprise IT. And having that services business I described is absolutely critical to their future. Otherwise, they lose to Amazon."

Analysts are speculating that BlackBerry will be sold off in an auction that could take place as early as November. Misek estimated it could go for around $15 a share if companies like Microsoft and Cisco show interest or as little as $5 a share if there are no strong bids.

"The alternative [BlackBerry doesn't find a buyer and goes out of business], frankly, would be pretty dark and actually very very bad for Canada," Misek said. "It could potentially devastate Waterloo, the tech industry and cause …a lack of a critical mass of developers in the country."

Misek said the reported lack of interest of the Canada Pension Plan Investment Board and other domestic pension funds as well as the government's failure to do more to try to keep the company in Canadian hands is disappointing, especially given that Canada currently doesn't have another innovative technology company waiting in the wings.

"I think it [the loss of BlackBerry] would be catastrophic for IT here," Misek said. "If you work in the U.S., you see how much they fight for these jobs, how promotional they are.

"How could Canada ever let this go away? It would be devastating. The future of the country is in IT."

BlackBerry shares closed at $10.77 on the TSX Thursday, a slight increase from Wednesday's close, but down from a 52-week high of $18.49 when its new smartphones were launched.

Watch Misek's full interview on the Lang & O'Leary Exchange in the video clip above.