Canada's Fairfax offers to acquire BlackBerry in $4.7 billion deal

A consortium led by Canada’s Fairfax Financial Holdings has offered to acquire struggling smartphone maker BlackBerry.

The proposed deal, which is supported by BlackBerry’s board of directors, values the company at $4.7 billion.

Fairfax already owns about 10 percent of BlackBerry stock and would acquire the remainder for $9 per share and take the company private under the terms of a letter of intent. BlackBerry stock was trading at around $8.25 when the deal was announced.

But for the deal to be completed, the consortium has to complete due diligence. That’s expected to end around Nov. 4. Until then, the deal could still fall apart or have the terms of the acquisition changed.

The letter of intent allows BlackBerry to keep talking with other potential investors before a final deal is signed with the Fairfax consortium.

“This is probably the best possible outcome of several unattractive options for BlackBerry,” said analyst Jack Gold, of J. Gold Associates, in an email. He said the deal could give the company time to restructure and keep investors from “breathing down their neck.”

The deal would also “provide them with some financial stability so its enterprise customers would not feel compelled to replace them for fear of going out of business,” he said. Enterprise customers are important to BlackBerry and the company said last week it would focus future efforts on them rather than consumers.

“But it won’t be easy. Negative press on its situation can sometimes be a self-fulfilling prophesy, and the market may not be kind to them even if they do provide innovative products and services,” he said.

BlackBerry was once the leader of the smartphone sector. At a time when other companies were asking consumers to struggle with clunky web interfaces to email, BlackBerry revolutionized messaging with its handsets that combined an email client with a real keyboard.

But the company failed to evolve its handset range when Apple launched its iPhone and full-screen touchphones began attracting consumers. Its BlackBerry 10 operating system, released earlier this year after more than a year of delays, was an attempt to turn things around, but many analysts saw it as coming too late.

Consumers apparently feel the same way. On Friday, BlackBerry said it would take almost $1 billion in charges on unsold Z10 handsets. The Z10 was the launch flagship of the new BlackBerry 10 operating system.

BlackBerry has also dropped behind Microsoft’s Windows Phone to become number four in the smartphone market, according to the latest estimate from IDC. Google’s Android accounts for around 80 percent of the market, Apple’s iOS comes in second with 13 percent, Windows Phone at third with 4 percent and BlackBerry at 3 percent.

BlackBerry’s best bet would be to focus on secure communications for government and enterprise, with branded devices as part of its portfolio, said analyst Roger Kay of Endpoint Technologies Associates. But as a financial company, Fairfax probably would be open to a breakup if that offered the best return, he said.

Fairfax’s likely intent is to turn the company around for sale to a strategic partner, Kay said. That might take the form of an enterprise IT giant such as Oracle or Hewlett-Packard, which could make BlackBerry part of a larger security and mobile play.

BlackBerry Z10

If Fairfax plans to keep the company together, it should say so, said analyst Avi Greengart of Current Analysis. Microsoft did the right thing earlier this month when it announced plans to buy Nokia and expressed a clear commitment to the company and its devices, he said.

Unfortunately, it’s not yet clear why Fairfax wants to buy BlackBerry or what it plans to do with the company, Greengart said. Taking the company private would stop the decline in its stock price, but not much else, he said.

“This is not a company that’s coming in with new distribution, new technology, new management, new marketing,” Greengart said.

Fairfax might sell BlackBerry whole, narrow its focus to mobile device management or break it up into pieces that other vendors might want, he said.

Whatever Fairfax’s plans may be, BlackBerry is due for a new CEO, Endpoint’s Kay said.

“Thorsten Heins is probably out within the week,” he said. After a weak launch of the BlackBerry 10 OS earlier this year and the $1 billion Z10 writedown, Heins has proved he doesn’t get it, Kay said.

Greengart said Fairfax might keep Heins on board while selling off parts of BlackBerry, a strategy Heins has already carried out in some areas. But at BlackBerry, “I don’t think anybody’s job is secure,” he said.

Updated again 9/23/2013 at 1:30 p.m. PDT

Martyn Williams covers mobile telecoms, Silicon Valley and general technology breaking news for The IDG News Service.
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Mobile app download tally will soar above 102 billion this year

Mobile apps continue to be a major driver of the smartphone and tablet ecosystem and are a big reason people purchase and use those devices.

Gartner on Thursday said the number of overall mobile app downloads -- both free and paid -- will soar to 102 billion by the end of this year, up from 64 billion in 2012. By 2017, the number of app downloads should reach nearly 269 billion.

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Mobile app revenues will be $26 billion in 2013, up from $18 billion last year, Gartner said. That $26 billion in revenues comes from paid downloads and in-app purchases -- even though only 9 percent of all downloads this year cost money. The rest, 91 percent, are free.

Gartner projected this upward trend for app downloads will continue for its entire forecast period through 2017, with the strongest growth through 2014, when nearly 139 billion downloads are projected. As the global market for smartphones and tablets gets more saturated, users will have accumulated a portfolio of apps so new app downloads will slow.

According to Gartner, the Android and iOS app stores combined will command 90 percent of global downloads in 2017. Today, the two operating systems have by far the largest app stores, with Apple reporting in June that it had more than 900,000 apps, and Google saying in July that it had more than 1 million Google Play store apps.

Both stores have rich ecosystems and large and active developer communities, Gartner noted. The absence of active developer communities is one reason Windows Phone and BlackBerry each have less than 5 percent of smartphone market, according to various analysts.

The trend toward downloading fewer apps in coming years is reflected in what Gartner calls average monthly downloads. For iPhones and iPads, the average monthly download per device will drop from 4.9 in 2013 to 3.9 in 2017. For Android phones and tablets, the same measure will decline from 6.2 in 2013 to 5.8 in 2017.

The reduction relates "to the overall trend of users using the same apps more often rather than downloading new ones," said Brian Blau, a Gartner analyst.

Free apps make up the overwhelming number of apps downloaded: 90 percent in 2012, 91 percent this year, and a projected 95 percent in 2017. About 60 percent of apps in the Apple App Store today are free, while nearly 80 percent are free in Google Play, Blau said.

Gartner also said that in-app purchases make up 11 percent of all app store revenue today, a figure that will rise to almost 50 percent by 2017. An in-app purchase occurs when a user downloads a game, productivity, music or other app and then purchases added features from within the app. The mechanism for creating an in-app purchase requires a developer to write special code.

In-app purchases are a significant portion of Apple App Store revenue on iPhones, Gartner said, without giving an exact amount.

"Users are not put off by the fact that they have already paid for an app and are willing to spend more if they are happy with the experience," Blau said.

In fact, the growth of in-app purchasing will pose a challenge for developers, Gartner said. "Users only pay when they are happy with the experience and developers have to work hard to earn the revenue through good design and performance," Blau said.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

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Read more about mobile apps in Computerworld's Mobile Apps Topic Center.

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Verizon shells out $130 billion to Vodafone for mobile unit

Verizon Communications has reached an agreement to buy Vodafone Group's 45 percent stake in its Verizon Wireless subsidiary for $130 billion.

Under the deal, Verizon will take 100 percent ownership of the wireless unit, the largest mobile operator in the U.S. This will enhance its ability to offer customers "seamless and integrated services," the carrier said in a press release.

The transaction has been unanimously approved by the boards of both companies and is expected to close in the first quarter of 2014, subject to customary regulatory approvals. Verizon will pay a combination of cash and stock for Vodafone's stake.

"As a wholly owned entity, Verizon Wireless will be better equipped to take advantage of the changing competitive dynamics in the market and capitalize on the continuing evolution of consumer demand for wireless, video and broadband services," Verizon Chairman and CEO Lowell McAdam said in the press release.

"This transaction allows both Vodafone and Verizon to execute on their long-term strategic objectives," Vodafone Group CEO Vittorio Colao said in the release. "Our two companies have had a long and successful partnership and have grown Verizon Wireless into a market leader with great momentum. We wish Lowell and the Verizon team continuing success over the years ahead."

Verizon has sought to buy out its wireless business, originally formed as a joint venture with Vodafone, for several years. The transaction is unlikely to have a significant impact on U.S. mobile consumers, industry analysts said last week. Vodafone may use the huge windfall to buy smaller carriers and further its pursuit of wireline operations, analysts said.

Verizon was willing to pay a sky-high price for Vodafone's stake because of the strategic importance of the deal, said Chetan Sharma, founder and president of Chetan Sharma Consulting.

"They will be in control of their own destiny and they clearly believe in their future and that the stake will be worth a lot more in a few years," Sharma said in an email interview.

Because Verizon stock will make up part of the deal, it's a good one for Vodafone, said analyst Roger Entner of Recon Analytics.

"This transaction shows continued faith about the outperformance of of VZW and the U.S. wireless market in general," Entner said via email. "It also allows Vodafone to continue to participate in the upside in the U.S."

Vodafone is expected to use proceeds of the buyout to shore up its European business.

"What is finally motivating Vodafone is the implementation of their European integrated carrier strategy," Chetan Sharma, founder and president of Chetan Sharma Consulting, told IDG News last week.

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Microsoft to acquire Nokia's devices business for $7.17 billion

Microsoft announced Monday night that it will purchase Nokia’s devices business in a deal that will bring the Lumia smartphone line—along with Nokia CEO Stephen Elop—under the Microsoft umbrella.

The deal has been valued at 5.44 million euro ($7.17 billion), wth 1.65 billion euro of that going to license Nokia’s patents. Microsoft will also provide Nokia an additional 1.5 million euro ($1.98 billion) in convertible notes that Nokia can exercise. Microsoft isn’t buying Nokia as a whole, as the Nokia Siemens Networks enterprise business, Nokia’s HERE brand, the office of the CTO, and Nokia’s patent portfolio are not direct components of the deal.

”One brand, united voice,” Microsoft said in a presentation packet explaining the deal.

The synergies of the aquisition are obvious. Elop led the Microsoft Business Division until 2010, at which point he became Nokia’s chief executive, forging deep ties with Microsoft, and almost totally committing his company to the Windows Phone platform. Elop will lead “an expanded Devices business” at Microsoft, the company said, and will report directly to soon-to-be-departing CEO Steve Ballmer. Julie Larson-Green, who currently leads the Devices and Studios business (which includes the Xbox One and Surface tablets) will report to Elop after the deal is expected to close in the first quarter of 2014.

The most important piece of the puzzle is Nokia’s phone business, including the Lumia brand. Nokia sold 7.4 million Lumia phones in the second quarter of 2013, and 53.7 million units overall. For now, Microsoft said that it would license the Nokia brand and use it with current Nokia phone products. Lumia, presumably, will fall under the Microsoft brand name.

”One brand, united voice,” Microsoft said in a presentation packet explaining the deal.

image: michael homnickThe Lumia 1020 and its stablemates are destined for Microsoft ownership.

Of course, the deal is a slap in the face to HTC (among other handset makers), which must now assume it will play permanent second fiddle to Nokia in the Windows Phone smartphone game. Indeed, the HTC 8X was a key hardware element of Microsoft’s Windows Phone 8 launch, but overall the Lumia name has become synonymous with Windows Phone. Overall, Windows Phone ranks third among smartphone platforms, with a tiny 3.2 percent in May.

Nevertheless, Microsoft’s Steve Ballmer, who roiled the waters when he unexpectedly said he would step down within a year’s time, painted the deal as a positive for the company.

“It’s a bold step into the future – a win-win for employees, shareholders and consumers of both companies,” Ballmer said in a statement. “Bringing these great teams together will accelerate Microsoft’s share and profits in phones, and strengthen the overall opportunities for both Microsoft and our partners across our entire family of devices and services. In addition to their innovation and strength in phones at all price points, Nokia brings proven capability and talent in critical areas such as hardware design and engineering, supply chain and manufacturing management, and hardware sales, marketing and distribution.”

All told, approximately 32,000 Nokia employees are expected to transfer to Microsoft, including 4,700 people in Finland and 18,300 employees directly involved in manufacturing, assembly and packaging of products worldwide, Nokia said.

“For Nokia, this is an important moment of reinvention and from a position of financial strength, we can build our next chapter,” said Risto Siilasmaa, Chairman of the Nokia Board of Directors and, following today’s announcement, Nokia Interim CEO. “After a thorough assessment of how to maximize shareholder value, including consideration of a variety of alternatives, we believe this transaction is the best path forward for Nokia and its shareholders.”

Microsoft has not been the only OS company to buy its way into the hardware market— Google bought Motorola in 2011 for about $40.5 billion, a deal suspected to be as much for Motorola’s enormous patent portfolio as for its hardware business. That much, at least, seems to be true: Motorola hadn’t released a phone until its update to the Droid line this summer, as well as the Moto X.

But with Nokia, Microsoft also gains a long-term patent licensing agreement with Qualcomm, as well as other licensing agreements. Nokia will retain its patent portfolio and will grant Microsoft a 10-year license to its patents at the time of the deal closing. Microsoft will grant Nokia reciprocal rights to use Microsoft patents in its HERE services. In addition, Nokia will grant Microsoft an option to extend this mutual patent agreement in perpetuity, the company said. Microsoft will become a strategic licensee of the HERE platform, and will separately pay Nokia for a four-year license.

Microsoft said that it will continue to support the iPhone and Android platforms, but that it “cannot risk having Google or Apple foreclose app innovation, integration, distribution, or economics”.

”This is a smart acquisition for Microsoft, and a good deal for both companies,” Ballmer wrote in a note to employees. “We are receiving incredible talent, technology and IP. We’ve all seen the amazing work that Nokia and Microsoft have done together.  Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we expect a smooth transition and great execution.”

Microsoft plans to hold a conference call Tuesday morning to explain the deal to Wall Street analysts.

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Reports: Verizon, Vodafone close to $130 billion deal

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COBOL-based system for $160 billion pension fund is a political football

A COBOL (common business oriented language)-based system used to support New York’s $160 billion state pension fund has become the subject of controversy, with some officials claiming it poses a potential security risk and others defending it as “battle-tested,” albeit set to be replaced.

Dubbed MEBEL (member, employer, benefits, executive and legal), the system dates back more than 25 years, according to an audit released earlier this month by the state Department of Financial Services. It “supports the core business processes of the retirement system including benefits processing, calculating and payment, employer billing and reporting, and enrollment and termination of membership,” the audit adds.

“Using a system that is more than 25 years old for such a high volume of transactions is dangerous, particularly because the systems and programs MEBEL was intended to interface with are also now very outdated and there are a small and dwindling number of specialists able to use and maintain them,” the audit states.

The audit also found that MEBEL had been using versions of IBM’s z/OS mainframe operating system and Microsoft’s SQL Server that were so out of date, they weren’t supported by the vendors. While the state has upgraded SQL Server it won’t do the same for z/OS until later this year, according to the audit.

“Software vendors do not create security patches or fixes for recently identified problems for software that is past their formal support end dates,” it adds. “This lack of security and functionality protection leaves the retirement system’s data vulnerable to bugs and to security breaches, including attacks by hackers.”

The Department of Financial Services falls under the auspices of New York Governor Andrew Cuomo’s administration, but the pension system is overseen by New York state Comptroller Thomas DiNapoli, who is elected separately and also serves as the state’s auditor. The two have sparred politically over various issues in recent years, including DiNapoli’s handling of the pension fund and Cuomo’s budget proposals.

DiNapoli’s office responded to the DFS audit on Friday, saying it contained “numerous inaccuracies, misleading statements and errors.”

MEBEL is a “secure and battle-tested system” and COBOL is a “very stable language used extensively throughout state government as well as financial institutions around the world,” the statement added.

A “reliable work horse,” MEBEL has been “constantly maintained and updated,” DiNapoli’s office said. “None of the hardware or software used by the System is old. The mainframe was purchased in 2009 and the software is current. A stable computer system has a low risk of sudden and arbitrary failure.”

Although COBOL dates back more than five decades, its time of invention is “irrelevant” in light of this ongoing maintenance, he added.

Nor is the suggestion of a security risk accurate, as MEBEL isn’t directly accessible from external sources, DiNapoli said.

As for skilled COBOL programmers, the comptroller’s office has had great success in hiring candidates from outside as well as training new staff on it and IBM’s CICS (customer information control system) transaction server, which is also used in MEBEL, DiNapoli said.

However, MEBEL alone has not met all of the necessary requirements and DiNapoli’s team has added other technologies to it, he said.

While MEBEL is scheduled for replacement, the DFS auditors and DiNapoli also disagreed on how long the process has been under way, with the former saying it “should have started years ago” and DiNapoli insisting it indeed has.

Accenture has been selected as the contractor on the project, which is in the early planning stages now.

The new system will primarily use Oracle’s PeopleSoft ERP (enterprise resource planning) software, according to DiNapoli spokesman Eric Sumberg.

A pension-check-writing component will likely be written with MicroFocus COBOL tools, he said via email on Tuesday. Fewer than 10 percent of pension plan beneficiaries receive checks, with most getting direct deposit into bank accounts.

The politically charged dispute over MEBEL’s viability ties into broader, ongoing debates surrounding application modernization, as well as the long-term viability of COBOL as IT professionals proficient in it edge closer to retirement.

While vendors have begun offering products aimed at porting COBOL applications to other platforms, billions of lines of COBOL code are still out there running critical systems and will likely do so for some time to come.

Meanwhile, a study released by MicroFocus earlier this year found that the majority of universities polled didn’t offer COBOL classes.

Chris Kanaracus covers enterprise software and general technology breaking news for the IDG News Service.
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IBM, Verizon to compete for $10 billion in government cloud work

IBM, Verizon and eight other companies will compete for $10 billion worth of work to help move the U.S. Department of the Interior’s IT systems to the cloud.

The Department of Interior (DOI) anticipates saving over $100 million a year between 2016 and 2020 by shifting workloads from the 400 data centers that it now maintains.

“These contracts will not only allow us to move these apps to the cloud, but move them in a well-planned, methodical way,” wrote Andrew Jackson, DOI deputy assistant secretary for technology, information and business services, in a statement.

Ten companies have each been awarded an Indefinite Delivery Indefinite Quantity (IDIQ) contracts that will allow them to compete for individual task orders in building out the Interior Department’s cloud. AT&T, IBM, CGI Group, Unisys, Verizon, Lockheed Martin, Aquilent, Autonomic Resources, Global Technology Resources and Smartronix all were awarded contracts.

Typically with an IDIQ contract, a company is not awarded any money initially. An IDIQ is often referred to as a license to hunt, meaning that it is a set of terms that have been pre-negotiated between the vendor and the agency to expedite the process of issuing work orders.

With this IDIQ, the DOI will issue task orders for individual projects, which these 10 companies will compete for. Each company can be awarded up to $1 billion of work for DOI.

Other U.S. federal government agencies can use the IDIQ contract vehicle for their own work as well.

The first project under this contract vehicle will be to set up and host an SAP implementation. The agency will also issue task orders for virtual machines, storage, database hosting, secure file transfers, Web hosting, as well as for maintaining development and test environments.

The contract vehicle was scheduled to be issued in May, but was held up by a protest from a vendor that was not included in the final selection. CenturyLink argued that the contract wording was too vague to be truly competitive. The Court of Federal Claims struck down that challenge last week.

The DOI has been working with cloud computing for awhile. In 2012, the agency began consolidating all of its email and collaboration services to a cloud service, Google Apps for Government.

For IBM, the DOI contract is potentially the largest cloud computing job the company has been awarded. IBM expects that it will use the assets from its recent purchase of IaaS (infrastructure-as-a-service) provider Softlayer, which it plans to use in its Smart Cloud for Government hosted service.

Comprised of 16 bureaus and offices, the DOI oversees federal owned lands and U.S. natural resources, including 500 million acres of park lands. Its annual IT budget is more than $1 billion a year.

Joab Jackson covers enterprise software and general technology breaking news for the IDG News Service.
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