SMARTPHONES: Two Losers Unite in BlackBerry, TCL Alliance

Bottom line: TCL’s new licensing deal with BlackBerry will end up as a quiet failure due to TCL’s weak R&D skills and lack of consumer appeal to the BlackBerry name.  

When does adding two negatives yield a positive? The answer is “never”, but dying smartphone makers BlackBerry (Toronto: BB) and TCL (Shenzhen: 000100) are hoping that maybe this time will be different. Of course, it’s easy for me to predict disaster for this particular new alliance, and I’d be much bolder if I said this partnership might revive the two dying companies. But the truth is that neither BlackBerry’s nor TCL’s smartphone business have much going for them these days.

According to the latest headlines, TCL’s cellphone unit, TCL Communication, will make and sell BlackBerry phones under a licensing agreement that forms the backbone of their new alliance. (English article) The deal marks the first licensing arrangement for BlackBerry, as the former smartphone high-flyer tries to transition into a security software company. TCL’s new BlackBerry brand devices will also include the Canadian company’s security software.

This particular development isn’t a huge surprise, since BlackBerry said in September it would exit the smartphone business and outsource development and manufacturing of future models to third parties. Around that time it released its last self-developed model, the the Android-based DTEK60, with TCL as its manufacturing partner. That marked the end of an era for a company that was one of the earliest smartphone pioneers, but rapidly lost relevance after Apple (Nasdaq: AAPL) entered the race with its iPhones.

This latest deal has lots of similarities with a couple of others in China’s smartphone space. TCL is no stranger to this kind of alliance, since it previously purchased the similarly dying Alcatel cellphone brand more than a decade ago. In that instance it was able to partly resurrect the brand, though the revival provided lots of headaches and isn’t doing very well at present.

TCL Communication was previously listed in Hong Kong, but was privatized this year by its Shenzhen-listed parent, TCL Corp, due to lack of investor interest. A look at its latest sales report makes it quite clear why investors had little or no interest in the company, since its smartphone sales were down 30 percent in November, and down 16 percent for the first 11 months of the year.

Lenovo Lesson

The other noteworthy comparison comes from equally struggling rival smartphone maker Lenovo (HKEx: 992). Both TCL and Lenovo are better known for other products, in this case TVs and PCs, respectively. But each also realized the need to find new revenue sources, and was trying to diversify into smartphones. In Lenovo’s case, it bet on another famous old brand, Motorola, and has seen its smartphone business plummet due to inability to revive the storied cellphone maker.

Those 2 parables bring us back to this latest BlackBerry-TCL alliance, which really does seem rather doomed if past experience is any indicator. TCL can take small comfort in the fact that it was able to revive Alcatel to some extent, and even experienced a brief rebound for the brand. This time, TCL is also getting smarter and simply licensing the BlackBerry name, unlike the Alcatel deal where it actually bought the French company’s smartphone business and ended up with lots of labor-related problems.

But in this case the Lenovo story seems like the more relevant example. Lenovo also had some past success in buying and reviving a dying brand, with its purchase of IBM’s (NYSE: IBM) PC assets a decade ago. But smartphones proved to be a far more complex story, partly because the sector is far more competitive than PCs ever really were.

I still have a healthy respect for TCL founder and chief Li Dongsheng, who really was one of China’s earliest high-tech visionaries and has built an empire that continues to be a leader in the TV space. But I honestly don’t see TCL being able to revive the BlackBerry brand to any major extent, partly due to its lack of R&D skills and also because the brand itself is so passe by now. Accordingly, I expect this alliance will end in quiet failure, which will formally come when the current licensing deal ends and TCL decides not to renew, assuming BlackBerry is still around by then.