Three Blackberry Z10 devices are set up for a photo during a press event at a Rogers store in Toronto on Feb. 5, 2013.Fred Lum/The Globe and Mail
BlackBerry Ltd. shares have been sizzling hot so far this year, but perhaps the market is getting just a bit ahead of itself, after a misreading of a Pentagon press release sparked a huge run on the stock.
The stock jumped Monday on the Toronto Stock Exchange, then extended gains on the Nasdaq after U.S. markets returned from the Martin Luther King Jr. Day break, on supposed news that the U.S. Department of Defense had ordered 80,000 BlackBerrys. At least that was the distinct impression left by numerous tech, investment and even mainstream blogs based on their rehashing of other news reports.
But BlackBerry never disclosed any such order and, on Thursday, declined further comment.
On Thursday, the U.S. defense department told tech website The Verge in a statement "Absolutely no new orders have been placed for new BB devices. The DISA press release … never alluded to any devices being purchased. The 80,000 BBs and 1,800 non-BB devices referenced in the release are legacy systems already in DoD inventories."
So what did the Jan. 16 press release from the Defense Information Systems Agency actually say? The release, about DISA's ongoing move to support "unclassified mobile devices," said it would have the capacity on the network for "up to 100,000 users" of the unclassified devices by the end of the fiscal year. At the moment, this program supports 1,800 "unclassified" tablets and phones from Apple, Samsung and Motorola – and "also supports 80,000 BlackBerry phones."
Not only does the release make no mention of new orders for BlackBerry, it is evident the market has been reading it entirely the wrong way. This is not good news for BlackBerry, but rather the opposite. Rather than focusing on the 80,000 BlackBerrys in service, readers should note that the Pentagon is now allowing employees to use non-BlackBerry devices for unclassified functions. Later in the release, DISA says it "is working to create a secure adaptive mobile environment necessary [to] incorporate the steady advancement of technology, including application development, changing security architecture requirements, and continuous enhancement of equipment." Reading between the lines, this suggests the Pentagon is warming to recent efforts by both Apple and Samsung to increase security features of their smartphones to make them "enterprise grade" and thus more appealing for deployment by government and corporate IT departments – a market BlackBerry still dominates.
In fact, an earlier report by industry journal Defense One in November – when BlackBerry was a market pariah – noted that the Defense Department, one of BlackBerry's largest customers, "is distancing itself from the struggling vendor" as it increases its capability to secure "all mobile devices." While BlackBerry has long had the only "authority to operate" designation from the Pentagon to plug into defence networks, Pentagon spokesman Lt. Co. Damien Pickart told the publication in November the agency's "mobility strategy and commercial mobile device implementation plan includes reliance on multiple vendors to support its mobile communications needs." The Pentagon expects to have 300,000 government-approved consumer devices on its network by 2016. How many of the 200,000-plus yet to come will be BlackBerrys?
So strike the Pentagon's stealth contract-that-never-was off the list of reasons to get excited about BlackBerry stock. There are other reasons to believe in BlackBerry's continued health in the medium term – including its manufacturing outsourcing deal with Foxconn Technology Group, its ample liquidity and one very enthusiastic CEO in new arrival John Chen. But for the time being, beware any sharp movements in this stock as reason to believe the turnaround has started. BlackBerry stock was down 5 per cent in late afternoon, far exceeding losses by other stocks in a down day for the markets, and closed down 3 per cent.
Sean Silcoff