The message of BlackBerry’s fall: the mightiest tech firms are vulnerable

Technology, especially IT, has long been the hunting ground for investors wanting to make a fortune by backing the next Microsoft, Apple or Google. That’s fine — but where fortunes can be made overnight, they can also be lost. And that should worry bondholders, who are supposed to be looking for long term, stable returns.

  • By Jon Hay
  • 05 Nov 2013
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Something is happening to the world’s biggest and most successful technology companies. Even a switched-on schoolchild can see that. Investors, on the other hand, don’t seem to care.

Meteoric rises and equally meteoric falls are becoming common — and can follow each other horrifyingly fast.

For 14 years the market leader, Nokia still had the biggest global market share in mobile phones as 2012 began. But its direction of travel was already clear, and widely seen as inexorable.

Stephen Elop, CEO, had declared a year earlier that Nokia was on a “burning platform”. From the beginning of 2010 to mid-2012, the shares lost four fifths of their value. Nokia’s bonds, rated A1/A in 2009, are now B1/B+.

This week’s pitiable casualty is Research in Motion, renamed BlackBerry. Fortunately for investors, it never issued any bonds, but since mid-2009 shareholders have lost 90% of their money.

This company, like Nokia, helped redefine personal telephony. But what is left to show for its achievements?

The frightening thing for investors is that BlackBerry’s results were astonishingly good. From about 2003 to 2011, every metric described a perfect curve of exponential growth. In four years to March 2011, revenue swelled fourfold, shareholders’ equity 3.6 times, net income 5.4 times.

Yet the company is now a rescue case, grateful to trade a 16% stake for a $1bn cash injection from Fairfax Financial. Just in case, the investment is structured as a convertible that would be favoured in bankruptcy.

The savage speed with which market leaders can become walking wounded should make all investors in tech companies think very carefully.

IBM, rated Aa3/AA-, sold €2.5bn bond of seven and 12 year bonds last week at just 42bp and 68bp over mid-swaps. In April, Microsoft, rated Aaa/AAA, got a €7.5bn book for a 20 year euro bond.

Apple’s $17bn bond issue in April, which attracted a $52bn book, was one of the most wildly successful ever – until Verizon came along in September.

But when Nokia and BlackBerry can go from heroes to zeroes in three years, who is really sure these Olympians of the US tech pantheon will still be quaffing nectar in 20 or 30 years’ time?

OK, these companies have a lot of cash. But Nokia had €9bn in 2009 — how long did that last? And short-termist activist investors like Carl Icahn and David Einhorn are lobbying the tech monsters to disgorge their cash — as Apple did in the first quarter, doubling its share buyback programme to $100bn.

The mighty tech companies’ bonds do not offer yield. Do they offer safety? Only if you think little is going to change in the world of technology. Check with your 12 year old before you repeat that idea.

  • By Jon Hay
  • 05 Nov 2013

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 70,767.73 236 8.54%
2 JPMorgan 65,265.75 234 7.88%
3 Barclays 56,658.40 187 6.84%
4 Bank of America Merrill Lynch 49,197.71 178 5.94%
5 Deutsche Bank 44,635.32 162 5.39%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Bank of America Merrill Lynch 6,812.19 7 16.21%
2 Deutsche Bank 3,538.77 6 8.42%
3 Citi 2,570.45 7 6.12%
4 Commerzbank Group 2,532.05 5 6.02%
5 BNP Paribas 1,798.71 8 4.28%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 UBS 998.25 3 11.59%
2 Citi 801.18 3 9.31%
3 Morgan Stanley 606.80 4 7.05%
4 Bank of America Merrill Lynch 509.34 3 5.92%
5 SG Corporate & Investment Banking 431.66 3 5.01%