Evercore’s Mark McKechnie and Zachary Amsel analyze AirWatch as a challenger to  BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) in a very competitive arena.

BlackBerry

VMW for AirWatch increases competitive threat

VMware, Inc. (NYSE:VMW) this morning announced plans to acquire AirWatch, the Mobile Device/Workforce management specialist.

We have been tracking and writing about AirWatch for the past several years as a key BYOD player that has been challenging BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s BES / NOC / Smart Phone offering. AirWatch provides an open/secure Mobile Device Management (“MDM”) and Mobile Application Management (“MAM”) solution that supports iOS, Android, Windows, Blackberry and ruggedized platforms.

VMW combination could accelerate AirWatch’s penetration

We view the broader go-to-market platform of VMWare / AirWatch as a much larger threat to BBRY which we believe will accelerate the relegation of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) to a high-end niche supplier to enterprises with advanced security and/or regulatory requirements.

$1.5B+ purchase price suggests VMW confidence in growth; we don’t think a good compare to BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s declining BES/NOC business. Deal is expected to close by the end of Q1. Purchase price includes $1.175B in cash and $365M of installment payments. VMW indicated an excess of $100M of bookings in CY13, but expects $75M in revenue for CY14 with the downtick related to purchase accounting. We estimate growth on the order of 50% / year for AirWatch going forward and potentially more with the VMW synergies. Conversely, we value BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s Enterprise Services business at ~ $1.1B based on an assumption that the business declines to ~ $1.26B annually at 15% operating margins based on 35M subscribers (down from ~ 65M currently).

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) 3-4M Subscribers?

AirWatch indicated ~ 10K enterprise customers (up from ~ 5K a year ago), including 9 of the top 10 US retailers as well as United Airlines, Renault SA (EPA:RNO), Walgreen Company (NYSE:WAG) and others. We also note strong penetration within Airlines, Financial and Healthcare verticals. We estimate 3-4M subscribers for AirWatch based on $100M in bookings at an estimated $2-$3 per month ARPU enterprise customers.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) stock on the run

Following the failed $9 buyout offer, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s stock has recovered sharply. We attribute the run entirely to a rational turnaround plan put forward by new CEO John Chen – see our note from CES “BBRY – CES takes – clear plan but what’s the end-game?” for more detail. More recently, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) announced an 80K order from the DOD and a sale/leaseback plan of its Canadian real estate properties.

PT and Risks

Our $7 PT is based on 20x our long term ‘success’ EPS power of $0.35. Risks include strong hardware (Android and Apple) competition, ongoing reduction of workforce and low morale, IP bidding wars, and difficult strategic restructuring efforts.