BlackBerry, which has completed the first phase of its two-year turnaround plan, is now focused on profitability and will not spread itself thin by attempting to launch too many new devices, its chief executive said. John Chen, who took the reins at the struggling mobile technology company in November 2013, has moved rapidly to try to get the one-time investor darling back on track.
The company has sold assets, struck partnerships to lower manufacturing costs and broaden app offerings, and raised cash via the sale of real estate holdings in its hometown of Waterloo, Ontario. “Once we turn this company to profitability again, I will do everything I can to never lose money ever again,” Chen told Reuters in an interview this week. “That is definitely something I am very focused on doing.” The Hong Kong-born executive, 59, made his name at Sybase, a struggling database software firm that he rescued and sold a decade later to SAP for $5.8 billion in 2010.
“If you look at my track record at Sybase, I think we made money for some 60 quarters in a row, even when the dotcom bubble blew up we were profitable. I like that philosophy,” said Chen, who added he believes the worst is now behind BlackBerry. “We will survive as a company and now I am rather confident,” he said. “We’re managing the supply chain, we are managing inventories, we are managing cash, and we have expenses now at a number that is very manageable. BlackBerry has survived; now we have to start looking at growth.” A year ago, the smartphone industry pioneer was in the midst of a painful restructuring, scrambling to find a suitor and trying to play down media reports of its “death spiral.”
A year after Chen stepped in as CEO, BlackBerry may have regained some of its lost swagger. The company is hiring again and though it has yet to turn steady profits, Chen has begun acquiring small companies and investing in growth. “He stepped in to catch a falling knife, which is what BlackBerry was at the time losing $1 billion plus,” said Prem Watsa, whose Fairfax Financial Holdings Ltd is a major shareholder and which helped bankroll a debt recapitalization that led to Chen’s arrival. “He came in and very quickly stabilized it and very quickly laid out a roadmap to breakeven.”
The company is not out of the woods yet – even Chen stops short of saying the turnaround has succeeded – but talk of the company sliding into oblivion has faded. “John Chen has succeeded in changing the conversation about BlackBerry, and that is probably true both internally as well as externally,” said IDC technology analyst John Jackson. Despite the progress, many analysts are yet to be convinced. Thomson Reuters data shows that 25 of 37 analysts covering BlackBerry have a ‘hold’ rating on the stock. Only one has a ‘buy’ rating and the rest rate the stock a ‘sell.’ And although its shares have strengthened since Chen’s arrival, its Toronto-listed stock has been bound in the C$6 to C$12.50 range in the last 12 months.
“Overall we think John is doing a solid job, but our concern continues to be: how will BlackBerry drive demand for its product,” said Morningstar analyst Brian Colello. “The demand side of the equation is still a concern, both around selling millions of devices each year and converting enterprise software users into paying buyers in a very competitive market.” To spur growth, BlackBerry is launching its latest mobile device management platform, BES 12, this week. The system will allow companies and government agencies to manage and secure not just BlackBerry devices on their internal networks, but devices that run on rival operating systems such as Android, Windows and Apple’s iOS. In December, the company will launch BlackBerry Classic, a device similar to its once popular Bold smartphone.
NEW DEVICE PLANS
In September, BlackBerry reported a profit, on an adjusted basis, from its struggling handset business for the first time in five quarters. Tough competition from Apple, Samsung and other rivals has eaten into BlackBerry’s once dominant market share, hurting revenue and profitability in both the unit and company. BlackBerry is “reasonably comfortable” it can keep making money from its handset business, given operating margins, Chen said, noting orders for its new unconventionally-shaped Passport device have increased. “I’m happy in the receptivity of the design. I’m happy that this product is a successful product, but we did not make that many of them, so it is in limited supply almost everywhere.”
There is no final decision yet on what new devices will be launched in 2015, said Chen adding that the focus will be on a core set of smartphones that are most likely to succeed. That includes at least one radically new device and product refreshes on its Passport, Classic and its mid-level Z3 touchscreen phone. “I’m not going to build a general purpose device, simply because it is a 5-inch touchscreen,” he said, referring to the wide array of fairly standardized touchscreen smartphones in the market right now. “The Chinese can build one for 75 bucks, I can’t get enough parts together for 75 bucks.” (Reuters)