Tuesday, November 11, 2014

BlackBerry Has No Future in Hardware

BlackBerry CEO John Chen hinted at big plans for the future, but his company may be too far gone to ever recover.

BlackBerry (BBRY) CEO John Chen, who took the reins from Thorsten Heins in November 2013, recently conducted interviews with the Financial Post and Reuters, in which he described his plans for the future of the former smartphone Goliath.

Chen stated that, among other yet-to-be-revealed plans, most of BlackBerry’s efforts will focus on reestablishing the distribution channel and sales force — not on developing and launching a slew of new devices.

Where Has BlackBerry Been, Anyway?

Since BlackBerry’s dramatic fall from grace last year after Fairfax Financial backed out of a deal to acquire the struggling handset maker for $4.7 billion, the once-dominant technology innovator essentially slipped into the shadows as BlackBerry stock cratered.

Instead of outright purchasing the company, Fairfax, along with a group of other investors, injected $1 billion into BlackBerry and subsequently replaced Thorsten Heins as CEO.

Chen’s success in turning around Sybase — a near-defunct enterprise software company valued at $360 million with a 70% chance of failure — impressed Fairfax enough to offer him the job. After 13 years at Sybase, Chen sold the company to SAP (SAP) for $5.8 billion, a turnaround story that investors hoped could be duplicated at BlackBerry.

With so much of the tech-centric world focused on the prima donnas of the industry — Apple (AAPL) and Samsung (SSNLF) — and their scandalous legal battles over patent infringements and the shape of Samsung’s Galaxy phone, Chen began the arduous struggle to stop the bleeding and reshape BlackBerry into a respectable version of its former self.

So, while Apple and Samsung bickered like kids in the back seat of the car — “No, I thought of the rectangle first!” — Chen was revamping BlackBerry from the inside out by selling assets and arranging new partnerships for cheaper manufacturing.

Can BlackBerry Ever Catch Up?

When Apple released the iPhone in 2007, the media called it the “BlackBerry Killer.” When the first Google (GOOG) Android smartphone hit the market near the end of 2008, BlackBerry’s future became even more tenuous. Shares of BlackBerry stock had peaked in August 2007 at $236, but had fallen below $50 by 2009, and steadily dropped over the next several years, losing another 90% between early 2010 and the end of 2013 to a low of $5.88.

The company’s market share — which had peaked near 20% in 2009 — dropped like a rock to less than 1%. Consumers wanted exactly the opposite of what BlackBerry offered, but instead of jumping on the bandwagon, the company tried desperately to dig its heels in and hold onto its microscopic market share.

Add to this the entry of Microsoft (MSFT) and its feeble attempt to carve out its own piece of the pie with a host of new Windows Phones, and the notion of BlackBerry ever returning to the limelight became nothing but a pie-in-the-sky pipe dream.

Why the NSA Scandal Didn’t Help BlackBerry Stock

When Edward Snowden began his now-infamous dissemination of classified NSA documents in June 2013 that revealed worldwide surveillance and data collection, BlackBerry anticipated an influx of new customers.

For those concerned about their privacy, BlackBerry offered an unprecedented level of data encryption on all handsets, the likes of which was not available on iPhones or Androids.

However, instead of a rejuvenating shot in the arm, BlackBerry stock continued its downward spiral, losing nearly 22% in the month following Snowden’s initial leak.

Some have even speculated that the company’s advanced security actually contributed to its downfall, as its data encryption resulted in limited opportunities in countries like China and Russia, where governments insist upon Orwellian access and oversight.
Could the Tables Be Turning?

Chen recently stated that he’s investigating possible partnerships with some of China’s largest mobile device manufacturers, namely Xiaomi and Lenovo (LNVGY). Since it’s unlikely that these companies are looking to release their own version of a BlackBerry-style handset, the most likely arrangement involves BlackBerry’s advanced mobile security experience.

China is the largest consumer market in the world, yet BlackBerry has never had a presence there. Chen admitted that he is looking for potential opportunities in China, and a joint venture with Xiaomi or Lenovo could prove extremely beneficial. Could this be the start of BlackBerry’s transformation from a handset maker to a mobile security software seller?

However, there’s also the possibility that Chen is seeking arrangements with Chinese device makers to further BlackBerry’s new “concept device,” which is supposedly on track to be unveiled next year. Although Chen refused to reveal any details about the device, he did state that it is not a tablet.

“If there is a breakthrough technology, something that is very iconic, and I could differentiate ourselves against others, I would love to have a tablet. But not just a normal tablet,” Chen said. So, if BlackBerry’s amazing new device isn’t a tablet, what could it be? Hopefully it’s not another QWERTY phone — the last seven years showed us how disinterested people are in those.

Bottom Line for BlackBerry Stock

BlackBerry is barely scraping the bottom of the smartphone barrel, and it’s unlikely the public will flock to a new device, no matter how impressive its features may be. If the company is to survive, it will most likely be as a B2B entity, selling software and services to other device manufacturers as opposed to direct-to-consumer hardware.

Even though BlackBerry stock isn’t even on the map anymore for a vast number of tech-savvy investors, it’s clear that John Chen sees a flickering light at the end of the tunnel. If anyone has the skill set to bring the former smartphone pioneer back to profitability, it’s Chen.

Whether his plan involves transitioning the company from a hardware manufacturer to a software developer, or focusing on a secret, cutting-edge mobile device, the task will require immense dedication and innovation. Luckily for BlackBerry, Chen seems to have an abundance of both.

This article originally appeared on InvestorPlace.com (11/11/14)

No comments :

Post a Comment