BlackBerry CEO Delivers Never-Say-Die Message

BlackBerry has announced dismal quarterly results, but its new chief executive officer, John Chen, still believes there’s cause for optimism as the company strides into a new future.

The firm posted a loss of US$4.4 billion, compared with a profit of $9 million in the same quarter ending Nov. 30 last year, on revenue of $1.19 billion. Excluding one-time items, however, the loss was $354 million, or 67 cents a share.

Mass Write-Downs

The multibillion dollar loss was due to inventory write-downs and asset impairment charges.Yet the company’s share price actually increased 16 percent to $7.26 as investors gained confidence in a move to lower the risk of further write-downs for unsold handsets.

“The market seems to be cutting them a little slack and giving them some room during the transformation,” telecommunications analyst Jeff Kagan told the E-Commerce Times. “However, there are no guarantees of success. I think virtually everyone is rooting for BlackBerry to succeed.”

Foxconn Deal

The company has begun a five-year partnership with Foxconn Technology — a key Apple manufacturer — to develop and build handsets. The first phone off the line will be a low-end device targeted at Indonesia and other developing markets. As part of the deal, BlackBerry will no longer pay for the devices Foxconn creates for it.

Chen, who took the top job last month, told investors he believes the deal will turn the handset business into a profitable one. He also expects the company to make a profit in fiscal 2016, which begins in early 2015.

Niche Potential

“To me, if Apple and Google Android and Samsung are doing so well, BlackBerry should be able to carve out a niche for themselves. They just continued to make the wrong moves,” Kagan noted.

“Working with Foxconn makes sense. Hopefully it’ll work,” he added.

“It’s a little concerning they’re leaving hardware design up to Foxconn,” Michael Morgan, senior analyst of mobile devices at ABI Research, told the E-Commerce Times.

“The reasons that they do it is to save on their fixed costs. They will outsource that and turn it into more of a variable cost with Foxconn. These are things you need to do when a company is bleeding cash — it makes it more efficient.”

Decreasing Value

“When you’re a handset OEM — look at some of the more successful ones like Samsung or Apple — they bring a lot of value to devices themselves,” Morgan continued. “When you start to offload that stuff, suddenly the value of your company is going to decrease because you don’t have control over your software or hardware. They’re going to hopefully retain differentiation through their software, but as you’re seeing the software is just not popular.”

One of the key aspects of the company that should help it grow is the services business, which handles smartphone traffic for the internal networks of government and corporate customers.

BlackBerry sold around 4.3 million handsets in the quarter and recognizes hardware revenue on 1.9 million devices — down by 1.8 million from the previous quarter.

Chen’s Success

Chen has a history of successfully turning around struggling companies. SAP bought Sybase in 2010 for $5.8 billion, after Chen had steered it to more than six times its valuation.

BlackBerry actually spent several months looking for a buyer, but it ended those efforts last month as Chen came aboard, replacing Thorsten Heins as CEO. The firm had agreed to sell to its largest shareholder, Fairfax Financial Holdings, but instead struck a deal with Fairfax and other investors to put $1 billion into the company.

Yet history suggests the cash injection and the revamp of BlackBerry’s business may not be enough to save the company.

10 Percent Survival Chance?

“When you look historically at any handset OEM that falls below profitability even once …, nine out of 10 never come back to profitability. They go out of business, they get acquired by somebody else, they merge,” ABI’s Morgan pointed out.

“Over the last five to 10 years, only LG has come back to profitability, and they don’t do it on a regular basis,” he continued. “But they also have the advantage that the handset part is just a small part of a larger conglomerate that can support the losses for a while to get them back on their feet. BlackBerry has even less of that now. They’re continuing to outsource more and more and cut more and more.”