New BlackBerry Ltd. chief executive officer John Chen unveiled a survival plan that will see the company pull back from smartphone manufacturing and stake its future on selling software and services to governments and businesses that prize communications security.
The plan, which also includes a push to expand its BlackBerry Messenger “chat” service, came as the company unveiled dismal third-quarter results but also disclosed it has $3.2-billion (U.S.) in cash, likely enough to withstand several tough quarters ahead.
“We’re no longer worrying about whether we’re going to be around,” Mr. Chen told analysts as he pledged to return the company to profitability in fiscal 2016, which begins around March, 2015. “We’re ready to fight back.”
Investors were pleased by what they heard, driving up the stock by 16 per cent to $7.74 in Toronto, its highest level since early November, when Fairfax Financial Holdings Ltd. abandoned its takeover bid for the company.
The plan does not mean BlackBerry smartphones will no longer be made. Rather, the centrepiece of Mr. Chen’s blueprint is a five-year contract to outsource most hardware design and manufacturing of those phones to Taiwan-based electronics manufacturing giant Hon Hai Precision Industry Co. Ltd., better known as Foxconn. The move follows the failure of its BlackBerry 10 line of smartphones this year.
Foxconn will manage the inventory of certain BlackBerry devices and take on a portion of the financial risk associated with sales of those phones.
In a meeting with reporters at BlackBerry’s Waterloo, Ont., headquarters, Mr. Chen said the Foxconn contract will allow his company to stanch heavy handset losses and reduce its fixed costs while offloading most of the risk to its Taiwanese partner. The partnership kicks off with a phone code-named “Jakarta” for the Indonesian market, where BlackBerry is still popular.
It will be launched by April and will likely include BlackBerry’s signature keyboard. Other devices will be geared toward other emerging markets, he said, while BlackBerry will continue to make higher-end, secure devices for institutional customers.
Mr. Chen said his focus is to protect and build the company’s share of the business of managing fleets of smartphones through BlackBerry servers for corporate and government customers. Several upstarts, including AirWatch LLC, have picked off thousands of BlackBerry customers by offering the ability to manage multiple types of devices, an option BlackBerry only began offering to customers this year. BlackBerry now has 80,000 enterprise customers; it had more than 250,000 at its peak, when it dominated the enterprise market.
“John Chen was very categorical in saying we’ll focus on enterprise,” said Veritas Investment Research analyst Neeraj Monga. “The market was looking for a focused answer. They got it.”
The second leg of his strategy is to expand offerings from the company’s QNX software business, which sells to the automotive industry but hasn’t been a big revenue generator. Mr. Chen is also aiming to improve BlackBerry’s service to major governments and businesses. BlackBerry has begun hiring to expand its enterprise sales team and it plans to open a new security technology centre in Washington to improve security for its major U.S. government clients, including the Department of Justice.
“I need to go out and convince the world that the fight has started,” he said.
Mr. Chen said the company will invest in BBM, which now has 80 million users after it was expanded to non-BlackBerry smartphone users this fall, and said the free service should start generating revenue during the 2016 fiscal year. BBM was the first mobile-only “chat” application but lost its crown to other providers by waiting too long to launch a “cross-platform” version of the app that works on the iPhone and Android devices. Several startups in the space, such as Snapchat and WhatsApp, have commanded rich valuations in recent venture financings.
Mr Chen, 58, who became interim CEO and executive chairman upon completion of a Fairfax-led refinancing last month, told reporters he plans to remain CEO “unless they replace me or until the company is on a much firmer financial footing. He said his predecessors led the company down “too many different paths” but said he would try to avoid more layoffs than the 40-per-cent reduction now under way.
During his call with analysts and meeting with reporters, Mr. Chen set a more relaxed and jovial tone than his predecessor Thorsten Heins, despite reporting the company lost $4.4-billion in the third quarter ended Nov. 30 and posted revenue of $1.2-billion, 56 per cent less than the same period a year earlier and lower than the $1.6-billion analysts had expected. Much of the loss stemmed from a $1.6-billion writedown on unsold inventory of BlackBerry 10 phones.
When reporters commented about the surge in BlackBerry’s stock price Friday, Mr. Chen quipped: “You don’t think it [was due to] my personality?” When asked about the dismal sales record of new BlackBerry 10 phones, he confided that he, too, struggled when he first tried the phones after he started at the company.
Analysts praised Mr. Chen for coming forth with a decisive plan, but see considerable challenges ahead for a company that has become marginalized a decade after creating what is now a $380-billion global smartphone industry.
“He’s doing everything he can to stabilize the situation,” Jefferies analyst Peter Misek said. “He has a Herculean task. The probabilities are against him. But there’s value here. For now, he’s stuck in no-man’s land.”
BlackBerry’s third-quarter revenue was $1.2-billion. This was the company’s third-straight year of declining revenues in the quarter, year-over-year, after reaching a peak of $5.5-billion in 2010. According to ABI Research, BlackBerry now accounts for just 1.5 per cent of the global smartphone market share.
Profit and loss
BlackBerry posted net losses of $4.4-billion for the third consecutive quarter. The company’s net income first went into the red in the fourth quarter of its 2012 fiscal year, with losses of $125-million.
Net income (loss), millions
SOURCE: Blackberry Ltd. financial statements
BlackBerry’s shares have sat at less than $10 on the Toronto Stock Exchange since September of this year. The company’s stock price hit a peak of $241 per share in 2007.