After 2 1/2 years as chief executive officer of BlackBerry Ltd., it's time for John Chen to be honest with the market, and himself. That means he needs to stop trying to pretend BlackBerry is still a device company. He's wasting his company's time, effort and money, and selling the wrong story to investors.
As long as BlackBerry is still making devices, its story is about a sad, shrinking company that used to be a market leader and innovator. Mr. Chen needs to cut the cord on this zombie business and get the market talking more about the part of his company that seems to be doing well: software.
If Waterloo, Ont. -based BlackBerry were out of the device business, what would we be talking about? The fact that it is an expanding software company with over $500-million in annual software revenue and $1.4-billion in net cash, growing faster than its competitors and increasing its top line organically at more than 20 per cent, year over year. That's not bad at all. Many software firms would kill for those kind of numbers.
Instead, the market is looking at BlackBerry's fourth-quarter numbers and sighing again, with the stock selling off Friday. Shortly after Mr. Chen started as CEO, he insisted BlackBerry could make money selling just 10 million devices a year. Then he lowered it to eight million, then five million. Now his magic number is three million. Even three million is a stretch at this point, as the company recognized revenue on a measly 600,000 units in the quarter, much less than the previous quarter and below the market's modest estimates and the company's expectations.
That's roughly one-quarter of 1 per cent of a growing global smartphone market. Ask yourself how smart a strategy it is to stay in any business where you have a 0.25-per-cent share of a market, and falling. Yet Mr. Chen sounds no less committed to the hardware business than he was two years ago.
Perhaps he can't dis the handset business given the company's first Android device, the Priv, is just out and the company managed to get all four major carriers in the United States to stock it. But staying in smartphones represents an opportunity cost. From the conference call with analysts, it sounded as if the company is spending an awful lot of energy and focus chasing after carriers, working with their sales teams and getting its own sales force to sell customers both software and hardware.
Perhaps the Priv is the company's Hail Mary, the phone that will make all the difference and turn the handset division around. Or maybe it's the just the latest of a growing number of phones launched under Mr. Chen's watch that has thus far failed to capture the market's attention. Either way, he's fighting a losing battle, and he can't seem to help himself. On Friday, he mused about looking at new mid-range corporate devices with security features. He should give up defending this flank and take the cannons to the company's front lines.
Take handsets out of the picture, and BlackBerry looks a lot more interesting. It's playing in cybersecurity, a fast-growing market where BlackBerry's experience will no doubt be welcome by nervous companies prone to hack attacks. Its QNX software business, a big hit in the auto business, remains a good play in the nascent Internet-of-things industry. The company made some good coin last year convincing other companies to pay licensing fees against its vast war chest of patents. And it still has over $1-billion, enough to add to the string of software acquisitions it made last year to bolster its position in the business of managing fleets of smartphones for governments and businesses.
If BlackBerry stopped making handsets, there would be some short-term turmoil and undoubtedly costs and noise to contend with. Handsets still account for nearly 40 per cent of the top line. But it would clean the slate and remove from discussion a business that isn't doing anything for the company's bottom line, morale or overall story. It would free Mr. Chen's attention so he could focus exclusively on software.
BlackBerry used to be a great device company. It isn't any more. The market figured that out a long time ago, Mr. Chen. It's your turn. Let's move on already.
Sean Silcoff is the co-author of Losing the Signal: The Spectacular Rise and Fall of BlackBerry.
Sean Silcoff