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To save BlackBerry, John Chen cut its revenues by 80%, reduced its head count by half and ditched handsets all together. Now he just has to make it grow again

John Chen, the CEO of BlackBerry Ltd., looks Lilliputian next to the huge white projection screen in the atrium of Detroit's Cobo Center. Moments before, the screen had been filled with ominous headlines about cybercriminals invading ever more of our private redoubts: our bank accounts, our work files, our health records. Most relevant to the audience here at the 2018 North American International Auto Show (NAIAS) is the fact that, with modern cars packing some 100 million lines of computer code—more than Microsoft Windows, an F-22 fighter jet and a Boeing 787 combined—hackers could turn your family sedan into a weapon of mass destruction.

The video over, Chen steps up to the mike and gets to the point. "BlackBerry at the auto show: What's the connection?" Judging by the modest turnout for his keynote speech, the question isn't purely rhetorical. It seems the news that the maker of those quaint keyboard smartphones now aims to play a central role in ushering in the driverless-car revolution hasn't fully gotten out. At the Consumer Electronics Show in Las Vegas a few days earlier, BlackBerry had made the connection more explicitly by rolling out a voluptuous Aston Martin concept car kitted out with a cockpit full of digital instruments based on BlackBerry's QNX operating system. Oddly, there's no Aston Martin here. Instead, Chen has brought along Minister of Innovation, Science and Economic Development Navdeep Bains. As Bains, topped by his signature red turban, praises Chen's transformation of BlackBerry, heads lean over phones and people sneak out to take calls.

The pride of Waterloo, Ontario, used to have a simple and compelling story to tell: We pioneered the smartphone. Everyone in business and in power uses our devices. They may not be the snazziest, but they're the most secure. That tale didn't have a happy ending, as new competitors changed the plot, bringing BlackBerry to the brink of death.

Today, its narrative is dramatically different and more complicated. BlackBerry is no longer about hardware but software. And not just for phones but for all kinds of devices—any web of connected machines controlled by a central enterprise. It could be a corporate network of mobile gadgets or a trucking fleet or diagnostic instruments in a hospital. The car is increasingly another such node on the Internet of Things (IoT)—a mobile communication device in the literal sense. "Everybody is in the Internet of Things; everybody has a strategy," Chen tells the audience at NAIAS. "We protect our customer from cybersecurity attacks—that is our calling card."

The thing is, much of this vision has yet to be realized. Today, more than three-quarters of BlackBerry's revenue comes from supporting the mobility networks of the big companies and governments largely responsible for its original success. New BlackBerry-branded phones still come out regularly. But give it time. It's been only four years since Chen was appointed CEO. The consensus at the time was that BlackBerry was done—it was too late to save it. But after a gruelling reorganization under intense public scrutiny, the company is out of danger. It's a much smaller entity, though, with revenues a mere 15th of what they once were. A work force that at one time topped 20,000 has dwindled to 4,000. At its peak, BlackBerry boasted a market cap of $83 billion; today, it's less than $7 billion. In essence, Chen shrank the company back to health.

Now comes Chapter 2 in BlackBerry's new story: the growth phase. And no one is watching it more closely than the company's biggest shareholder. "In high tech, the big risk is that things change," says Prem Watsa, CEO of Fairfax Financial Holdings. "BlackBerry went from $20 billion in revenue to $1 billion and survived. The advantage is that, on the other side, you get two or three things going for you and you can catch a wave." Chen's surfing skills are about to be put to the test.

John Chen's handshake is so firm as to be downright painful, as if he wants to convey his control of the situation. Ensconced in a drab, windowless meeting room off the NAIAS showroom floor, he offers a warm greeting, but his demeanour is opaque, his arms folded across his body. His face, framed by rimless glasses, sports a slight pink flush that helps make him look much younger than his 62 years.

Chen came to BlackBerry with a well-earned reputation as a turnaround guy. Born and raised in Hong Kong, he had trained as an engineer and spent his career rising up the executive ranks of California's tech sector. His first turnaround was at server maker Pyramid Technology, later acquired by Siemens. But it was what Chen achieved at database developer Sybase Inc. that made him one of the computer industry's most celebrated corporate fixers. When he joined in 1997, the company was rapidly losing market share. Rising to CEO a year later—one of the first Asian-Americans to hold the position at a major U.S. company—he slashed costs and decided to bet on the nascent arena of mobile software, which no other big database player cared about. As he told The New York Times in 2006, he wanted "to skip a generation and go ahead of our competitors." It was a strategy born of necessity, Chen has admitted, as Sybase couldn't compete with the likes of Oracle in traditional segments, but it proved a visionary move. When SAP bought Sybase for $5.8 billion (U.S.) in 2010—eight times its value when Chen took over—the company's leadership in embedded mobile software was the main attraction.

Chen stayed at SAP through the integration, earning his boss's unvarnished admiration. "Your readers should know that John has never made a commitment to me that he has not delivered," says Bill McDermott, SAP's CEO. "There's no leader I would rather see in a turnaround situation than John Chen." After a couple of years, Chen left to join private equity firm Silver Lake Partners, and when Watsa initially approached him about going to BlackBerry, he wasn't keen. "I didn't want to run another public company, with all the things a public company CEO has to do," he says. Married, with four high-achieving kids (including a surgeon, a lawyer and an engineer), and living in Northern California, he sat on boards and pursued his passion for golf while he considered his options. He had his eye on politics or, at least, political backrooms; he was already an important player in forging U.S.-Asia relations, having chaired the President's Export Council under George W. Bush.

It took Watsa three attempts before Chen agreed to take on the BlackBerry challenge. He told Watsa, "I really feel sorry for BlackBerry." Initially, Chen was skeptical about the company's chances for survival. "It was within months of imploding," he says. But with Fairfax leading a $1-billion (U.S.) refinancing to ease the immediate crisis, the lure of turning around an iconic company proved irresistible. "If I'm going to take a risk of running a business in deep trouble, I want to know that it's meaningful when I'm done," Chen says. "I wouldn't have come to BlackBerry if it was half-dead. If it's almost dead, then I'll do it."

The fundamental cause of the death spiral was management's underestimation of the impact the 2007 release of the iPhone would have on the handset market. This fed a number of decisions and mistakes that contributed to the company's decline. In one instance, it responded to Verizon's call to build an iPhone rival with a product that was late and full of bugs; customers returned it in droves and Verizon turned instead to Motorola and Google to build what became an early Android phone.

Throughout their decades-long partnership, co-CEOs Mike Lazaridis and Jim Balsillie complemented each other well, with Lazaridis, the engineering genius, tending to product development, while Balsillie, a brash Harvard MBA, worked on sales and business development. But success bred attention drift. "Jim wanted to buy a hockey team and got distracted," says a former senior manager who joined BlackBerry in the late 2000s. "And Mike's vision didn't filter down all the way through the company. Parts of the organization were pursuing their own agendas." Neither Balsillie nor Lazaridis would comment for this story. However, in their award-winning 2015 book Losing the Signal, reporters Sean Silcoff and Jacquie McNish found no evidence that Balsillie was distracted from his main job by his battle with the National Hockey League, and most of his colleagues corroborated that assessment.

As competition heightened and BlackBerry's market share began to sag, the C-suite was gripped by indecision. The operating system needed a major revamp, and internal disagreements produced deadly inertia in a fast-changing industry. A tablet rumoured to be coming out in the fall of 2010 didn't appear until the following spring, and the new BlackBerry 10 OS faced repeated delays. When the Z10—the first phone running the new platform—came out in January 2013, most observers thought it was two years too late; the market had moved on.

The Z10 was a massive flop, causing BlackBerry to cut 4,500 jobs—40% of its staff—that year. One of the casualties was Thorsten Heins, who'd been anointed CEO by Balsillie and Lazaridis less than two years earlier. With mounting losses and $75 billion in market value erased over the previous five years, BlackBerry put itself up for sale. Fairfax tried to buy it but couldn't close a deal, which insiders say killed employee morale.

Chen was named CEO in November 2013. One of his first tasks as chief executive was to announce a record $4.4-billion (U.S.) quarterly loss. But, unlike his predecessors, Chen moved decisively, approaching the challenge like a battlefield surgeon: The patient was profusely bleeding red ink, so the first priority was getting enough money on the balance sheet to prevent immediate death. Before Chen arrived, "BlackBerry was very loosely run, with lots of money going out and little money coming in," says Watsa. "John had to go through it with a fine-tooth comb to get the finances under control." Chen focused on selling assets and shoring up relationships with suppliers that were owed millions. But he knew doing everything at once "would be too much of a shock to the system," he says. "I remember when I cancelled a number of phones under development, that was already a shock. People said, 'What do we do now?'"

Almost as urgent was regaining the confidence of customers and employees. The work force, heavily composed of company lifers recruited straight out of the University of Waterloo, had a deeply entrenched idea of what BlackBerry did and how it did it. So Chen undertook an internal re-recruitment of sorts. "A turnaround requires a certain type of mindset," he says. "You're looking for problem solvers, and the bigger the problem, the more excited they are." Chen didn't find many at BlackBerry, it seems, as the top ranks have largely turned over since his arrival.

Within a year, the company achieved positive cash flow, and the share price doubled. But Chen was less confident than some investors. "The first year I was not sure," he says. He feared the intervention had come too late. "I'm an optimistic guy, but at times I literally felt helpless. Everything around me is not happening. I have 15 things to do, and I'm not sure which [to tackle] first."

Desperate to boost revenue, Chen zeroed in on BlackBerry's portfolio of intellectual property: some 40,000 patents spanning critical aspects of networking technology, automotive subsystems, cybersecurity and wireless communications. Before its slump, BlackBerry didn't pay much attention to milking its patents for cash or rigorously track what it was spending to license others' intellectual property. In 2010, for example, the company agreed to pay Qualcomm a huge upfront sum in return for a lower per-phone royalty. But as its device sales collapsed, that initial cheque turned out to be a massive overpayment. Chen went after it. "It was a non-refundable contract, but the team was able to find the clause that set a cap on what they paid per handset on its licence fees," says Michael Walkley, an analyst with Canaccord Genuity, calling it a "genius move." A year ago, an arbitration court awarded BlackBerry a staggering $940 million (U.S.). (In March, the company announced it was chasing even bigger prey, suing Facebook, and its Instagram and WhatsApp units, for copying BlackBerry technology in its messaging apps.)

As the company stabilized, Chen put forward a dramatic plan: BlackBerry would switch from hardware to software, and from consumers to enterprise. Chen knew from the beginning the handset business was a dead end. "It's one of those markets where the winner takes all. When BlackBerry was doing well, it was like printing money, but if you're not doing well, it's hard to turn any profit." But the transition had to be gradual, because handset revenue was a necessary cushion as the company built its enterprise software business. And it had to be carefully managed so as not to undermine confidence in the BlackBerry phone product line.

There was yet another reason for exiting hardware: The whole industry had moved away from the square screens on which BlackBerry's platform relied, to rectangular ones. "We ran out of suppliers making square screens," Chen says, giggling at the absurdity. The engineers tried all kinds of solutions, even testing movie-style letterboxing, but the black bars cut off the bottom of the screen. "In games, that's where you change weapons!"

Chen's giggle turns into a belly laugh that sends his assembled handlers into guffaws. The atmosphere of tense formality turns into one of relaxed, collegial reminiscing. "I mean, it's silly!" Chen says, pausing for more gleeful laughter. "The reason we didn't stay in the phone business was because we have a square screen."

In the end, it wasn't actually that funny. Rewriting foundational code to accommodate a different form factor would be costly, and the device market already had razor-thin margins. Chen (who was a competitive bridge player as a kid) decided to play the hand he'd been dealt. First, he outsourced manufacturing and switched to the Android operating system. But that still meant BlackBerry took all the risk if a future phone release flopped. So, in September 2016, the company officially abandoned its legacy as a handset manufacturer, instead licensing the brand to overseas producers such as China's TCL. The move would dramatically reduce the revenue from devices—from about $300 a phone to a $10 to $15 royalty fee, Chen estimates—but that would be almost pure profit. Besides, by that point, BlackBerry's global phone market share had dropped to 0.1% and was heading lower.

Dumping the legacy business was difficult for many—staff, observers, investors and the public—to accept. "I questioned whether getting out of hardware was a good idea," says Benj Gallander, co-editor of the Contra the Heard investing newsletter, who has been a BlackBerry shareholder since 2013. "Maybe they needed to do that to survive, but the shift has been pretty abrupt."

The decision caused a deep schism inside the company. The mantra among the rank and file had always been that BlackBerry made money from handsets and gave the software away for free. One former manager recalls having a conversation with a vice-president who was flabbergasted. "I don't know what John is doing," the VP said. (He was laid off soon after.)

Meanwhile, the software front presented challenges. As BlackBerry battled to defend its handset turf against assaults by Apple and Android, it neglected the growing shift among its government and business customers to platforms that allowed them to embrace the bring-your-own-device trend. As a result, the device management market was increasingly being poached by upstarts like Good Technology and MobileIron. By the time Chen arrived, enterprise sales had dwindled to less than $100 million (U.S.). His plan was to offer BlackBerry phones' vaunted security features as software solutions that clients could use on any device. "It was not an easy pivot," says Bill Menezes, a research analyst with Gartner. "It's a very competitive market." BlackBerry made acquisitions, including rival Good Technology, to shore up its position in what is called enterprise mobility management, helping organizations manage devices, deploy mobile applications on them and ensure security—in essence, serving as their mobile operating system. Today, BlackBerry is one of the market leaders.

But the transformation had to extend well beyond technology. "To go from hardware to software—it's hard to find anyone who's successfully done that," says Mark Wilson, BlackBerry's chief marketing officer, who served in a similar role under Chen at Sybase. "When you have a culture completely focused on building and launching devices, how in the world do you build a new culture that sells enterprise software?"

Even as layoffs continued, BlackBerry expanded its enterprise sales force and focused on entrenching a new mindset. "It's more important initially to market internally than externally," says Wilson. During regular town halls (Chen averaged six a year), top executives would reiterate the new mission and spread news about successes: We've got NATO. We've signed the U.S. departments of Justice and Defense. Deutsche Bank, which had dropped BlackBerry handsets, is back as a software client. "Your employees represent you in all walks of life, with their friends, in their bowling leagues, at their alumni reunions," says Chen. "They need that information."

It's hard to overstate the extent of the cultural shift BlackBerry has undergone. For example, before Chen, management seemed to aim for consensus in important decisions, and as strategic disagreements spread, paralysis followed. "There were times when every decision felt as if each employee got a vote," says Wilson, who joined BlackBerry shortly after Chen. "People wanted to revisit decisions. That's just not John's style. Once a decision has been made, that's it."

Today, the BlackBerry leadership team is heavy on Chen veterans—several of whom, like Chen, are based in San Ramon, California, not in Waterloo—who know his methodical approach. They describe a man who digs down to first principles on issues, determines his own views and doesn't like fluffy answers. People who present him with well-argued ideas may find they get a quick yes. "You want to make sure you intelligently describe what the situation is, because he'll make a decision and you'll have to live with it," says Wilson. One leader who worked closely with Chen on an international initiative calls him curious and driven but clinical. "He's not the warmest guy," the executive says. And there is a touch of insecurity there. "He doesn't feel he gets the recognition he deserves. I think he feels a bit underappreciated."

Chen admits to being taken aback by the intensity of the reactions his changes have drawn in BlackBerry's home country. Canadians feel invested in the company even if they're not actual investors—a level of public scrutiny Chen had not encountered before. "I didn't expect opinion to be so polarized. That was an eye-opener," he says. "Canadians have a way of criticizing [themselves]. I find it fascinating. I run into diehard politicians who jump to defend the strategy, but at the same time, it's like tough love."

If Chen didn't get the warmest welcome in Waterloo, he seems to have gained respect. One manager who was laid off in 2015 compares Chen to a new coach who arrives without loyalties to particular players or tactics—his focus is simply on winning. "I'm an engineer too, and I saw that he was driven," the manager says. "I always listened to quarterly financial results to see how the company talked to the market, and John was transparent. He told it like it was." Chen's strong record of coming through on commitments also gained him the esteem of the Street. "He always tells you the downside up-front," says Watsa. "When he says on an investor call that he's now comfortable, he may have been comfortable a year ago, but he wanted to be sure."

Late last year, Chen announced that the turnaround was complete. The deathly ill company had made a remarkable recovery. In its most recent quarter, BlackBerry generated 85% of its sales from software and services. Its gross margins had risen to 77% from around 30% in 2014. It may even eke out a profit this fiscal year. But the company's revenue has continued to shrink, as gains in software sales fail to fully make up for the loss of hardware revenue. The patient is stable, but oh-so very thin. It's time to fatten him up.

That task falls largely on the slender shoulders of Sandeep Chennakeshu, a petit, grey-haired immigrant from India whose old-world charm is spiced with impish humour. Asked where he resides, he quips (with a distinct Indian accent), "I'm from Texas—can't you tell?" A former executive at Ericsson and an adviser to Sony, Chennakeshu has deep engineering roots—his name appears on 73 patents. When Watsa's team was weighing its acquisition bid, it hired Chennakeshu's consulting company to evaluate BlackBerry's prospects and then requested he assist Chen with the restructuring. After Chennakeshu's contract was up, Chen told him, "You can't leave. You know too much about this company."

Chennakeshu agreed, provided Chen let him run what were then the company's "unpolished gems": the embedded software business based on the QNX operating system; the intellectual property portfolio; Certicom, a cryptography business Balsillie and Lazaridis had acquired but tapped in only limited ways for security features; and various technologies that would help BlackBerry establish a foothold in the IoT space. Combined under the banner of BlackBerry Technology Solutions (BTS), these units would drive the company's growth phase, and Chennakeshu's job was to find profitable applications and markets for them. "Everything in my division deals with licensing technology to others and charging royalties," he explains.

Much of what BTS does involves either embedding software in or offering services and tools for the Internet of Things—or the Enterprise of Things, in BlackBerry's preferred parlance—a market variously estimated to be growing between 20% and 33% annually. With vehicle connectivity on the rise, cars represent a vast network within the IoT, and QNX is one of the early leaders in enabling that connectivity. BlackBerry acquired QNX back in 2010, using it as the backbone of its BlackBerry 10 operating system. But the platform was originally designed for industrial and automotive applications, powering electronic control units and in-dash infotainment, from video and sound systems to touch screens and voice commands. BlackBerry's focus on these applications has grown in recent years, especially as security has become a rising concern among auto makers. At the NAIAS, those who lasted through Chen's rambling address on BlackBerry's transformation got a peek at the company's first product in car cybersecurity: Jarvis, a software service that scans a vehicle's computer systems for vulnerabilities in the code.

The shift to autonomous driving presents a potentially huge opportunity, because it means cars will be largely operated by the kind of software BlackBerry makes. The company has been busy in recent months signing partnerships with players working on aspects of autonomous driving technology, including car manufacturers such as Ford, chip makers like Nvidia, parts suppliers such as Delphi and tech companies like Chinese search engine Baidu. BlackBerry's goal is to make QNX the standard automotive operating system—what Windows is to PCs. "It's the plumbing, not the cool apps, where driverless technology happens, and that's BlackBerry's strength," says Canaccord's Walkley.

Which helps explain why BlackBerry is having trouble getting its new story out and into the public mind. Coding automotive plumbing isn't as sexy as building smartphones. What's more, BlackBerry is a so-called ingredient brand in this field, not the name etched into the chrome. Short of an "Intel Inside"–style campaign, most such brands get little consumer recognition—unless security becomes an important enough factor that car makers start to brag about having BlackBerry tech under the hood.

Additionally, the company likely won't feel much impact on sales from its autonomous driving investment for a couple of years, when manufacturers start rolling out their first models. So Chennakeshu went after a more immediate IoT opportunity: logistics. Trucking is one industry the IT revolution largely missed. Radar, a platform that combines QNX and other BlackBerry technologies, allows cargo companies to monitor their fleets in near real time.

Chen is convinced that within five years, these new platforms will represent the majority of BlackBerry's revenue. He's already hinting at other markets. "Tomorrow we might be announcing QNX in an airplane at an air show," he says. Oil and gas, and health care are also promising. "If you add those verticals together, you could build a rather sizable company."

Yet another area Chen is betting on for future growth is his former home continent. "We have been very Euro- and North America–centric," he says. "Now, I can't fight on all fronts, but gradually you'll see us starting to expand our footprint." He built relationships with Asian companies when the handset business was still a going concern and now envisions using them as beachheads for a push both into the enterprise and IoT markets. He believes Western tech businesses are underestimating the homegrown competition in Asia. "I'm going to predict that Apple is going to have a hard time with phones over time," he says, with a tinge of schadenfreude, pointing out that China's biggest handset suppliers are two little-known brands, Oppo and Vivo. As the phone market becomes increasingly commoditized and growth shifts to emerging economies, today's leaders may find themselves unseated—just as they had unseated BlackBerry.

Over the decades, many iconic tech players have gazed into the abyss, often because they missed or misunderstood important trends. IBM, Intel and Apple come to mind, but perhaps the most apt comparison is Nokia. In 2008, the Finnish company supplied more than 40% of the world's cellphones, until it got side-swiped by the smartphone trend (led by BlackBerry). In 2012, amid widespread layoffs, there was speculation it might go bankrupt. But Nokia aggressively veered from mobile devices to a less flashy but also less competitive market—networking infrastructure—and focused on reaping licensing fees from its technology. Within five years, its market capitalization was back to pre-crisis levels.

At its current size, it's hard to imagine BlackBerry returning to its status as a giant with $20 billion (U.S.) in revenue, as it had in 2011. However, the company has an enviable hoard of nearly $2.5 billion (U.S.) in cash, and its share price shot up 62% last year, as investors wait to see how Chen will deploy the money. Some want to see acquisitions that will shore up the company's offerings in the enterprise arena. While BlackBerry's enterprise mobility management revenue is growing—more than 11% in its most recent quarter—competition is increasing, especially beyond sectors such as law, banking and government, where security is a must. "BlackBerry has garnered a high degree of trust among regulated customers, and I see it maintaining a strong customer base there," says Andrew Hewitt, an analyst with Forrester. But rivals like IBM and Microsoft are boosting the security features in their mobile business suites, whose breadth gives them an important edge. Last summer, Goldman Sachs put a sell rating on BlackBerry, citing, in part, the growing bundling from larger providers. Even more worrying, operating systems from Apple and Google are making big gains in cybersecurity, says Hewitt, "which may decrease the reliance that some enterprise clients have on dedicated mobile device management solutions."

Competition is also zeroing in on the IoT and connected car markets. In a grim irony, leading the charge are Google (with Android Auto), Apple (whose autonomous vehicle unit now employs QNX co-founder Dan Dodge and numerous BlackBerry expats) and Samsung (which recently acquired Harman, the firm from which BlackBerry bought QNX)—the very companies that deposed BlackBerry from its smartphone throne. As he did at Sybase, Chen has tried to leapfrog these rivals, ceding the smartphone market to them and establishing leadership in the next arena of competition. But they're after him now, and these companies have repeatedly proven their skills at catching and riding new technological waves.

Could BlackBerry better capitalize on the new opportunities by becoming part of a bigger solution? Both companies Chen previously turned around were acquired by larger players. The fact that the majority of BlackBerry's C-suite lives and works outside Canada doesn't suggest a long-term commitment to keeping it in Waterloo. In a 2013 interview with The Globe and Mail, Lazaridis worried that the business he co-founded in 1984 above a Waterloo bagel shop would end up "broken up and sold off for parts. What will happen to the Waterloo region, or Canada? What company will take its place?"

A public company is always for sale, of course, but when asked whether he envisions that as a likely exit strategy, a little extra pink comes into Chen's face. "I never go into a company turnaround to see it sold," he says. "I believe companies are bought, not sold. If someone knocks on your door and asks to buy your house, you say the house is not for sale. If he says, '$100 million,' you say, 'Okay, let's talk.'" Watsa also dismisses the idea, pointing out that it was only after Chen grew Sybase back into a major player, more than a decade after his arrival, that SAP came calling.

Chen says that in his early days at BlackBerry, when he was beset by doubt, he would have resisted selling "because we would be selling for cheap and would sell it for no respect." In four years, he has made the company respectable again, but he has completed only two parts of his task: stabilizing the financials and repositioning the strategy. The final one—growth—is only beginning. Returning to his real estate metaphor, Chen insists he's no flipper. "It's not a matter of money. It's a matter of pride."