BLACKBERRY FINALLY HANGS UP ON HANDSET BUSINESS.
BLACKBERRY LEAVING HANDSET BUSINESS BEHIND
• BlackBerry Ltd. finally admitted defeat in the handset business it once dominated after it yet again failed to make money on paltry smartphone sales.
CEO John Chen kept his word to give up on hardware if he couldn’t make it profitable by September with the Wednesday announcement that BlackBerry will stop internal hardware development by the end of its fiscal year and double down on its new identity as a software company that specializes in mobile security.
The shift, long clamoured for by investors and analysts who balked as BlackBerry’s world market share shrunk below one per cent from a peak of 20 per cent, marks the end of smartphones made by the Waterloo, Ont. company that started a global phenomenon as the first to put email in peoples’ pockets nearly two decades ago.
The division lost $ 8 million on sales of 400,000 devices in the three months ending Aug. 31, failing to break even. Chen has known this day would come for about a year after gauging the lukewarm reaction to the Priv, the last device fully designed by BlackBerry, he said in a roundtable discussion with reporters after releasing the latest financial results.
“The right question ought to be, ‘ What took you so long?’,” Chen said. “But you’ve got to realize I had to establish the business model and the market on the software side before I cut off what we were doing.”
Chen believes he’s done just that, pointing to deals with the U.S. Army and fleet tracking systems for Caravan Transport Group Inc. While the software division reported a profit of $29 million this quarter, down from $37 million last period, Chen brushed it off as the result of one- time revenue last quarter.
“The turnaround is done, the company is safe. Now I need to grow the company,” he said.
The market agreed by bumping BlackBerry’s stock price up about 4.6 per cent on the TSX and about 5.7 per cent on the NASDAQ, even though the company reported a quarterly loss of $ 372 million or 71 cents per share. Excluding one- time items, BlackBerry said it broke even, beating analysts’ expectations of an adjusted loss of 5 cents per share. Based on debt refinancing, BlackBerry raised its annual adjusted earnings outlook to between break- even and a 5-cent loss, up from a forecasted 15-cent loss.
The departure from hardware will save an estimated $100 million to $150 million per quarter in inventory and manufacturing costs and free up resources, including engineers, to work on software related to enterprise mobility management, fleet tracking and connected cars, Chen said. Fewer than 100 people will lose their jobs in the repair and warranty divisions, he said.
Yet he’s adamant he’s still in the device business and is not giving up on the brand once addictive enough to spawn the term CrackBerry and secure enough to be used by the president of the United States.
There will still be smartphones carrying the BlackBerry brand, as the company will license its brand and software to companies that want to design, manufacture and distribute devices. (It has a veto if the resulting device doesn’t meet its standards, Chen said.)
It has already inked one deal with a telecom joint venture in Indonesia, BB Merah Putih, is in late stage discussions with a Chinese company and is pursuing several deals in India. Chen would not reveal exactly how much, but he expects royalty revenue to start coming in around Chinese New Year if the device is distributed on schedule (although that’s out of BlackBerry’s control).
It’s not clear if, or how soon, any of these devices will be sold in the Canadian market. But Chen predicts a larger market shift to focus on software as margins evaporate in smartphone manufacturing.
“If I’m not a market leader and I’m trying to play the margin game that requires volume it’s almost suicidal,” he said. “It’s really more about the smart of the smartphone, not about the phone of the smartphone.”
As recently as July when BlackBerry launched the DTEK50, an Android- powered smartphone ( tweaked from an existing design) billed as the “world’s most secure,” Chen said security conscious customers should have a BlackBerry device for highest end- to- end security. But he backed away from those statements, stating the software will one day enable an Android to provide as much security as a BB10 device.
“You go to your own parliament here and count the number of iPhones,” he said. “The market has spoken and I’m just listening.”