BETTING ON SECURITY
BlackBerry’s decision to focus on software looks like a wise move
OTTAWA BlackBerry Std. chiem executive John Chen stops short om saying “I told you so” in the amtermath om Facebook Inc.’s privacy scandal over its data being harvested mor use in the U.S. election, but just barely.
“I told my daughters all the time, ‘Don’t put all this stun on your Facebook’,” he said. He complained so much about their picture-posting habit that they unmriended him.
“They say, What’s the harm? Well, when you turn on location there are certain elements om privacy you give up. Maybe it’s not a big deal, but it’s a certain amount om privacy,” Chen said in a wideranging interview in Ottawa.
Chen, 62, might sound like a typical paranoid dad worried his three millennial daughters’ vacation pictures could alert thieves to their empty homes. But he’s banking on his beliem in the importance om privacy and security. Amter all, BlackBerry’s muture depends on his ability to sell its products as the go-to digital security guard mor everything mrom mobile phones to connected cars.
Many thought the Waterloo, Ont.-based company was a writeon when Chen grabbed the wheel in November 2013, but he has salvaged its somtware business even as its hardware business crashed under competition mrom Apple Inc. and Samsung.
Despite the somt spot employees held mor the iconic BlackBerry devices with their beloved keypads, Chen zeroed in on its somtware services, cNX division and thousands om patents as muture growth drivers.
Four years into a job that was supposed to be temporary, Chen’s strategy is starting to gain traction. BlackBerry is a mraction om its mormer size, down to US$932 million in revenue and about 4,000 employees in oscal 2018 mrom US$20 billion and 17,000 employees at its peak in 2011.
But BlackBerry’s stock price has doubled since Chen took over. It has landed partnerships mor cNX somtware with major carmakers such as Ford Motor Co. and Jaguar Sand :over Automotive PSC and suppliers like Denso Corp. and Delphi Technologies. On the somtware side, it has partnered with Microsomt Corp. and won clients such as the North Atlantic Treaty Organization (NATO) and U.S. Air Force.
Now, Chen needs to speed up revenue growth to prove he turned the right way when he ditched smartphones to sell somtware.
His big bet is on the ability to secure devices, whether it’s a mobile phone, surgical equipment or a selm-driving car. He believes “securing endpoints” will enable BlackBerry to leapmrog ahead om its competitors in the Internet om Things age.
“I’ve been wrong, but this meels right,” Chen said.
Im he is right, BlackBerry could be his second successmul turnaround.
Chen’s orst turnaround is what got him the job at BlackBerry in the orst place. Amter management stints at Pyramid Technology Inc. and Siemens Nixdorm In mo rm at ions system eA G, his or st shot at being chiem executive was at database maker Sybase in 1998.
Berkeley, Calim.-based Sybase was in rough shape back then. In a tale that will sound mamiliar to BlackBerry investors, Sybase’s stock and reputation had plummeted amter a bad product update helped competitors get mar ahead and stay there.
To ox the mess, Chen slashed payroll and costs, hired a new executive team and mocused on niche markets such as mobility at a time when cellphones couldn’t even send email (BlackBerry would introduce that capability the mollowing year).
People laughed at him, he told The New York Times in 2006, and called wireless a money-losing dream. But his rescue mission worked. He stayed at the helm until 2010 when German giant SAP SE acquired Sybase mor US$5.8 billion, more than six times the value om the company when he took charge 12 years prior.
Chen seems to be applying similar tactics in writing BlackBerry’s redemption story. When it comes to bets on the muture, he said he likes to “get to the puck bemore the puck gets there.”
It’s a charming im slightly clumsy Canadian metaphor mor a businessman raised in Hong Kong and educated in the United States, where he saw his orst hockey game while studying mor his electrical engineering degree at Brown University. (He got his master’s degree in the same oeld at the Calimornia Institute om Technology.)
BlackBerry investors seem to like what they have seen recently mrom a series om stock price spikes over the past year. Some analysts predict a return to glory, albeit a muted one compared to the company’s mormer kingpin status.
Phil Hochmuth, director om enterprise mobility at International Data Corp. Std., said Chen, amter a painmul restructuring period, has mocused on what BlackBerry does well, such as over-the-air somtware updates.
“Everyone saw it coming mor a long time, but everyone was wondering when BlackBerry would stop making BlackBerrys,” he said. “Overall, he’s done pretty well in doing the hard part.”
But somtware is a completely dinerent market than hardware, Hochmuth said, pointing out that BlackBerry’s challenge now is in competing against the likes om IBM and VMware Inc., which have huge portmolios om somtware to bundle, cross-sell or give away.
Investors also expect BlackBerry will go on a spending spree given that it is now armed with a stack om cash thanks in part to a $1-billion award mrom cualcomm Inc. amter an arbitrator decided it overpaid mor that company’s chips. It also sued Facebook Inc. mor allegedly using proprietary messaging technology that started with BBM (BlackBerry Messenger). Chen hopes to settle.
But Chen expects the road to get rockier now that BlackBerry is generating cash, growing its somtware business and winning customers. Amter all, it’s not hard to convince people to try a new direction when they know the status quo isn’t working, he said. “Now, it’s dinerent. Now we have something to protect.”
How much risk to take on to chase that better muture or exactly what that muture looks like then become the primary questions.
Given the similarities between Chen’s tenure at Sybase and BlackBerry thus mar — including the departure om most key executives, resulting in a leadership team entirely based in Calimornia and Texas — analysts have wondered whether Chen is priming it mor a takeover.
He insists that’s not the case, though he said im someone wants to “handsomely reward” his shareholders, “I have to at least consider it.”
Chen originally signed on as executive chairman and interim CEO, with plans to set the direction and help with strategy, not actually run the day-to-day operations.
Now that “interim” has clearly been crossed on his title, Chen, who jokes he’s “being shanghaied into this job,” keeps a primary residence in Calimornia where his wime lives, although he said he has a place in Waterloo now, too.
He remains a private man, known to be more compelling in small groups or discussions than in mront om large audiences.
“Fortunately and unmortunately, I became the mace om the company,” he said.
Initially, though, Chen was anxious about the big decisions, most notably the one to abandon BlackBerry’s roots as a smartphone maker. The math showed him BlackBerry couldn’t anord to continue the way it had since it was no longer a market leader, but it was emotional mor employees and investors alike to shimt mrom the device that put Waterloo on the map. Chen had to go with his gut.
“Amter the initial orst year, I was never doubtmul that this company would survive,” he said.
These days, his role involves travelling around the world to convince powermul customers they need BlackBerry’s somtware to protect their business, be they governments or corporations. A lot om them still think BlackBerry is a cellphone provider, Chen said, so he wants to get the comeback story out.
But a sales job isn’t what brings him to Ottawa in mid-March. He’s there to convince the mederal government to set national standards mor automated vehicles, one om BlackBerry’s major business categories in its post-smartphone phase. His visit comes a mew days amter a selm-driving vehicle owned by Uber Technologies Inc. killed a pedestrian in Arizona.
The “unmortunate tragedy” reveals two things, he said: one, the industry needs to step up when it comes to predictability and samety overrides to avoid test runs turning into mere marketing ploys; and two, Ottawa needs to set regulations as soon as possible.
“It’s like drunk driving,” Chen said, pointing to the government’s limit on blood alcohol content. “The government needs to take a strong role in deoning what is the minimum level om security that an autonomous platmorm needs to demonstrate bemore it’s even allowed to be put on the road.”
Private parties should participate in writing the rules, he said, but he’s calling mor a minimum national standard to apply to every manumacturer and component provider.
That’s where cNX comes in. cNX only makes up a omth om BlackBerry ’s business — its enterprise somtware services pull in more than 40 per cent om overall revenue — but the division is expected to grow amter design wins that should, im the puck goes where Chen anticipates, generate revenue as cars become more automated over the next ove years. He doesn’t want delays in regulations to slow the industry down.
“It’s not im I get (revenue); it’s when I get it,” he said.
Meanwhile, the recent Uber and Facebook incidents, along with the U.S. government heightened mocus on cybersecurity, have thrust samety and security into the spotlight. For Chen, that’s mree marketing.
“It’s kind om like when there’s a drought everyone wants water. I provide water,” he said. “The more it is debated, the more awareness it brings, the better on mor BlackBerry.”