John Chen will have plenty to cover in the upcoming BlackBerry (NASDAQ:BBRY) conference call on December 20th. It has been noted that he is a turnaround expert after his successful rescue of Sybase. A company that was on the brink of bankruptcy in late 1998 after four consecutive years of net losses. Sybase was eventually sold for over $5.8 billion to SAP after a focus on mobile brought in record profits.
But what did John Chen really do at Sybase and can it give investors any clues for the future of BlackBerry?
Business was far from perfect at Sybase and there are obvious similarities with BlackBerry. Past John Chen quotes during this time can probably be used by him again. Regarding Sybase, he told a reporter, "The first thing I needed to do when I joined was restore the confidence of the people." Chen knew that a return to core competencies was crucial to employee and customer moral. Sounds familiar doesn't it? Chen said the same thing in a recent open letter to BlackBerry customers and investors.
Sybase was a company that became over-diversified and Chen started to question every part of the business. "A lot of our businesses were very inefficient," he told CBR. "I was asking, 'why are you doing this?' You know we had an SAP consulting business - what for? We had a product that competed with Microsoft Visual Basic - what for? I had to get rid of some bits and pieces."
There is plenty of speculation about whether or not Chen will sell or shutdown the BlackBerry hardware division. I believe he will evaluate the future potential of the division and decide on a massive reduction in size. BlackBerry is failing in the consumer market but it has huge potential with a revamped emphasis on government and enterprise customers that need the best in security. Is BlackBerry the best in security? Just ask President Obama since he isn't allowed to use anything else. The German government is also a big fan of BlackBerry.
Chen believes that every part of a business needs to be effective in the market. In the case of Sybase, this belief resulted in parts being closed and a doubling-down on units in which Chen saw great prospects. Chen's strategy with BlackBerry will be similar and investors can learn from his thoughts of the Sybase business model. He states in a past interview, "I want to make money and have a good business in everything we touch," he explained. "I don't do anything that loses money. That saved us from the dot-com bubble. I don't believe in loss leaders. That means the leaders have lost."
Expect faster execution in the future
Chen broke down Sybase into smaller pieces for faster execution. This is especially critical in the highly competitive smartphone marketplace. BlackBerry has some excellent products that have been plagued by slow rollout, poor marketing, and ultimately landed with a thud. The list includes the launch of the Z10, the Z30, the availability of BB10, and updates to BB10.2. This cannot be allowed to continue and an outsider CEO is necessary in order to light a fire under BlackBerry. There isn't any baggage or past emotions involved in the essential business decisions required to get BlackBerry back in the profit zone.
Almost everyone is nervous about the upcoming earnings report and conference call. BlackBerry is still a very speculative investment and a great deal is on the shoulders of the new CEO. I believe the sell-off is overdone with the market capitalization at $3 billion and the stock closing at a 10 year low of just $5.75 on December 9th. BlackBerry still has a strong balance sheet with over $2 billion in cash, an upcoming tax refund of at least $500 million to $1 billion, and talented employees. What they need is a concrete game plan and I expect that plan to be given in detail on December 20th.
Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.