Dismissed as dead in the water by many, BlackBerry (NASDAQ:BBRY) recently shelved plans to sell itself in favor of a reinvention plan and an assault on returning the company to sustained positive growth once again. John Chen, the new CEO of BlackBerry, has outlined a new strategy focusing on secure email and device management for large businesses. This comes on the back of recently announced quarterly net losses of $4.4bn, though the bulk of this sum comes from a writedown on unsold inventory and asset impairment charges. This article looks at the company's chances.
One enticing factor for investors considering BlackBerry is the low stock price. At the time of writing it stands at $7.44, though it has risen from a low of $5.75 on Dec. 9 of last year, mainly due to investor reaction to the new Foxconn (OTC:FXCOF) partnership deal. Nevertheless, it remains a low price for a stock that was $14.56 on June 25 of last year. I was bearish on BlackBerry in 2012 and last year, predicting a sharp fall in its stock. However, I now consider it to be an intriguing prospect for 2014.
New CEO, new plan of action
One factor which compelled me to correctly predict that BlackBerry would drop further in recent years was the tack adopted by previous CEO, Thorsten Heins, who refused to acknowledge that the company needed to change direction in order to arrest its decline. In contrast, John Chen has done exactly that, pushing the company down a new path. He has recognised that, with the relative failure of BB10, BlackBerry cannot compete with Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) in the smartphone industry any longer, despite their status as a pioneer in its development. This recognition is step one in a much needed overhaul of the company's strategy. What's more, he has a proven track record with his work at the software company, Sybase, where he turned around that company's fortunes.
The new five year deal agreed to with Foxconn will see the Taiwanese firm manufacture smartphone devices for BlackBerry. Moving away from device manufacture is just one part of Chen's strategy, reducing the risk and costs involved should there be unsold inventory. BBRY will be focusing on cyber security for large enterprises and device management, areas where Chen asserts BlackBerry is still the market leader, despite its recent misfortune. This, Chen stresses, will be BlackBerry's main challenge, and, if they pull it off, will return the company to positive growth. With $3bn on hand to spend, the company has significant capital to power a recovery.
Concerns for Blackberry
Though CEO John Chen highlights the company's "renewed spirit," in light of a shakeup among the company's executives and business plan, the fact that so many figures have abandoned the firm could be a cause for concern. Co-founder Mike Lazaridis recently sold much of his remaining stake in the company, reducing it to 4.99% of total company shares. This came on the back of the increasing abandonment of BlackBerry's products by customers and large companies.
Chen has to figure out how to "transition the devices operation to a more profitable model." He will seek to exploit the potential user base open to BlackBerry, including the millions who downloaded BBM. He has stated that revenues might come from a per-user per month model, or rolling out advertising.
Ultimately, BlackBerry has a rocky road ahead, but they have good prospects. Chen's main challenge is in finding a solution to identifying how to profit from products where there is a large customer base and maximise potential there. The appointment of Chen as CEO bodes well for the company, particularly because of his legacy at Sybase. The new deal with Foxconn is a shrewd piece of business, which will significantly reduce risks of possible future writedowns. With BlackBerry's experience as a cyber security provider and an innovator, coupled with their current low stock valuation, it represents a good opportunity for long-term growth, though in the short term it may prove more volatile.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.