BlackBerry May Be A Contrarian Buy

| About: BlackBerry Ltd. (BBRY)


BlackBerry is back to basics, focusing on its core products.

The stock could be contrarian investor pick.

John Chen knows how to turn a company around.

The Blackberry (NASDAQ:BBRY) share price is close to US $8 a share as we speak. What used to be a $140 blue-chip stock (at its peak) from Canada is now struggling to survive in the ever-changing tech industry, as some analysts put it. But all is not lost for this tech firm. The stock price is already rising, as some might have already noticed the potential in it, while others might just be covering the shorts.

When in trouble, cut costs first and get back to basics seems to be BBRY's mantra. BBRY has planned to reduce its workforce by 40% and cut its non-core assets. Since the announcement, the company is ahead of schedule (according to the CEO). It has already cut its product development team in Canada (1100 employees), and will soon reduce the total workforce by 4500. The one-time termination benefits account for $143 million in expenses. And with a smaller workforce, the recurring expenses are likely to be lower. This will get BBRY some more time to get its act together. BBRY is also selling its Canadian real estate (3 million sq. ft.) to raise cash so that it can invest in the right areas. It has already sold its Irving, Texas facility to Brookfield, and leased back 40% of the building. But the best move made by BBRY is identifying the $2.7 billion charge in asset impairment. With total losses (accumulated) at over $6.4 billion, the company may gain some relief from taxes in coming quarters. But without a turnaround strategy, it is all in vain.

The company is shifting the focus back to its core strength, i.e., selling to the enterprises and outsourcing its non-core operations. Its key strength, as identified by John Chen, is the security features it offers compared to others, something highly regarded by organizations worldwide. BBRY has done an excellent job of selling to institutions in the past, and it is re-focusing on the same customers. With the handset business more or less outsourced to Foxconn (OTC:FXCOF), BBRY is rightly focusing on the services arm to extend sales to government and private enterprises. But there is a big obstacle in BBRY's path, and John Chen is addressing the issue. BBRY is still more or less a closed ecosystem. The problem became magnified when BBM was not available for all for a long time, and WhatsApp capitalized on it. That Facebook (NASDAQ:FB) paid too much for a company with one app and 50 employees is a different issue.

Without compromising on the security features, BBRY is trying to provide the mobile infrastructure to all its clients so that they communicate in the BES-MDM environment. BBRY is trying to do for mobile what IBM and Microsoft (NASDAQ:MSFT) have already done. By increasing the usage of the BES environment and supporting other devices, BBRY has the opportunity to become the backbone of mobile infrastructure for enterprises. If BBRY is successful in executing this strategy, then enterprises will find the cost of switching their mobile infrastructure prohibitive. Just like no one openly likes Microsoft but everyone uses it in their offices, people will use BBRY. BBRY should also focus on creating productivity software that can be deployed on its (or any) mobile devices.

Now for the stock itself, trading at $8 per share, it should be viewed more like an option on the company's assets. With that perspective, a call option on the company's assets, one may value it at about US $10 to $12 per share. But the real value will come when BBRY can become the invisible layer providing services to all organizations on any device. That will make BBRY valuable for any other company, such as Microsoft, SAP, Oracle (NASDAQ:ORCL) or IBM, that wants to expand into the mobile network. With the latest offerings from BBRY, such as Secure Work Space, it seems to be on the right track. In fact, BBRY already seems to be doing what IBM did in the early 1990s with the slogan "Middleware is Everywhere". BBRY is the mobile middleware that no one can notice right now.


BBRY may be a contrarian stock at this point. Those who believe that John Chen can turn this company around will find this a stock with a promise to deliver in coming years. And the cost of the promise appears somewhat cheap right now.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BBRY over 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.