- John Chen's comments about the handsets businesses were taken out of context.
- The new enterprise server will allow the company to capture a larger consumer base.
- The focus of the company is on the security features in enterprise as well as devices segment.
BlackBerry (NASDAQ:BBRY) has become a fascinating story on how a company lost the grip on something it invented. The creation of smartphones gave BlackBerry an amazing platform to become the handset of choice for executives and changed the dynamics of the industry. However, the company lost grip due to the inability to follow the trend in the sector. Recently, John Chen made some comments to Reuters, which were taken out of context and the CEO had to explain his comments. Reuters reported that John said this in the interview.
"If I cannot make money on handsets, I will not be in the handset business"
The comments caused a panic among the BlackBerry faithful as most interpreted it as an ultimatum that if the company does not again start to make money on the handsets business, then there is no other choice to sell. This might be an attempt to increase the confidence in the upcoming BlackBerry devices. However, if the company continues to lose money on the handsets business; will it be wise to hold on to the business? I do not think so. As a business, I still believe in BlackBerry and expect the company to return to profitability. However, the handsets business might continue to be a drag on the bottom line.
Handsets and Enterprise Businesses
BlackBerry handsets dominated the market not too long ago, and the company sold more than 52 million units in 2011. However, the number has come down drastically and it sold less than 2 million devices in the last quarter. John Chen believes that it should be possible to make money on as little as 10 million units a year. The partnership with Foxconn (OTC:FXCOF) might make it possible for the company to bring costs down and improve its margins. However, it looks like the management is having a last go at the consumer segment of the handsets business, and if the results are not positive; BlackBerry might look at other solutions for the handsets business and convert all of its focus towards the enterprise segment. As the company intends to focus more on the security and the enterprise segments, we might see the company pursuing government organizations and other businesses that need sophisticated security features. The future direction of the company looks to be the security, enterprise and the software segments. John Chen said this in the interview.
"We are building an engineering team on the service side that is focused on security. We are building an engineering team on the device side that is focused on security. We will do some partnerships and we will probably, potentially do an M&A on security."
As I mentioned in a previous article, BlackBerry is still preferred by the government and high-security organizations due to the security features provided by the company. The company is focusing on further improving the security features, and I believe there is room for BlackBerry to expand this segment of the business.
Enterprise business is hugely important to BlackBerry, and the company has a strong position in this segment. Mobile Device Management from BlackBerry only supported BlackBerry devices in the past. However, the company has recently announced its new enterprise server BES 12, which would also support iOS, Android and Windows based Smartphones. As a result, the demand for the new BES will increase significantly. In order to capture the market effectively, the company has come up with two levels of service; Silver and Golden. To further motivate the potential customers, the company has recently announced its EZ pass program. This will allow the old BES users or other MDM users to upgrade to BES 10 or 12 under silver level of service without any charge. Later they can upgrade to Golden level with the associated fee.
Furthermore, an interesting feature of BES 12 is its cloud based support. The users can access their office data anywhere on their devices while keeping the privacy of the organization. BES is the only mobile Device management service which has ATO (Authority to Operate) and FOC (Full operational capability to function on U.S. Department of defense. Most of the people involved with DoD strictly used BlackBerry handsets due to its data security and privacy.
A Look at the Numbers
The table below shows the changes in the revenue mix of the company over the last twelve months:
March 1, 2014
March 2, 2013
The company has seen a fall in revenues in all the segments - however, the fall in revenues from the hardware segment has been the largest. The proportion of services and software segments has increased during the last twelve months. The handsets business needs to show some improvement if the company is to meet its target of coming back to profitability in 2016. The impact of the hardware business makes it clear why John Chen is giving one more chance to the devices segment.
BlackBerry's strategy and moves suggest that the company is moving in the right direction. As I have said before, I believe BlackBerry will make a turnaround. The management is doing a fine job of turning focus to the areas where BlackBerry has considerable advantage and strength. In my previous articles, I have talked about QNX - it is also a solid product in the portfolio of the company. Furthermore, the company intends to be a major player in the business of connecting all devices - BlackBerry's superior technology and QNX should allow the company to achieve this goal. The company is not out of the woods yet; however, as I have maintained before, I believe it is on the right track and we should see it make some recovery over the next few months.