John Chen, the new CEO of BlackBerry (NASDAQ:BBRY) who has been on the job eight months, has done a fabulous job in coming in and taking the necessary actions and showing the right leadership in arresting the company's death spiral.
BlackBerry recently announced that it will be cash flow positive by the end of 2015, much sooner than investors expected. Mr. Chen has also came out and stated the restructuring process that included laying off 60% of the workforce over the past three years is mostly behind it and the company is transitioning into a "growth" mode.
I applaud Mr. Chen for his impressive performance since taking over the helm of this one time mobile icon. He has started to right the ship and has made visible progress in doing so. Unfortunately, now comes the hard part of his tenure.
I liken Mr. Chen to an emergency room doctor who received a patient coming in via ambulance from a horrid accident. He triaged the situation, addressed the potentially life threatening injuries and stabilized the patient. Getting that patient rehabilitated and close to his previous physical capabilities is a much tougher road and it will be a long and unknown journey.
As BlackBerry attempts to move into growth mode and tries to deliver additional capital appreciation to its long suffering shareholders; I can see three possible paths to this goal.
Reigniting Smartphone Growth:
The company's upcoming Passport phones look that they will have both a larger screen and a abbreviated QWERTY keyboard. This is just the sort of product that the market has been looking for in my opinion. Unfortunately it was looking for this sort of device two years ago when the company still had a pretty loyal user base - including this author who prefers a keyboard and loves bigger screens.
Maybe I will be surprised and these new Passport phones will be a major hit. However, given an ecosystem or distribution network that in no way comes anywhere near Apple's (NASDAQ:AAPL) iPhone or Google's android platform; it is hard to see this happening. These products could be well received by the remaining "crackberry" aficionados in developed countries and by well-healed consumers in the frontier markets where BlackBerry is still strong; but I don't see this launch moving the needle.
Further Enterprise Penetration:
BlackBerry is very focused in growing its presence in corporate and government structures where it has a large installed base. The company wants to continue to ride the security and privacy wave and use its expertise to develop into a full-fledged enterprise software supplier. The recent partnership between Apple and IBM Corporation (NYSE:IBM) does means a formidable threat on the horizon however.
It will be critical for the company to gain traction in executing this part of its corporate strategy. I would not be surprised to see some small acquisitions to further this effort and this enterprise development is a critical one to watch if the company is going to survive and thrive. BlackBerry also needs to put some substance behind its desire to be a player in the coming "internet of things".
BlackBerry has some valuable assets including a large installed corporate customer base, thousands of patents and just less than $1.5 billion in net cash on the books. I have recently speculated that Cisco Systems (NASDAQ:CSCO) could be a logical suitor. Although I see this path as more viable than BlackBerry re-emerging as a major player in the smartphone market, I still see the probability of a buyout as low.
Firms have already kicked the tires on BlackBerry and walked away (of course, the company was in much worse shape then). In addition, patents are not as lucrative as they were a few years as litigation is less of a focus area in the space right now. Finally, one of BlackBerry's core attractions - its location in Canada - is not applicable. A Canadian address is desirable for a possible "tax inversion". However, any possible suitor I can identify is so much bigger than BlackBerry; the company would never make up the 20% or more part of the larger whole required to do this maneuver. In addition, politically that window seems to be closing as yesterday's decision by Walgreens (WAG) alluded to.
I think BlackBerry's best path to continued relevance is to develop into a larger enterprise software player and it is the core focus area shareholders should keep a watchful eye on. A partnership in the corporate arena akin to the recent Apple/IBM deal would be a welcomed development.
Mr. Chen has done a bang up job in less than a year as CEO. I am willing to give him the benefit of the doubt as he leads the company into a more difficult phase of his turnaround plan. I am keeping my small speculative position in BlackBerry on the hopes he will be indeed to be successful. With almost 20% of the stock short, others are making different bets. It should be an interesting journey if nothing else. SPECULATIVE BUY
Disclosure: The author is long BBRY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.