BlackBerry: Delusion And Defiance At The AGM

| About: BlackBerry Ltd. (BBRY)


Delusion and defiance are two attributes that best describe BlackBerry's AGM.

Focus on device profitability is a lost cause unless the company adopts a low-price, high-spec strategy.

Remain bearish on BlackBerry, as there is little evidence of a sustainable business model.

The atmosphere at BlackBerry's (NASDAQ:BBRY) AGM was not optimistic, and John Chen's presentation can be characterized by two words: delusion and defiance. The focus point of the AGM was CEO John Chen stating that the top objective for 2017 is to return the fledging handset business to profitability. That statement alone shows how delusional the CEO has become, and his utter defiance of the existing strategy can only drive BBRY deeper into the ground. BBRY has a reason to be optimistic given that the head of device division is a 30-year veteran at Motorola, but given the decline Motorola faced against Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF) when North America was less saturated several years ago, I question the quality of the leadership and continue to see no near-term turnaround for the company's device business. The company will report tomorrow, where I expect continued decline in services and devices, while the software segment faces both sustainability and integration issues. I would recommend investors to sell BBRY and switch into more sustainable Canadian tech names such Shopify (NYSE:SHOP).

Investors were surprised at the level of commitment Chen has to the device business. At the AGM, the CEO said that he is committed to turn the business profitable because he doesn't want this segment to be a drag on the bottom line, but the concern is that Chen is committed to the device segment even when the Android-powered Priv phone is not doing as well as expected. Chen rationalized that the Priv is "too high-end," and this struck many investors as being borderline delusional given that the Priv is similar to other high-end devices, but the physical key and the overall smartphone design failed to gain traction among the broader consumer base. Where Chen got right was that he believes software is the future of the company, but I question whether BBRY can successfully integrate all its prior acquisitions and manage to remain competitive as a software provider.

On leadership in the device business, the company is ousting Ron Louks, one of the earlier of Chen's hires who previously worked at HTC and Sony, and is replacing him with Ralph Pini who spent 28 years at Motorola. BBRY pointed out Pini's accomplishment as being a founding member for the famed Razr (which ultimately fell behind the iPhone later on), but if history is any indication, I doubt BBRY's device business can be successful unless the company pursues a cost leader on the handset in the hope to offset the loss with a gain in software and services. BBRY's device could succeed if it adopts a more open-source ecosystem with an abundance of apps and focuses on hardware design. Judging by how smartphone makers such as OnePlus and Xiaomi (Private:XI) are disrupting the high-end segment with competitive pricing and specs, BBRY's only chance may be to follow a similar strategy rather than sticking with the premium price segment.

Disclosure: I/we 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.