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Michael Blair
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I retired as CEO of an Automotive Parts supplier, and manage an investment portfolio for myself and family. I have a BA in History from Royal Military College of Canada and an MBA from the University of Western Ontario. My first career was as a fighter pilot in the RCAF, and, following my MBA I... More
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  • Isn't It Time For BlackBerry To End The Circus And Get Down To Business? 13 comments
    Oct 11, 2013 2:42 PM | about stocks: BBRY

    BlackBerry (NASDAQ:BBRY) has definitely been the talk of the town since Fairfax Financial announced its intention to try and float a bid for the company at $9.00 hot on the heels of a $1 billion quarterly loss including a $934 million "provision" for supply commitments and unsold devices. Scavengers have circled and a number of parties are reportedly picking over the bones including Intel (interested in patents only), Samsung, Microsoft, Cisco and hedge fund Cerebrus. Canada's foreign investment review policies will no doubt further complicate any progress.

    No doubt the board and management are having almost daily meetings and the head office is agog with activity as they field the potential sale of all or part of the company while the company lays off at least 4,500 people; closes redundant facilities; disposes of surplus real estate; and, negotiates settlement of patent disputes, all in preparation for what might come next.

    In the meantime, competitors like Apple are starting to poach talent, customers are deferring purchases looking for clarity, and the company looks rudderless.

    Is it not time to calm down and operate? There are a number of immediate decisions management could take that might settle things down.

    1. Try to convert the supplier commitments into production by switching to Android OS for a range of devices. Since the BES 10.1 enterprise software now supports Android OS, this would not be such a big deal but it is likely that BlackBerry could sell a lot of its devices with the Android OS and its vast library of applications.
    2. Bring back traditional BlackBerry device designs including the mini-track pad, the "back" button and the "lift receiver" and "hang up" buttons. These are features that millions of BlackBerry users have come to expect and want on a BlackBerry.
    3. Sell the massive pile of finished Z10 inventory unlocked and direct to consumers as well as through existing channels at a price that is "recovery" motivated. An unlocked Z10 for $149 and no contractual commitment would very likely sell well, and if that does not work, try $99 and $59 but move the product. It is a very solid device and there are markets worldwide where BlackBerry is still in demand.
    4. Set a firm deadline for the sale process with an end date. All bids to be in by November 4, 2013. Neither the highest nor any bid may be accepted. In the event the board does not accept any bid, the company will continue to operate.
    5. Get BBM cross platform into the market place and do it soon. This fiasco has done more to harm BlackBerry than its foolhardy commitment to buy millions of devices from suppliers in advance of any real effort to size demand. It was poorly organized and clumsily handled and annoyed a lot of people who are customers for BBM.
    6. If no sale is approved, do an immediate rights offering of 1 share for every 4 held at $5.00 a share. Nothing separates the sheep from the goats faster than having to put money on the table. The shorts are likely to buy and exercise the rights since it is a convenient exit for them, and the company will raise some $500 to $600 million of new funds.

    I was an executive with the Canadian unit of General Electric when under Jack Welch's strong leadership the company shed tens of thousands of employees and shuttered hundreds of facilities. The repositioning of GE was done through careful planning and execution, without drama or bad press. It can be done with BlackBerry as well. It is time to get on with it.

    I hold BlackBerry calls and some puts. None of them look like good investments today.

    Disclosure: I am long BBRY. 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.

    Stocks: BBRY
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Comments (13)
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  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    Mr. Blair,

     

    I have some expertise in software development and believe that some of these advices are not in the best interests of the company and the shareholders:

     

    1. It is not feasible production devices to be converted to Android in a reasonable time. BBRY will need to hire Android development team (even if they use the reference Android version) to optimize the OS to match the hardware, the devices need to be tested and certified by the all of the wireless vendors and that might take many months. At the end they will sell even worse as the specs of the devices are outdated in comparison to the recent android offerings and will further tarnish BBRY reputation.

     

    2. This might have been a good idea - to continue offering BB7 designs in addition to the new OS, many people still like it and are hooked to it. They released one new BB7 device recently, probably they should have offered the old popular models with reduced prices during the transition - i.e. Bold 9900, Curve.

     

    3. They are selling Z10 unlocked online for $450, IMHO they rather discount them to enterprises in a package with BES 10, and sell the remaining on the market, reducing them gradually from $350 to $250 they will sell well even in the developing markets

     

    4. The deadline of November 4th is set - all we need is another assurance that PW bid is serious

     

    5. Agree on that - unless there is another bidder that would like to do something else with BBM (we do not know)

     

    6. I know that you would benefit with your short position on that, but it will be unfair to the existing shareholders. The cash problem could be solved more efficiently if they sell some of the patents with cross-license agreement. Many of the patents would be worthless in a year or two, as more and more competitors have access to cross-licensing and BBRY do not use the patents for offensive purposes, but to defend themselves and with the cross-licensing they will still be able to use the patented technologies. If they do not sell the patents (the non-essential ones, not the security related patents) they will just miss the opportunity - as they already spent the time and the cost to invite all the interested parties (imagine the lawyer and advisor fees that are eating the cash in the moment).

     

    And another comment: BES 10 will be toast if they do not rethink their enterprise strategy - the best way is to find a partner(s) and enter the "secure enterprise cloud space". Nobody will install BES 10 to manage iPhone and Android devices only as there are better and cheaper alternatives available. BB10 phones were the only reason for BES 10 - this could be changed if they widen their service offerings (with a partner, as they cannot do it alone - it is too late to get into that space and we know how "fast" they operate).

     

    Thank you for allowing me the opportunity to provide a feedback to your concerns.
    12 Oct 2013, 12:39 AM Reply Like
  • Michael Blair
    , contributor
    Comments (5098) | Send Message
     
    Author’s reply » Thanks. We can disagree on some of those items. With respect to selling Android devices I am not suggesting selling existing designs as Android but new ones to replace their commitments. Many competitors are emerging in Asia selling Android phones and the time it takes to design and test a device is not forever, and it will go by. November 4, 2013 will come and go. I am not short, although I do have a few puts. I am long 163,000 calls. Thanks for the feedback.
    12 Oct 2013, 08:19 AM Reply Like
  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    For completely moving out towards Android strategy - this could be a possibility, but the transition would take at least a year. This might have been a viable path from the very beginning instead of BB 10, although the competition in Android market is also fierce and I am not sure if BBRY could have been in a good position to compete with cheap Asian vendors or powerhouses like Samsung/LG. If you follow the industry the latest victim in the Android space is HTC (the first Android vendor in the world btw) - there are rumors that Lenovo is in discussions to acquire them.

     

    I personally think that they did the best they could, knowing the constraints and the cost structure of a small specialized North American vendor and there could be still a niche market for secure specialized mobile devices with the proper partners aboard.
    12 Oct 2013, 05:45 PM Reply Like
  • The Small Investor
    , contributor
    Comments (11) | Send Message
     
    I would buy an unlocked Z10 for $59 for a personal device! :)

     

    BBs need apps, therein the Android idea.

     

    Though, for the enterprise, I agree with @jovani_hft re BES10. The BES10 fact sheet - http://bit.ly/Z6z66w - suggests 3 servers for BB enterprise MDM, migrating from v.5 to 10+ in a year; it reads like a services contract headache. Who's doing this? CIOs don't want to be systems integrators, with >$1M sys admin contracts annually, over and above server and devices costs. Not when you can let competing cloud providers integrate seamlessly (e.g. MaaS360). I apologize to nit-pick, but would also appreciate to know which specific versions or devices of iOS and Android are compatible with BES?

     

    Thank you Michael.
    12 Oct 2013, 11:30 AM Reply Like
  • Michael Blair
    , contributor
    Comments (5098) | Send Message
     
    Author’s reply » @The Small Investor - best place for those data is BlackBerry itself
    http://bit.ly/Z0ng0S
    12 Oct 2013, 06:09 PM Reply Like
  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    You may get lucky to get it for $59 if BBRY does not reduce the prices asap as the new Nexus 5 with super-duper specs and a price point at around $300 is rumored to be available at the end of the month.

     

    How can BBRY produce a competitive Android device with their existing cost structure? Apparently they use very expensive system integrators (Jabil Circuit) instead of outsourcing directly to China (Jabil is outsourcing to China instead of them). There are many mistakes that they did, both strategically and tactical and serious delays. I do not see them to compete well even with Android, as they have a botched and expensive corporate structure, unless moving HQ to Asia and cutting the expenses to the bone (as a minimum). If HTC is not successful (with all their lean cost structure, expertise and quality) I do not see BBRY as a successful Android vendor either.

     

    Instead of buying airplanes and hiring "creative directors" they should have been talking with cloud application providers and nailing a completely different strategy from the very beginning. Not to mention the latest buyout circus that really makes me wonder if they completely lost their minds.

     

    Unfortunately I cannot answer your question what specific versions of iOS and Android are supported by BES 10. I know the latest iOS includes special interfaces for security and MDM functions and I am not sure if they are supported by BES 10.
    12 Oct 2013, 07:10 PM Reply Like
  • Michael Blair
    , contributor
    Comments (5098) | Send Message
     
    Author’s reply » @jovani_hft - agree with most of that. BlackBerry has taken a $1 billion write down on inventory and supplier commitments so its economics are recovery, not full cost. It already has an Android emulator built into its OS so the code to have the device run Android apps and interface with the touch screen exists today. I don't think it is as big a deal as you do. I think Michael Dell once said that building PC's was one step up from growing lettuce. The processor from Intel, the OS from Microsoft and the parts from China. In this case the processor from Qualcomm, the OS from Google and the parts are already committed and written off.

     

    This is a failure of management to approach the market conservatively. Instead they bet the farm by committing their liquidity to make millions of devices for which the market was limited and then price them as if they were top drawer while their customers had lots of alternatives. While they were doing it, dozens of Asian suppliers cropped up who have had not trouble designing and marketing Android devices.

     

    Thanks for commenting.
    12 Oct 2013, 08:25 PM Reply Like
  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    Michael,

     

    All the devices are pretty much the same - even BBRY existing models could be ported to Android (there is an android port for HP TouchPad btw). It cannot happen in a month or two, because they need to configure all the drivers for the different hardware components, optimize the system and get the certifications from the wireless operators. But in general is doable and not a big obstacle.

     

    The problem these days is that even HP and DELL cannot compete with low-cost Asian vendors on PCs (and DELL would be exiting the consumer hardware business, HP is also moving toward services). These 2 companies have established brand names and lean manufacturing facilities in China and still cannot make money in this environment - it is similar to what happened to textile industry and other industries in the past. BBRY will be a newcomer in Android environment with already established brands that have a serious head-start - even Google's own Motorola cannot compete with them. How do you see BBRY there? Nokia built factories in Vietnam in order to produce cheap phones and still they are loosing money on top of that effort.

     

    BBM could have a success if they roll-out the app to iPhone and Android and start charging a reasonable fee, but that would kill their hardware business in the developing world. May be Balsilie idea to get out of hardware few years ago wasn't that bad, in this moment all they can do is to find a specialized niche that requires security and build on their strengths.

     

    Thank you for reading me, I would appreciate if anyone have viable ideas or can address these concerns with reasonable arguments.
    12 Oct 2013, 09:43 PM Reply Like
  • Michael Blair
    , contributor
    Comments (5098) | Send Message
     
    Author’s reply » @jovani_hft - I am not suggesting that BlackBerry compete against the low cost Android phones longer term, just find a way to recover as much of the $1 billion write off as possible and get out of the handset business. In any event, they can likely move the inventory if they discount it heavily in markets like South Africa and Indonesia and Canada where BlackBerry is very popular even yet. BlackBerry has a small window to establish itself as a software and services company but it will have no credibility with customers if it keeps making handsets and losing its shirt on them. It needs stability so my view is quite simple - salvage whatever value exists in the handset game by selling off the residual inventory and assets, trim the workforce to no more than is needed to support secure networking, BES 10.1 and BBM and their continued advancement, and settle all outstanding claims. Sell those patents that aren't needed for the software and services business if they are saleable, divest surplus real estate and hunker down. A rights issue to raise capital at a deep discount might also help. Forget the share price, clean up the balance sheet, stop the cash bleed, and rebuild from a stable base.
    Otherwise, this is headed for CCAA.
    12 Oct 2013, 10:54 PM Reply Like
  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    I believe that with the right partner and optimized cost structure BBRY could still compete in the smartphone business with their OS.
    Google and Apple are too big and consumer oriented to pay attention to a niche market - secure government depts, healthcare and large corporations that require secure communications and specialized applications.

     

    What they need to do is to find a buyer or a partner with established services in this field and move on to "secure mobile cloud computing" - specialized server applications that could be accessed securely from handheld devices. If they do not do that MS will move on and take that space and will attack cloud services with similar offering, so the big players in this area have a lot to loose if they pass on that opportunity. BBRY have quite an attractive valuation (aside from the BB10 flop) so that could be acquired cheaply - only 2 to 3 billion net (compare that with MS acquisition of Nokia and Google acquisition of Motorola). The new owner will reduce the management overhead immediately and with the right size and synergies BBRY will be profitable even with their existing revenue; from that point it could grow on by adding additional cloud services and products.

     

    The presence of a big player will also remove the uncertanty from the equation and this would help to move on the devices and promote BES 10 into corporate environments.

     

    I hope that Canadian government will not intervene if the buyer is a large North American corp. and this will save a lot of jobs in Waterloo. I mean what is the "pride" of having a dying national company, bleeding talent to competitors and wasting resources (shareholder loses and government support)?
    12 Oct 2013, 11:18 PM Reply Like
  • Michael Blair
    , contributor
    Comments (5098) | Send Message
     
    Author’s reply » @jovani_hft - That could work. The key is the niche. Certainly governments, police forces, fire departments, and security firms would choose BlackBerry. It could be the Rugged.com of the smart phone world. I don't see much evidence that management is thinking that way, but I agree, it could work well.
    12 Oct 2013, 11:19 PM Reply Like
  • jovani_hft
    , contributor
    Comments (123) | Send Message
     
    There will be rugged devices for police, military etc. and there will be "nice" devices for employees of large multinational companies, hospitals, government workers and consumers that appreciate the brand and security features. This group is not so price sensitive as the mass market, and they can accept the lower specs on a higher price point as long as it helps them to do their work (access the cloud applications) or if they want to make a lifestyle statement by using such a device in their personal environment.

     

    Inevitably this would erode the existing BBRY pockets of strength in Africa and Asia, but that's how the things evolve in the real life - by dying and reinventing themselves.
    13 Oct 2013, 12:22 AM Reply Like
  • samuel_liu
    , contributor
    Comments (2753) | Send Message
     
    http://on.wsj.com/19z3hyf
    Among Chinese companies, personal-computer maker Lenovo Group0992.HK -4.02% is closest to being a global brand, tech analysts say. “Among Chinese consumer brands, I can’t think of any others that are as successful as Lenovo globally,” said Sanford C. Bernstein analyst Alberto Moel.

     

    If history is any guide, Lenovo’s challenge is similar to the one that Japan’s Sony Corp.6758.TO -1.33% and South Korea’s Samsung Electronics Co.005930.SE -0.69% faced and overcame in the past several decades. Both Sony and Samsung are on the Interbrand top 100 list.
    17 Jan 2014, 08:13 AM Reply Like
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