(This article is a respectful rebuttal to "The Party is Over for Chen, BlackBerry", which was published yesterday.)
Oh, ye who can't see the forest for the trees.
I spent part of the morning this morning reading Kofi Bofah from Onyx Investment's latest on BlackBerry (BBRY). To me, it's looking like we're watching the same events unfold, but that what he sees as "wasting time", I see as progress.
I wanted to touch on some key points and reaffirm why I remain long BlackBerry, and why I think John Chen is the right man for the job.
In the article, Onyx Investments argues that the run-up to $10.60-ish for BlackBerry was simply a result of a short squeeze and speculation (perhaps added to Citron's bullish report, issued around the same time). This may very well be true, but it doesn't change the fundamental progress that was being made below the surface. Chen was cutting assets, bringing on his own workforce, and positioning the company to stop its bleeding.
As one knows, the short interest in the company has been significantly reduced - and there's a reason for that.
Onyx then goes on to talk about the botched buyout. It's old news that is over and done with. History doesn't predicate what future performance is going to look like. The fact that BlackBerry's buyout fell through (and was possibly toxic) doesn't take away from what John Chen is doing in the now, with the new BlackBerry.
The point of T-Mobile dumping BlackBerry was also brought up. That could be cogent, except for two things:
1. BlackBerry isn't primarily a consumer-based handset company anymore.
2. From Onyx's own article:
T-Mobile, however, had not offered any BlackBerry handsets within its physical stores over the past year.
(i.e. it made little difference for BlackBerry)
Those of you that live in major cities can see very well that BlackBerry is still a player in the handset business. As someone that has regulator communication with businessmen/women of all walks of life, many of them still carry a BlackBerry - some of them even still swear that they love it.
But yes, the handset business is fading - and yes, that's not Chen's primary goal at BlackBerry - I realize that. I also think the handset business isn't going to die entirely - I do think there are niches where BlackBerry is going to be the preferred product. Clearly, as Thorsten Heins learned, BlackBerry is unlikely to be a mainstream consumer phone anytime again soon.
Niches that we haven't thought of for BlackBerry are starting to pop out of the woodwork, and Chen begins to tip his hand here and there, showing that there's underlying vision behind the moves he is making. Seeking Alpha reported on BlackBerry trying to carve a niche out for itself in healthcare:
- BlackBerry has taken a stake in NantHealth, developer of a cloud-based clinical software platform that's used by ~250 hospitals and gathers data from 16K+ connected medical devices.
- NantHealth suggests it will leverage BlackBerry's QNX OS to "put the power of a supercomputer in the palm of the caregiver's hand." The company will also use BlackBerry's upcoming BBM Protected secure messaging platform (part of the eBBM Suite).
- BlackBerry and NantHealth plan to develop a smartphone for the healthcare industry that's optimized for viewing 3D images and CT scans. It's expected to arrive in late 2014 or early 2015.
This is one, of what I'm sure is many, different and new ideas that John Chen has for his company, now that it's leaner and meaner.
Remember, in a successful turnaround, you have to get the company as simple and small as possible before starting to build out again. This is the step that Chen is just finishing up.
Kofi's thesis, in the conclusion of his/her article, states:
The party is over for John Chen, BlackBerry, and what has largely amounted to a financial engineering scheme over the last quarter. BlackBerry must create exciting product to generate real, long-term shareholder wealth, rather than simply trading barbs with wireless executives, firing workers, and selling off real estate.
Financial engineering? Is that what you call shedding the assets of a company that's trying to get as lean and mean as possible?
Kofi seems to implying that BlackBerry is pulling some balance sheet moves in lieu of having a real, underlying plan. I think it's strengthening the balance sheet as a complement to what is going to be a new company with a different vision.
What Kofi fails to notice when he/she states "BlackBerry must create exiting product [sic]" is that, again, this isn't BlackBerry the phone company anymore. BlackBerry server, QNX, and BBM are three killer products that the company already has. It's about monetizing them, then moving into other niches (like healthcare) that are going to fit well for BlackBerry's strengths. Again, I concede that BlackBerry isn't going to be a consumer mobile giant anytime soon. However, you're throwing the baby out with the bathwater when you suggest that BlackBerry has nothing it can currently monetize.
To conclude, all you need to know is that there are two types of people here: those who think that John Chen has a plan, or those that think he's simply flying by the seat of his pants and watching time run out on the company. Given Mr. Chen's track record, which of these is the prudent guess?
I contend that even though Mr. Chen is going to be well-compensated in either direction, he's got an underlying vision for streamlining this company as much as he can - which is the first step to then being able to grow it outward again. Mr. Chen doesn't appear to be someone that would embrace failure on the national stage that has been set for him. He made his money from the Sybase turnaround - he's not doing this job for the money, he's doing it because he thinks he can get the job done.
It is my contention that these prices for BBRY, which has a strong balance sheet, reduced expenses, and good leadership, will be viewed as the bottom before the company's full-scale turnaround. Thus, I predict, the party is just getting started for John Chen and BlackBerry.
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.