Can a company that posts a third quarter loss of $4.4 billion be considered a healthy and viable company in today’s tight cell phone market? The new chief executive and chairman John Chen says it can and will. Blackberry LTD released its third quarter financial report reflecting a considerable loss of $4.4 billion. Chen’s first quarter at the helm has realized a 56 percent drop in revenues. However, Chen believes that Blackberry LTD can make a turn around and gain leverage in the market. He predicts that by writing down inventory risk and tight fiscal management Blackberry will be in the black by 2016.
Although the task may seem daunting, Chen has a proven track record to turn troubled companies around. He is credited with turning around the data company Sybase, which was sold to SAP in 2010. Chen says that recreating Blackberry LTD may be his most complicated challenge to date. He has identified the major opportunity for change in the company’s inventory strategy.
Chen announced this past Friday that a five-year manufacturing deal had been struck with Taiwanese mega tech equipment manufacturer Foxconn Technology. Stocks rose as much as 17 percent on this single announcement. Foxconn, also known for its manufacturing contract for Apple’s iPhone and iPad, will not only manufacture most of Blackberry’s phones, but will also manage the inventory. With this arrangement, Chen has re-positioned Blackberry’s risk of holding inventory and should begin the turnaround of Blackberry’s financial report of a $4.4 billion loss.
Chen understands that the market has spoken, as it purchased nearly 1.8 million fewer Blackberry devices than the previous quarter. Also, complicating Chen’s first quarter in top leadership, was the company’s inability to deliver its product on time. Blackberry’s much-anticipated Z10 and Q10 with a revamped operating system came too late and too little. Chen said to analysts that he hopes to not have any further discussion regarding Blackberry holding mass inventory on the shelves with no buyers.
This is where Foxconn Technology becomes a critical component to the return of Blackberry. Foxconn will not only manage the inventory, but Blackberry will not pay upfront manufacturing costs. This unconventional deal will provide Foxconn with a share of each device’s profit and remove almost all unsold inventory risk to Blackberry. Foxconn will manufacture the devices in Indonesia and Mexico, and they will be available to the consumer in early 2014.
With the announcement of the Foxconn deal, Blackberry also tells the market that they are in the hardware game for the long haul. Prior to the deal, there was speculation that Blackberry may be shifting wholly into application and software development. In the past, a Blackberry device was touted as a significant business tool with its ability to work well with Microsoft business software like Word and Excel. Chen’s deal with Foxconn solidifies the end user’s expectation of a device that works well in business.
Chen also feels that Blackberry’s cash position is a key factor in the company’s turnaround. Blackberry financials may report a $4.4 billion loss. but it is holding $3.2 billion in cash. Chen stated that with the new Foxconn Technology deal and Blackberry’s cash on hand that the company can gain a positive market share and reach its goal of profitability by 2016.
By Anthony Clark
The Japan News
Oman Daily Observer
Casa Grande Dispatch