BlackBerry Ltd recently announced plans to reverse its third quarter net loss of $4.4 billion with a new strategy that will allow it to lower the risk of massive write downs over unsold smartphones. Mr. John Chen, the company’s chief executive officer appointed two months ago, said that BlackBerry will enter into a deal with Taiwan’s Foxconn Technology Co Ltd.
The deal will call for Foxconn to manage the smartphone inventory as well as help in the design, development and distribution of the handsets over the next five years. This will free BlackBerry to focus on transitioning itself to become an enterprise software company by providing reliable and secure communications and messaging services to corporate clients. Investors lauded the plan pushing BlackBerry’s shares up by 17% on Friday.
BlackBerry has yielded the potential for industry leadership in the high-end smartphone category to rival Apple’s iOS and Google’s Android mobile operating systems by pushing its BlackBerry Messenger service to also run on these platforms. Its own operating system called BlackBerry 10 which is barely a year old has flopped. Based on third quarter results, BlackBerry just sold 1.1 million units to end users, a significant decrease from the 2.7 million units sold six months earlier. Experts said this trend will not ease up in the next few months. The company’s revenue dipped to $1.9 billion in the third quarter coming from $2.73 billion from the earlier quarter. Unsold phones for the latest quarter report amounted to $1.6 billion.
However, many analysts including Brian Colello of Morningstar say that the company’s turnaround strategy is more important than the latest operating results. “I don’t think it’s a surprise that the revenue, operating margin and the business continues to decline. I think the bigger question is, what is the turnaround story at this point?” Colello added.
Mr. Chen expects that this strategy will help BlackBerry’s handset business become cash-flow positive and by year 2015 the company as a whole can expect some profits. The Ontario-based company formerly known as Research In Motion Ltd (RIM) conceptualized the on-the-go email 15 years ago and its phones and pagers were once a necessity for business and political leaders. Unfortunately, its rivals like Apple and Google with their own smartphones eventually caught up and now dominates the market. BlackBerry’s existing subscribers are jumping ship to use its rivals’ devices and as of now, the company no longer disclose how many subscribers they have left.
Mr. Chen, who is credited for turning around the database and mobile software firm Sybase before the company was sold to German company SAP AG in 2010, also stated that the immediate concern for the company is how to make the devices operation become more profitable.
The latest deal will not only be beneficial to BlackBerry but is also considered a good move on the part of Foxconn currently the world’s largest electronic parts manufacturer and counting Apple Inc. as one of its major partner. According to Carolina Milanesi, Kantar Comtech analyst, with this deal Foxconn can now take the first step to diversify its operations as well as use its own brand in the products they produce.
The good news for BlackBerry investors after Chen took over is the company managed to increase its cash from $2.6 billion to $3.2 billion for this quarter however mainly coming from the $1 billion raised from the convertible notes issued to a group of investors last month.
The plans initiated by Chen may indeed reverse the $4.4B quarter net loss of BlackBerry by implementing a new strategy. Mark McKechnie, analysts at Evercore Partners said that Chen is not an old guard in the mould of BlackBerry founder Mike Lazaridis and Chen’s predecessor Thorsten Heins. “He’s actually been taking some concrete steps.” he added.
By Roberto I. Belda