A Resurgence for Blackberry?

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Shortly after announcing its agreement with Amazon, that brings more than 240,000 Android apps to BlackBerry smartphones, and the presentation of a new and square phone with a QWERTY keyboard, which is expected to hit the markets during the coming fall, many are asking if Blackberry is poised for a resurgence. Recent developments seem to be promising, and India may well be a key element to the resurgence.

In a recent interview with the Economic Times, Silicon Valley’s most prolific turnaround artist, John Chen, Blackberry’s CEO, stated that the new BlackBerry Z3’s Indian market success illustrated just how much potential there is in the region for bolstering the company’s comeback.

“India is one of BlackBerry’s top 10 markets and remains an extremely important region for us,” Chen told ET.

“Extending our leadership in enterprise mobility management (EMM) is a key to our transformation.

We are seeing a great opportunity to grow our presence in India as the enterprise market here begins to embrace mobility as a vital part of doing business,”

“India was also one of the first markets targeted for the BlackBerry Z3 and the device has been very well received by consumers.”
He spoke directly of the Z3’s success and his confidence that BlackBerry’s most recent major device launch has ticked all the right boxes in terms of what Indian Smartphone buyers hold in highest regard.

“The Z3 has been extremely well received in both markets and we continue to see strong demand for the device. In fact, initial inventory of the device nearly sold out in India within two weeks of the launch,”

“We hear from users that they like the price, screen size and battery life. This feedback demonstrates that we are meeting our customers’ needs, which is vital as we work to build share in India.”

As for future device launches, Chen failed to comment directly on speculation that a super-cheap $100 BlackBerry could be on the cards for the Indian market, insisting that for the time being the Z3 was the primary focus for the brand.

“I can’t provide too many details about our roadmap, but we will continue to offer customers a portfolio of devices across price points,”

“Right now, we are focusing on the BlackBerry Z3, which we believe is available at an attractive price point for the features and benefits it provides.”

Lately, the US stock market has taken notice Chen’s plans to reinvent BB; and BB’s once-unimaginable return to profitability in its most recent quarter.

Remarkably, BB is one of the hottest stocks of the year, having gained 33 per cent in value since January. (Apple Inc. is up 18 per cent, Google Inc. has gained 8 per cent.)
BB looms so large among flameouts in corporate history, losing a staggering $6.5 billion in its past two fiscal years, that the reluctance to remove it from “deathwatch” status is considerable.
In picking apart BB’s encouraging first-quarter results, released in May, in which BB surprised analysts by returning to profit (a meagre $23 million US, but a profit just the same), New York and other analysts focused on BB’s continued sharp decline in revenues and handset sales, on an annual basis. They chose not to discern a more recent apparent stabilization in the company’s fortunes. (All figures in US dollars.)

To be sure, year-over-year, BB revenues plunged in the first quarter by almost 70 per cent, to $966 million. And handset sales dropped 62 per cent. But quarter-over-quarter, revenues were off just 1 per cent, and handset sales were down 25 per cent, suggesting at least the beginnings of a bottoming-out, especially on the all-important revenue side.

JOHN CHEN: BLACKBERRY’S REVIVALIST

Chen, 58, is credited with one of the biggest turnarounds in Silicon Valley, returning to health the leading mobility software firm Sybase Inc. — a longtime BB supplier — and selling it to German software giant SAP AG for 13 times its value when Chen took the reins. Less known is that Chen, an exceptionally well-connected Hong Kong-born engineer who sits on the boards of Wells Fargo Co. and Walt Disney Co., earlier turned around Pyramid Technology Corp., a troubled maker of computer servers, and sold that firm to Siemens AG.

In contrast to turnaround CEOs of his stature, though, Chen’s installation has not been accompanied by the usual fanfare and avowals of salvation. Instead, Chen has consistently emphasized that a dynamic turnaround of BB is a tall order, even as BB’s health has markedly improved in short order.

Because so many of BB’s life-threatening wounds were self-inflicted, much of what ails the company lends itself to straightforward fixes — by simply removing bloat, for instance.
BB’s steep revenue decline has been outpaced by its rate of cost reduction. Total operating costs have dropped a stunning 85 per cent in just the past three quarters, without doing overly serious injury to an R&D budget that has taken a 44 per cent hit.

Chen was able not only to outsource much of BB’s handset manufacturing to Taiwan’s Foxconn, maker of iPhone devices, but to strike a deal with the Taipei outsourcing giant to lift from BB the financial risk of inventory management.

The major factor in BB’s crisis has been a BB manufacturing setup whose fixed costs did not drop along with the plunge in handset sales, leading to huge writeoffs. That open wound has been closed.

Cost-cutting alone won’t ensure viability, of course. Knowing he has to get revenues growing again, and create a bulwark against deals like the recent Microsoft Corp. alliance with IBM Corp. on mobile apps for the enterprise market, Chen has recruited three former colleagues from Sybase to fill top BB management spots. The most recent was John Beard’s arrival this week as BB’s new chief operating officer.

The Sybase crew are mobility software veterans. It pains Chen that salesforce cutbacks under previous BB regimes have kept BlackBerry from meeting with enterprise clients, a liability he hopes to remove with his Silicon Valley recruits.

BB’s industry-leading installed base of about 80,000 enterprise clients, including the Obama White House, generates about 80 per cent of BB’s total revenues. For now, Chen’s aim is to continue serving them with both BB’s unique secure network and handsets with QWERTY keyboards that are more user-friendly than touchscreen keyboards.

There’s a good chance BB can cling to both, given a CIO Magazine report earlier this month that chief information officers at Fortune 500 companies are overwhelmed by the varied mobile devices and applications (apps) they must keep track of.

“Mobile app performance issues and privacy concerns have sparked a Bring Your Own Device (BYOD) revolt,” CIO Magazine reported this week. “Now many employees are asking for their corporate BlackBerry back.”

Non-BlackBerrys simply aren’t as secure as rival devices, which operate outside the closed, encrypted network BB alone operates. Data transmitted on iPhones, Samsung devices or other competing devices is conveyed by “common carrier” telephone utilities that are more vulnerable to eavesdropping.

Even BB itself cannot “un-encrypt” messages conveyed on its proprietary network. Which gave rise to Barack Obama’s inadvertent BB boost when the world’s most famous “Crackberry” addict told a group of White House visitors in December that he’s not allowed to use an iPhone for “security reasons.”

On the device side, Chen is unveiling two new BlackBerrys in a bid to reverse the decline in BB’s handset market share and revenue. These will revert to the QWERTY keyboard and trademark belt of five function buttons between the keyboard and screen that effectively disappeared in recent years’ models.

To be on the safe side, though, BB has bolstered its appeal as an enterprise mobility manager by enhancing its proficiency at managing non-BB devices. That’s a compelling reason for IT managers to remain loyal to BB’s original bread-and-butter business as a service company.

Chen hopes it will also encourage defections from the upstart device-management firms that have had an awkward time managing the varied demands of institutional clients.
With its one-of-a-kind secure network, BB potentially has a franchise that is what Warren Buffett describes as a “moat” — impregnable to would-be competitors. Even if the BB network could be replicated, BB’s much bigger rivals likely wouldn’t regard the additional revenue as worth the trouble.

As the mobile communications and the internet supplant other more established modes of doing business, this much lauded security that will be key to Blackberry’s ongoing success. This is what investors and Mr. Chen appear to be banking on.

For more, see: BLACKBERRY EYEING PARTNERSHIPS TO TAKE ON APPLE-IBM