Blackberry: Turnaround or Death Knell?

Can the New CEO Complete a Drastic Transformation?

Blackberry: Turnaround or Death Knell?
April 1, 2015

Remember when the BlackBerry was THE hot technology product? It even spawned a new pop culture term: CrackBerry, as in people were as addicted to their BlackBerrys as crack addicts are to crack cocaine.

However, the introduction of the Apple iPhone in 2007 marked the beginning of a steep decline for BlackBerry. In 2009, BlackBerry still had a 47 percent smartphone market share in the U.S. Within a year, though, the iPhone surpassed the BlackBerry in terms of market share. By 2012, BlackBerry’s market share had fallen to four percent, and it plunged to below one percent in early 2015.

New CEO to the Rescue

With the company teetering on the edge, it hired an outsider as its CEO for the first time in November of 2013: John Chen, who had previously turned around Sybase and positioned the enterprise software and services company for a $5.8 billion takeover by SAP. When he was hired, Chen pegged his odds of turning BlackBerry around at 50-50.

Many scoffed at Chen’s proclamation, as BlackBerry was not only in dire financial straits but the brand had pretty much become a joke. No self-respecting smartphone owner would be caught dead carrying a dated BlackBerry. The company’s Buzz Score, which measures the number of people who view the brand favorably versus unfavorably, has been cut in half since 2012.

The company’s revenue dropped more than thirty percent during the nine-month period before Chen was hired, and its net loss ballooned to $5.45 billion during this period, from $744 million during the same period the year before. Even worse, Blackberry’s cost of sales was exceeding its revenue, resulting in a gross loss.

Chen’s initial strategy was to restore investors’ confidence in the company and change the corporate culture and attitude from within. He also cut the workforce by forty percent and started outsourcing smartphone manufacturing. More recently, he has shifted the company’s focus to security and software for the government and businesses, while refocusing its smartphone target audience from consumers to business users, in order to avoid head-to-head battles with the Apple iPhone and Google Android.

The centerpiece of its new business user-centered smartphone strategy is the Passport, a smartphone with a large square display. Its larger screen and apps are designed to appeal to professionals, including government, finance and healthcare employees who the company hopes will find it better-suited to the work they need to do on a smartphone — like viewing spreadsheets on the phone, for example.

As a Blackberry senior marketing executive recently put it, executives “have a personal life. They may have an iPhone for their iTunes.” But iPhones and Android phones will “frankly distract you from business communication.” In fact, thirty percent of smartphone consumers view their phone as a tool, rather than an entertainment device.

In October, Chen wrote the following in an op-ed column: “We don’t expect to sell a handset to everyone and don’t expect to take down the consumers who love to play games on their iPhones. But we do want to provide an experience that caters to the mobile professional — anyone who relies on their device to do their jobs.”

At least one industry analyst thinks this is a smart move. BlackBerry still has brand equity with business users in highly-regulated industries like banking, healthcare and insurance, he notes. This is due mainly to its strong reputation for security — in fact, he calls BlackBerry “the gold standard” for security.

Turnaround Prospects

So what are the prospects for a permanent transformation at BlackBerry now, fifteen months since Chen took over as the CEO? Chen, for one, is extremely optimistic: In December, he boldly upped the odds of a successful turnaround to 99 percent. This might sound like bluster from an over-confident CEO, but some analysts are starting to think he might be right.

For one thing, BlackBerry generated $43 million in positive cash flow in the third quarter of last year, one quarter earlier than what Chen projected. And the company posted adjusted earnings of one cent per share for the quarter. Wall Street recently halved its projected loss for fiscal year 2015 from 29 cents per share to 15 cents per share.

Chen has set a goal of breakeven cash flow for BlackBerry’s most recent fiscal year (which ended in February) — if this is achieved, it could set the foundation for sustainable revenue growth and profit for the current fiscal year. BlackBerry is about halfway through a two-year reversal plan, he says, and is already ahead of schedule, having stabilized financially. His goal is to generate $500 million in software revenue this year and then double this every year going forward.

It is definitely too early to proclaim BlackBerry as the latest turnaround success story. But the company and its ambitious new CEO are clearly off to a good start. BlackBerry will likely never become the dominant consumer smartphone brand that it once was — but if it can stay focused on its new niche markets, it could become a successful and profitable company once again.

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