BlackBerry takes baby steps towards a new strategy

BlackBerry announced its earnings for the quarter ended November 30, 2013 today. Among other things, the company announced a move to a new operating structure and a device manufacturing agreement with Foxconn. The following comment may be attributed to Jan Dawson, Chief Analyst at Jackdaw Research:

BlackBerry has struggled greatly over the last couple of years, and the latest results show a worsening in essentially every number the company reports. BlackBerry hasn’t shipped this few devices in a quarter since 2006, and revenues haven’t been this low since the iPhone launched. Importantly, BlackBerry actually sold 4.3 million devices to end users, of which 1.1 million were BlackBerry 10 devices. BlackBerry 10 continues to be a flop, while customers in emerging markets continue to buy older BlackBerry 7 devices.

John Chen announced a new internal operating structure around four major segments: devices, enterprise software and services, BBM and QNX embedded systems. This is an excellent step as it recognizes the three growth areas that are critical to the company’s turnaround and offsetting the declines in the core devices business. However, the company stopped short of reporting revenues in any of these new segments, which is a sign of just how small the revenues there are today. BlackBerry needs to grow these three revenue streams enormously in the near future to make up for the loss in revenues in the handset business (see this post for more details). The company’s BES10 enterprise management system hasn’t generated any revenue yet, BBM won’t generate meaningful revenue until late 2015 at the earliest, and QNX revenue also remains tiny. As such, the company will see continued struggles in core devices and services revenue for some time to come, and won’t become profitable for two years, and will burn cash for much of the interim.

The Foxconn arrangement is an enormous step forward in devices. The company would have found it impossible to turn around its device business if it had kept it in-house, so this is about the only way BlackBerry could have saved it. Foxconn clearly has huge experience in manufacturing devices, and massive scale thanks to partnerships with Apple and others. But this is the first time Foxconn will be taking the lead in designing hardware for a major manufacturer, and that creates uncertainty about the quality of the devices. BlackBerry’s own hardware has not been stellar, so there may be upside here as well as risk, but neglecting the hardware as a core capability suggests BlackBerry may be underestimating its importance. However, it will stop the sort of inventory write-downs we’ve seen the last two quarters, which make the headline profitability numbers look so awful. But it won’t turn around devices revenue (or the service revenue which follows it) for some time to come.

Jan Dawson is available for comment at and (408) 744-6244.

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