Why I believe Blackberry will rebound strongly


In recent years BlackBerry has taken a beating from the iPhone and Android smartphones power packed with unique features capable of handling dynamic and multi-threaded activities not limited to e-mails and calls. BlackBerry found itself in the same situation where Nokia was when Samsung and Motorola came out with touch screen form factors in late 2003. BlackBerry ended up facing major losses as consumers and prosumers suddenly moved out of 'messaging-only' mode to look for more compelling offerings.

 

The unprecedented downfall raised concerns of BlackBerry being acquired as well as rumours about certain parts of the business being sold off, but it managed to survive both. The majority shareholder Fairfax Financial once tried to take the company private but dropped the idea with an appointment of technology company turnaround veteran John Chen. In the past Chen has proven he's worth his salt by turning Sybase into a profitable business by calibrating Sybase strengths in the enterprise mobility segment, which in turn attracted SAP to acquire Sybase for $5.8 billion in 2010.

 

The arrival of Chen also brought back confidence amongst Blackberry investors and FairFax Financial invested $1 billion in the form of debenture followed by another investment of $250 million in convertible bonds. It helped BlackBerry shore up its survival kit of cash and cash balance of $3.2 billion by the end of Q3 FY14.

 

In the recent past, Chen has come out with a slew of major strategic moves to realign the business. Interestingly, Chen wasted no time and sent clear message through an open letter to partners about the renewed BlackBerry focus on devices, enterprise mobility management (EMM) solutions, cross-platform messaging and embedded systems (through subsidiary QNX). In spite of BlackBerry's 3Q14 loss of $4.4 billion, industry analysts are betting that new CEO will bring the same, or an even better, turnaround strategy that he pulled off at Sybase. It is important to understand that most of the losses are because of non-cash charges such as assets charge of $2.7 billion, inventory charges of $1.6 billion and restructuring-financial-legal charges of $266 million. Many analysts focused on $77 million of cash used in operational activities.

 

The open letter goes on to indicate that BlackBerry is coming out with innovative and affordable devices to maintain a complete mobility ecosystem allaying analyst fears that Blackberry may sell its device business à la Nokia. Chen demonstrated this with a five-year device design, manufacturing, inventory management agreement with Foxconn to reduce BlackBerry's exposure on device-dynamic ecosystem changes. The deal is going to help BlackBerry significantly reduce its design, manufacturing and product refreshment costs, given Foxconn's expertise in the said domain.

 

Chen and his team wasted no time in identifying the pain points of 2013 devices such as Z10 & Z30 - the absence of a mini-track pad and back button. He announced that future BlackBerry devices will have QWERTY keyboard along with mini-track pad and back button and tried to woo back BlackBerry loyalists into its fold.

 

Even more interestingly, BlackBerry is refocusing on APAC and emerging markets to start regaining its foothold and announced that devices in the design phase currently with Foxconn would be launched in Indonesia somewhere in March 2014. In order to position and increase penetration of upcoming devices across verticals, BlackBerry hired former HTC/SE veteran Ron Louks as device chief.

 

Chen's vision and dynamic decision-making capabilities also attracted AT&T. AT&T mobile chief Ralph de la Vega also rooted for BlackBerry during CES 2014 in Las Vegas. The AT&T chief's remarks on BlackBerry may act as catalyst for its device adoption as AT&T must be credited for the success of the iPhone. During early days of iPhone awareness and adoption, AT&T poured in millions of dollars to push and market it. If Chen manages to get the same level of support, BlackBerry might see the tide turn.

 

BlackBerry is also relying on its demonstrated proactive approach in recent years to define, refine its infrastructure to comply with regulatory environment especially in emerging markets such as India, China, Saudi Arabia and other Asian countries. The implementation of lawful intercept capabilities, local server implementations helped BlackBerry gain government authorities' confidence and it was considered as de-facto partner to eradicate unlawful activities execution through mobile communications. The move also helped wireless operators to fulfill their regulatory compliance and retain high ARPU (Average Revenue Per Month) user base dominated by enterprise professionals.

 

Chen's open strategy to focus on enterprise mobility management would attract the attention of businesses looking for enterprise applications or services, given his past credentials in turning Sybase into an enterprise mobility powerhouse. Industry can expect aggressive and innovative moves by BlackBerry to reposition its enterprise platform as an agnostic platform supporting mobile operating systems such as Android, iOS, Windows Phone and of course BlackBerry10.

 

The move will surely help BlackBerry become the de-facto enterprise solution due to its time tested enterprise solution as well as partnerships with most wireless operators. Blackberry Enterprise Services are offered by almost every wireless operator to attract a high paying postpaid user base.

 

In recently concluded 3Q14, 53 percent and 7 percent of its total $1.6 billion revenue came from the services and software segment and offers a clear indication that there are still millions of enterprise prosumers who are generating millions of dollars on a monthly basis. BlackBerry also achieved 20 percent growth in BES10 deployment QoQ and have more than 80,000 customers worldwide. The reviewed BlackBerry strategy is focus on services and software also sends a clear message to its loyalist enterprise users who moved on that BlackBerry is gearing to offer interoperable and portable services through Bring Your Own Device (BYOD) support. Competitors should be ready to expect Bring Your Own Network support from BlackBerry too. The potential move from BlackBerry would enable them to offer personal area network environment for their customers, particularly focusing on security and privacy.

 

BlackBerry's attempts to monetise converged unified messaging are also gathering pace. Converged Unified Messaging is a combination of unified messaging and rich communication where users are offered voice, video and data centric communications service. BlackBerry's earlier strategy of offering device-agnostic Blackberry Messenger service (BBM) has been warmly welcomed by Android and iOS device users. Recently, BlackBerry also struck major success on BBM service availability on Android through its device preload agreement covering Latin America, Africa, Indonesia, Middle East and India. Emerging countries are major contributors of messaging users looking for free chat, voice, video services. BlackBerry played privacy, security, lawful intercept and the brand card in these emerging markets. It helped BlackBerry position itself against major free over-the-top (OTT) messaging & voice service providers such as Whatsapp, WeChat, Line, Viber etc. The preloads agreement in India alone is going to add more than 25 million new BBM users in the next year and more than around 50 percent of upcoming smartphones will have BBM preloaded. This move should surely make competitors sit up and take notice. The recent preload agreement in emerging markets also sends an indirect message to global device players to accept them rather than avoid due to their presence in the devices space too.

 

On the iOS and Android ecosystem, BlackBerry saw 40 million BBM downloads in last 60 days with 250000 channels opened by its users. With LG as new preload partner, BlackBerry will be able to evolve its messaging ecosystem even further as they will be sitting on higher inventory by the end of FY15 and that will definitely be used to generate good revenue. The very fact that a brand like Coca Cola has also joined in as one of its channels is a sign of things to come.

 

Chen is going to position BBM as a replacement to many competitors in the OTT messenger services segment by incorporating additional features such as voice and video calling. It is widely expected that BlackBerry would be releasing devices with BlackBerry 10 where all existing Android applications would be portable and would be supported with security, privacy, quality and data protection.

 

Most importantly, BlackBerry's initiative to support Android and iOS would enable them to monetise their huge patent portfolio also. The move is going to be helpful for many startups to develop innovative products or services or applications which would lead industry into new era where mobile operating system constraints would disappear. In that scenario, users would be able to port existing paid products or services onto a new, different mobile operating system after switching devices. Chen also made it clear though the company is open for supporting innovation, it would also focus on protecting its patent portfolio. In that context BlackBerry recently sued Typo for offering a QWERTY keyboard for iPhone 5C and 5S since the design seemed like a complete copy of the BlackBerry QWERTY keyboard.

 

On the embedding system segment, the collaboration with Qualcomm to integrate its portfolio to target the automobile sector opens a huge business opportunity and must be considered positive move to strengthen portfolio. The recent investment of $1.25 billion is a good opportunity for Blackberry to reposition itself as a formidable force in the enterprise mobility ecosystem. Supported with services and software, BlackBerry could be profitable by 2016, building new business units around messaging and embedded systems. The device manufacturing outsourcing agreement protects BlackBerry from inflicted losses from devices whereas the quick device design and production capability lends support to offer mid-range devices to the loyalist as well as new consumers and prosumers.

 

The current market capitalisation of less than $5 billion indicates that BlackBerry is undervalued and offers great investment opportunity with higher risk to reward. I believe that BlackBerry, after a long time, is bringing all strategic ingredients to convert itself from struggling company to formidable force in the mobile ecosystem.

 

Devendra Prasad

 

(Devendra Prasad is a senior management professional with Karbonn Mobiles and a Master's in Mobile Communications from the University of Aalborg in Denmark with 19 years of multi-functional experience in the telecom space. He blogs regularly at www.technology-strategy.blogspot.com)


Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.