BlackBerry hits the reset button on its core business


The Canadian smartphone maker swerves its focus heavily to software, strikes Foxconn manufacturing deal. (STEPHEN MORRISON/EPA)
December 20, 2013

BlackBerry is finally hitting the restart button. After reporting a $4.4 billion third-quarter loss Friday, the smartphone maker said it will focus on developing software and offload much of its hardware production on the technology industry giant Foxconn.

The new strategy, announced by the firm’s interim chief executive, John Chen, pushed BlackBerry stock up 97 cents, or 15.5 percent, to close at $7.22.

“BlackBerry has established a clear roadmap that will allow it to target a return to improved financial performance in the coming year,” Chen said in a statement.

It’s been a rocky few months for the once-dominant smartphone firm, which abandoned plans to go private and replaced its executive team, including its CEO, in the aftermath of a failed attempt to reclaim ground in the consumer smartphone market against Apple and Samsung.

BlackBerry’s strategy is smart and leverages the firm’s reputation for security that comes embedded in its software, analysts said. But it is a drastic departure for the company, which has traditionally touted its hardware, even opting to change its name from Research in Motion to BlackBerry this year to show its commitment to its flagship phones. Now, that center has shifted.

“It’s not a business of devices first and software to support them,” said Charles Golvin, an independent technology analyst. “The strategic focus today and going forward is to reemphasize the core value that BlackBerry software delivers.”

During a call with investors, Chen said that more of BlackBerry’s software may soon show up on competitors’ devices. “I would love to find a way to make our BlackBerry experience” work on Apple’s iOS and Google’s Android operating systems, he said.

BlackBerry isn’t getting out of the hardware game altogether. Under its deal with Foxconn, the Taiwanese firm will make BlackBerry phones for overseas customers, with a particular emphasis on emerging smartphone markets where the Canadian firm still has strong brand loyalty. BlackBerry said it will retain design control — and make sure that the phones that bear its name meet its quality standards.

Entering into a partnership with Foxconn also allows the firm to reduce costs without running afoul of foreign ownership concerns raised by the Canadian government this year. Canadian officials rejected Chinese-based Lenovo’s proposal to buy BlackBerry in October, the Toronto Globe and Mail reported, citing national security concerns.

BlackBerry plans to open factories in Indonesia and Mexico, which will get the firm closer to its most devoted customers and the world’s fastest-growing smartphone markets, said Ramon Llamas, a mobile researcher for International Data Corp.

“They’re stationed close to some of the key markets where they want to be deeply entrenched,” Llamas said.

Still, for its U.S. and Canadian customers, the shift to software shows BlackBerry is largely giving up its ambitious goal to reclaim some of the market share it lost to Apple’s iPhone and Android phones.

“The days of chasing the consumer are over,” said Carl Howe, a mobile analyst for Yankee Group.

Howe noted that BlackBerry is in a stronger financial position than it may seem at first glance, thanks to a recent $1 billion investment it received from Fairfax Financial Holdings, buying time for the company to regain its bearings and find new leaders. It has $3.2 billion in cash on hand, despite reporting a more than 50 percent drop in revenue during the third quarter.

The next few quarters will nevertheless be a tough test for Chen. The chief executive has a reputation as a turnaround man, thanks to his tenure at the software firm SyBase, which he pulled back from the brink before selling to SAP AG for $5.8 billion in 2010.

“His name quality is laser-like focus on the business enterprise market,” Golvin said.

Chen’s expertise in working with big businesses is seen as a boon to BlackBerry, which is still popular with corporate and government consumers but has seen that market erode. BlackBerry has an uphill climb, particularly with everyday consumers who have begun choosing BlackBerry competitors for their work devices, said Rita McGrath, a management professor at Columbia Business School.

“I can’t think of a company that’s fallen off the truck and come back in the same industry,” McGrath said. “Once you’ve broken up your engagement, do you really want to go dating again?”

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Hayley Tsukayama covers consumer technology for The Washington Post.
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