BlackBerry’s back-to-basics approach is starting to show results

The once-towering tech giant is starting to see promising signs now that it’s returned to its enterprise roots

 
John Chen and the Blackberry Passport

(Mark Blinch/Reuters; Bloomberg/Getty; Blackberry)

When Marty Beard joined BlackBerry as its chief operating officer in July 2014, he walked into the centre of one of the most ambitious corporate turnarounds ever launched in Canada. The beleaguered company was in the midst of an intense makeover under CEO John Chen, who had assumed his position the previous November, during some of its darkest days. Chen had worked with Beard before, at the software company Sybase Inc., which they led back into the black. Now Chen was going for a repeat performance. “It was a lot of different things going on at once,” says Beard. “We were really, really focused on getting our financial house in order, getting much more financial stability, much more focused on cash flow.”

In other words, just trying to stay alive.

Not quite a year later, things at BlackBerry are looking up. The company isn’t dead, for one. Its new management team has succeeded in staunching the financial bleeding, opening the door for a potential comeback. That comeback rides on plans that, in some respects, signal a return to BlackBerry’s roots: a focus on the strengths that led to the company’s meteoric rise while largely abandoning what subsequently heralded an even more dramatic downfall. Moving forward, BlackBerry is cooling its efforts on the consumer front, a market that proved notably unreceptive to the Canadian company’s wares; its share of the global smartphone market dropped from about 20% to less than 1% after it shifted its attention away from its business customers. Now it’s aiming to lure them back with its mostly unrivalled security capabilities.

In the last quarter of its 2014 fiscal year, the company posted a surprise profit of $28 million, compared with a $148-million loss a year earlier. While revenue for that period dropped from $793 million to $660 million, BlackBerry reported positive cash flow of $76 million, along with a $3.27 billion cash balance, which matches the highest in the company’s history. “Our financial viability is no longer in question,” Chen said in March.

Infographic showing basic financial facts about BlackberryChen and his management team have aggressively slashed spending. In the last quarter, operating costs dropped more than 61% over the previous year. “Every company has areas you can tighten up, but in the case of BlackBerry, when we came in, there was a lot of opportunity all over the place,” says Beard. “We were just running hard to make things more efficient.” In some cases, that meant reducing its workforce, a process that remains ongoing—the company just indicated plans for more layoffs, though it hasn’t revealed how many (it currently has about 7,000 employees, down from a high of 20,000). In addition to a variety of belt-tightening measures implemented across departments, BlackBerry also put into motion a plan that had been in the works for a long time, outsourcing handset manufacturing to Taiwan-based FoxConn.

“All of that’s happening at once, and you can see the result, where we were able last quarter to talk about positive cash flow and adding to our cash balance,” says Beard. That, in turn, means BlackBerry can snap up companies that will bolster the capabilities it’s pinning its recovery hopes on: offering superior security to enterprise customers across multiple platforms and devices. That’s a message the company is pushing hard to businesses, governments and “power professionals” with high security needs. “We want [them] to look at BlackBerry as the leader in securing their most important data,” says Beard.

BlackBerry announced in April that it had acquired the data security company WatchDox to bolster its ability to secure files on any device. Late last year, it completed the acquisition of German voice encryption and anti-eavesdropping company Secusmart. “We’ve always been the best at securing email and securing messages,” says Beard. “Now we secure voice, and with WatchDox, we secure files.”

It forged a partnership with Google Inc. to allow enterprises running BlackBerry’s BES12 software to integrate Google’s Android for Work tools. It also teamed up with Samsung Electronics to bring BlackBerry security capabilities to the smartphone maker’s handsets and tablets. That means BlackBerry can get its software out to a huge swath of customers, while Samsung can market its now-secure devices to the lucrative enterprise market. The company is also pursuing a strategy to provide security options for the Internet of Things, a move to connect everyday items to the Internet. Estimates suggest anywhere from 26 to 50 billion devices—everything from televisions to toasters—could be connected worldwide within five years, and making those connections secure will be a profitable business. It promises to be a highly competitive field, but given the company’s experience and expertise, BlackBerry aims to come out on top. “Other companies talk about security, but BlackBerry, for 25 years, has been doing it,” says Beard.

While there are encouraging signs, only time will tell whether the strategy spells a true reversal of fortune. When it comes to engineering a turnaround, cost-cutting is the easy part, says Richard Tse, a technology analyst with Cormark Securities. It’s getting revenues back to where they should be that takes the hard work. “They’re still pretty early in it,” says Tse. “There’s still a long, long way to go.”

Jan Dawson, chief analyst at Jackdaw Research, says that as BlackBerry looks toward a future as an enterprise software and services company, rather than a handset maker, it needs the same infrastructure as any of its competitors. “BlackBerry is doing the right thing, building all that up,” says Dawson. “However, that’s a long slog, and BlackBerry still has a lot of work to do to convince enterprises it’s still relevant and to educate them about its transition to a device-agnostic services company.”

That transition won’t be easy: BlackBerry has little experience managing Android and iOS devices, and has a relatively small direct sales team and few exclusive distributors. “The way I tend to characterize BlackBerry at this point is that it was on the mountaintop a few years back and has now slid down into the valley beyond it,” says Dawson. “Ahead, there’s another mountain, but the top is clouded, and it’s impossible to see how high it is or whether BlackBerry can even successfully climb it.”

Jeff Kagan, a U.S.-based analyst, remembers giving a speech back when BlackBerry was “unbeatable.” Smartphone rivals like Apple’s iPhone were just coming onto the market. “I warned BlackBerry, ‘This is your wake-up call. Do something now, before it’s too late,’” says Kagan. “They just didn’t believe it.” Now, with BlackBerry’s global market share hovering around 0.5%, its only way forward is on the enterprise and software sides, says Kagan. “I don’t think BlackBerry is ever going to see the days it had before, unless there’s a complete transformation in the industry.”

Independent analyst Carmi Levy is more optimistic. The BlackBerry of today is a “radically different company” than the “disaster” Chen and his team took on 18 months ago, he says. BlackBerry left behind its dismal record in the consumer market and returned to the enterprise clientele that originally made it what it was. “It’s a perfect lesson in exploiting the markets where you can compete, and getting out of the markets where you know you can’t,” says Levy. “BlackBerry is no longer trying to be all things to all people.”

But convincing the world that it has moved beyond its fall from grace will be tough. “The company really does have one of the more monumental branding challenges in Canadian business history ahead of it,” says Levy. “It has to convince a largely skeptical audience that it remains relevant, but in a very different way.… It’s that branding that will ultimately reconnect BlackBerry back to the market that made it successful in the first place.”

Beard doesn’t disagree. The company needs to hammer home the message that it has changed, he says, from a BlackBerry device company to a “cross-platform solutions” company. “It’ll take time. That’s one of the challenges,” he says. And the others? “We need to be smart and make sure we stay focused on making money.”

Beard says the company isn’t too concerned about the proliferation of opinions about it—the articles, the books, the chatter. It’s not looking to the past. “I need to be focused on moving forward. We like what we’re doing, and we understand that it’s going to be a lot of hard work; it’s going to take time. We’re all feeling good about where we’re going.” Asked where that would that be, in an ideal world, Beard doesn’t hesitate: “BlackBerry re-emerges as a clear global leader in mobile security and managing the Internet of Things. And everybody says, ‘Yep, they’re definitely one of the top players.’”

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