BlackBerry's turnaround: 7 questions loom for future

BlackBerry CEO John Chen made his case for the company's turnaround. It's a tough sell at the moment given all the loose ends that need to be tied up.
Written by Larry Dignan, Contributor

BlackBerry CEO John Chen acknowledged that the company's turnaround is "complicated," but has a lot of assets that can lead to a turnaround. The problem is that BlackBerry has so many loose ends to tie up that it's hard to see how the company revamps, even when it has a war chest of $3.2 billion to fund it.

On a conference call with analysts following dismal third quarter results that missed estimates, Chen laid out BlackBerry's turnaround case after 45 days on the job.

The company's four units---Enterprise Services, Messaging, QNX Embedded business and the Devices business---make it more transparent. So far the most transparent thing about BlackBerry is a horrid financial picture. The company reported a third quarter net loss of $4.4 billion, or $8.37 a share, on revenue of $1.2 billion. The adjusted loss was 67 cents a share. Wall Street was expecting a loss of 44 cents a share on revenue of $1.59 billion.

bbry devices

"We are in enterprise mobility, highly secured and strategic," said Chen, noting BlackBerry will focus on regulated industries. QNX is a promising business, and devices will improve with a Foxconn deal that lowers inventory and cost risk. Messaging is more like a startup.

Also: BlackBerry tries to hold enterprise software, services fort; Customers wary | BlackBerry beefs up Android and iOS device management: Is BES now its crown jewels? | How BlackBerry could have saved itself

"Our cash position will enable us to engineer our turnaround," said Chen.

That opening still leaves a ton of unresolved questions hanging. It's good that Chen wants to have an ongoing conversation about BlackBerry's turnaround. He's going to need some time to make his case. "It's going to be a long transition," said Chen. He said BlackBerry wants to post a profit in fiscal 2016 and operating cash neutral by end of fiscal 2015. BlackBerry is currently in its last quarter of fiscal 2014.

Here's a look at the big questions facing BlackBerry. The answers will ultimately determine BlackBerry's survival.

  1. Will BlackBerry Enterprise Service 10 be installed after test periods? BlackBerry wants to be a mobility management leader, but it's unclear if BES 10 will fly when BlackBerry 10 devices aren't selling. The company said BES 10 has 30,000 commercial and test servers installed, up from 25,000 in September. BlackBerry's ability to convert tests to real revenue may determine the fate of the company as an enterprise player. Chen said BES 10 is a base server and there will be other features on top of it such as enterprise BBM.
  2. How bad can the device business get? Kudos to BlackBerry for doing a deal with Foxconn that'll lower costs and inventory risk. Chen, however, said units may still decline in the quarters ahead. The first Foxconn effort revolves around a 3G device for Indonesia. Chen said BlackBerry's device strategy will emerge throughout calendar 2014 and he wants to focus on high end products. It's still unclear why Chen wants to chase a low margin handset strategy.
  3. Will developed markets be interested in BlackBerry devices? The Foxconn deal is focused on emerging markets and consumers. That low margin business caps BlackBerry's potential. Developed markets will be geared to more high-end devices, but it's unclear whether BlackBerry has a brand that'll sell. "For the foreseeable future our designers will focus on enterprise handsets only," said Chen.
  4. Is there any value in BlackBerry 10 as a platform? BlackBerry sold 4.3 million smartphones to end customers in the quarter and only 1.1 million were BlackBerry 10 units. That fact means the soon-to-be antique BlackBerry 7 devices are still the most popular. Foxconn devices may help BlackBerry 10 get some traction, but so far the platform is a flop.
  5. Will QNX be tainted by BlackBerry's corporate woes? QNX was called one of BlackBerry's "crown jewels" by Chen. QNX, an embedded OS, does well in the auto industry, but Chen wants to take it to new verticals and ultimately make it a machine-to-machine play. "The QNX micro kernel is going to be strong," said Chen. QNX is promising, but could do better as a spin off at this point.
  6. Can BlackBerry monetize BBM? BBM has 80 million active users and is housed in a messaging unit that is largely a startup. "In fiscal 2015 we're going to be focused on building out features and channels and how to monetize it," said Chen. Analysts openly questioned whether BlackBerry can monetize BBM.
  7. Carrier relationships. Chen said BlackBerry has interest from carriers on the enterprise side of the equation, but acknowledge that "he's working on consumer."
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