Chen's turnaround plan takes shape
(Flickr/Santiago Atienza)
Terrible financial results aren’t usually cause for celebration. In BlackBerry’s case, however, investors have sent the company’s share price up more than 12% so far today after a dismal set of earnings were released this morning. So what gives?
The results were the usual horrorshow we’ve come to expect by now, if not worse . A US$4.4 billion loss. Huge writedowns and restructuring costs. The fact that BlackBerry’s latest subscriber count was conspicuously absent from the results. But part of the enthusiasm for the stock today can be explained by CEO John Chen — BlackBerry has conspicuously dropped the “interim” from his title — who spoke at length publicly for the first time since joining the company. “The CEO sounds smart,” says Mike Genovese, an analyst at MKM Partners. Chen struck a very different tone from his predecessors. He was casual, confident, candid, and almost appeared to be winging it instead of reading from a dry script. Most importantly, he began outlining a roadmap for the company.
The most significant piece of good news amid the chaos was a joint development and manufacturing agreement with Foxconn Technology Group. The agreement should reduce BlackBerry’s manufacturing costs, and gives the division a shot at breaking even down the road. By hammering out this deal, Chen is addressing BlackBerry’s biggest financial sinkhole.
The two companies will collaborate on handsets primarily for developing markets such as Indonesia, with Foxconn handling hardware and BlackBerry concentrating on software. The first such handset will be released in March or April. BlackBerry gets to piggyback off Foxconn’s superior scale and agility, but will also to offload inventory management to Foxconn. That could mean BlackBerry will avoid yet another $1 billion writedown of unsold inventory. “I’m hoping that we never have to have a conversation going forward about inventory writedowns,” Chen said.
Investors’ enthusiasm today could be shortsighted. People still have to buy BlackBerry smartphones, something they certainly weren’t doing this quarter. The company sold only 4.3 million handsets to customers, and the vast majority were older models, not the BlackBerry 10 handsets that were supposed to reinvigorate the company. Chen didn’t have much to say on reversing that dire trend.
His goal right now is to stabilize the money-losing handset business, and he said on the call that he would be happy to just break-even on hardware. At that point, he’ll reassess the division. “This is going to be an ongoing conversation,” Chen said.
Working with Foxconn will allow BlackBerry to focus on the things it does well, such as security, mobile device management, and other enterprise services. Chen raised hopes the company will start making money in new areas too, such as through BlackBerry Messenger. He devoted a good chunk of time talking up the service. BBM, recently rolled out to iPhone and Android, has 80 million active users and many of them use it for close to 90 minutes per day on average. Chen said he expects BBM to generate “some reasonably good revenue” by fiscal 2016. But when he was asked how, he admitted he didn’t know.
Chen’s not alone in figuring out how to make money from instant messaging apps. WhatsApp dwarfs BBM with 400 million users, and it doesn’t really have a meaningful revenue model, either. For BlackBerry, tackling this problem is partly a question of whether it can think and act like a startup again. Chen even characterized BBM as a startup within the larger company. Breaking with the past is a difficult thing to do for established companies, and it’s something BlackBerry tried before when building BlackBerry 10. Former co-CEO Mike Lazaridis hived off engineers working on the new platform from those servicing the existing operating system, a technique he followed from a popular book called The Innovator’s Dilemma by Clayton Christensen. But the split caused tension and animosity between the teams. Some employees left. The teams were eventually put back together again.
So will BlackBerry really be the company to come up with a good revenue strategy for messaging apps? It does have a loyal enterprise customer base, and it could charge a monthly fee per user, an option Chen raised in the call. Advertising is another possibility. “We’re very far away from knowing how to do it,” he conceded. Analysts at Bernstein Research, in contrast, recently recommended the company sell BBM before the hype about messaging platforms dies down.
It would be unfair to expect Chen to have all the answers at this point. He’s only been on the job for 45 days. But time, even with the company’s sizable cash cushion, is a luxury he doesn’t have.
Blogs & Comment
Here's why BlackBerry's stock is up when its results were so bad
Chen's turnaround plan takes shape
By Joe Castaldo
(Flickr/Santiago Atienza)
Terrible financial results aren’t usually cause for celebration. In BlackBerry’s case, however, investors have sent the company’s share price up more than 12% so far today after a dismal set of earnings were released this morning. So what gives?
The results were the usual horrorshow we’ve come to expect by now, if not worse . A US$4.4 billion loss. Huge writedowns and restructuring costs. The fact that BlackBerry’s latest subscriber count was conspicuously absent from the results. But part of the enthusiasm for the stock today can be explained by CEO John Chen — BlackBerry has conspicuously dropped the “interim” from his title — who spoke at length publicly for the first time since joining the company. “The CEO sounds smart,” says Mike Genovese, an analyst at MKM Partners. Chen struck a very different tone from his predecessors. He was casual, confident, candid, and almost appeared to be winging it instead of reading from a dry script. Most importantly, he began outlining a roadmap for the company.
The most significant piece of good news amid the chaos was a joint development and manufacturing agreement with Foxconn Technology Group. The agreement should reduce BlackBerry’s manufacturing costs, and gives the division a shot at breaking even down the road. By hammering out this deal, Chen is addressing BlackBerry’s biggest financial sinkhole.
The two companies will collaborate on handsets primarily for developing markets such as Indonesia, with Foxconn handling hardware and BlackBerry concentrating on software. The first such handset will be released in March or April. BlackBerry gets to piggyback off Foxconn’s superior scale and agility, but will also to offload inventory management to Foxconn. That could mean BlackBerry will avoid yet another $1 billion writedown of unsold inventory. “I’m hoping that we never have to have a conversation going forward about inventory writedowns,” Chen said.
Investors’ enthusiasm today could be shortsighted. People still have to buy BlackBerry smartphones, something they certainly weren’t doing this quarter. The company sold only 4.3 million handsets to customers, and the vast majority were older models, not the BlackBerry 10 handsets that were supposed to reinvigorate the company. Chen didn’t have much to say on reversing that dire trend.
His goal right now is to stabilize the money-losing handset business, and he said on the call that he would be happy to just break-even on hardware. At that point, he’ll reassess the division. “This is going to be an ongoing conversation,” Chen said.
Working with Foxconn will allow BlackBerry to focus on the things it does well, such as security, mobile device management, and other enterprise services. Chen raised hopes the company will start making money in new areas too, such as through BlackBerry Messenger. He devoted a good chunk of time talking up the service. BBM, recently rolled out to iPhone and Android, has 80 million active users and many of them use it for close to 90 minutes per day on average. Chen said he expects BBM to generate “some reasonably good revenue” by fiscal 2016. But when he was asked how, he admitted he didn’t know.
Chen’s not alone in figuring out how to make money from instant messaging apps. WhatsApp dwarfs BBM with 400 million users, and it doesn’t really have a meaningful revenue model, either. For BlackBerry, tackling this problem is partly a question of whether it can think and act like a startup again. Chen even characterized BBM as a startup within the larger company. Breaking with the past is a difficult thing to do for established companies, and it’s something BlackBerry tried before when building BlackBerry 10. Former co-CEO Mike Lazaridis hived off engineers working on the new platform from those servicing the existing operating system, a technique he followed from a popular book called The Innovator’s Dilemma by Clayton Christensen. But the split caused tension and animosity between the teams. Some employees left. The teams were eventually put back together again.
So will BlackBerry really be the company to come up with a good revenue strategy for messaging apps? It does have a loyal enterprise customer base, and it could charge a monthly fee per user, an option Chen raised in the call. Advertising is another possibility. “We’re very far away from knowing how to do it,” he conceded. Analysts at Bernstein Research, in contrast, recently recommended the company sell BBM before the hype about messaging platforms dies down.
It would be unfair to expect Chen to have all the answers at this point. He’s only been on the job for 45 days. But time, even with the company’s sizable cash cushion, is a luxury he doesn’t have.