Subscribe

Sun sets on BlackBerry devices

Nicola Mawson
By Nicola Mawson, Contributor.
Johannesburg, 10 Apr 2014
BlackBerry may ditch devices if they continue to be unprofitable, says CEO John Chen.
BlackBerry may ditch devices if they continue to be unprofitable, says CEO John Chen.

Stopping production of handsets would be a good move for BlackBerry. It would improve its image and profitability at a time when the devices are losing traction in emerging markets, the only geographies that have still been showing an interest, notes an analyst.

CEO John Chen told Reuters the company would consider exiting its handset business if it remained unprofitable. He noted BlackBerry was, instead, seeking to expand its corporate reach with investments, acquisitions and partnerships, the wire service reported.

"If I cannot make money on handsets, I will not be in the handset business," Chen told Reuters in an interview. It quotes him as saying the time frame for this decision was short and, although he was not more specific, he said BlackBerry would be able to make money off shipments of as few as 10 million a year.

At its peak, BlackBerry shipped 52.3 million devices in fiscal 2011, notes Reuters. However, the company has been struggling to become profitable, and has been through several top-level changes, which includes a strategic shift and management movements.

In the fourth quarter of its last financial year, it reported revenue 64% lower and, while its loss was lower than expected, it came in at $423 million. It sold around 1.3 million units, compared to 1.9 million in the third quarter.

Now, it is looking at reducing its reliance on devices and diversifying its portfolio. According to Bloomberg, Chen does not plan to ditch handsets entirely, but rather cut down the company's reliance on devices, while it seeks to bolster its other offerings.

Chen told Reuters BlackBerry was on track to be cash-flow positive by the end of the current fiscal year, which runs to the end of February 2015, and to return to profit some time in the fiscal year after that.

No buy-in

World Wide Worx MD Arthur Goldstuck notes a shift away from devices makes sense, as this would restore the company's reputation. He says the hardware is a "massive liability", both in terms of its profit and image.

Goldstuck says there is a big user base in SA - and other developing markets - but this will vanish fast. Of the 16 million smartphones in SA, some five million will be BlackBerry models by the second half of the year, a 500 000 decline on World Wide Worx's November 2013 research, which had the BlackBerry base at 5.5 million.

BlackBerry is heading in the direction of cutting out its devices, says Goldstuck, adding this move has been a long time coming. The company is still making great devices, but has failed to get market buy-in at price points that are seen to be too high, he comments. "Why are they running about in the arena when the market has abandoned them?"

Goldstuck expects Android to soon take over as the most desired operating system among smartphone users in SA and other emerging markets. The results of World Wide Worx's Mobility 2014 survey show Nokia has a 44% market share among adults in local cities and towns.

BlackBerry has failed to get market buy-in for its handsets, and consumers are losing interest, says World Wide Worx MD Arthur Goldstuck.
BlackBerry has failed to get market buy-in for its handsets, and consumers are losing interest, says World Wide Worx MD Arthur Goldstuck.

Nokia's share has dropped from 50% in the past 18 months, while BlackBerry gained from 18% to 23%, and Samsung clawed up to 19% from 18% of the local market, says Goldstuck. Nokia is expected to continue losing ground, while Samsung and BlackBerry will gain.

Globally, BlackBerry's market share is expected to drop from 2.7% in 2012 to 1.7% by 2017, says the IDC.

Although the handsets are still popular in niche markets, like SA and Indonesia, they are at the top end of their desirability and the sun is setting on demand for the devices, says Goldstuck. He says a lack of transparency around the company's direction and release dates for new phones led to a tapering of interest by consumers.

BlackBerry Africa and SA MD Yudi Moodley has said SA and Africa remain key markets for the company, and the smartphone brand remains strong across the continent. The company says: "BlackBerry is a strong brand in SA. We're the number two smartphone brand overall in Africa. BlackBerry is committed to our success there and we will continue to serve all BlackBerry users here."

Goldstuck notes, however, that BlackBerry has several challengers in both the low- and high-end of the market. At the price-conscious end, both Nokia and Alcatel are serious contenders, and Alcatel's OneTouch 3 000 has already been named the "AlcaBerry" in SA's townships, he says.

Building on strengths

Chen says BlackBerry needs to zero in on its core base of corporate and government clients, and on its services arm, which secures mobile devices on the internal networks of big clients, reports Reuters.

Goldstuck says BlackBerry has powerful assets in its software base, specifically in its mobile management tools, which can manage any mobile device. However, this makes BlackBerry's own hardware a liability, which it should ditch to improve its position, he says.

In addition, BlackBerry's security is military-grade in countries such as the US and Germany, and can be bolted onto other devices, says Goldstuck.

Chen - who took over the Canadian company last November - told Reuters BlackBerry was also looking to invest in, or team up with other companies, in regulated industries such as healthcare, and financial and legal services, all of which require highly secure communications.

The chief executive said small acquisitions to strengthen BlackBerry's network security offerings were also possible, the wire service reported. "We are building an engineering team on the service side that is focused on security. We are building an engineering team on the device side that is focused on security. We will do some partnerships and we will probably, potentially do an M&A [merger and acquisition] on security."

Goldstuck adds BlackBerry also has the ability to manage services in specific segments such as automotive, through its QNX software.

Chen told Reuters his long-term plans for BlackBerry included competing in the burgeoning business of connecting all manner of devices, from kitchen appliances to automotive consoles to smartphones.

"We are not only interested in managing BlackBerry devices. We are interested in managing all devices that you would like to speak to each other," he said.

Update

Subsequent to publication of the Reuters article, Chen posted the following blog post:

"Yesterday, Reuters published an article that said I would consider selling our devices business. My comments were taken out of context.

"I want to assure you that I have no intention of selling off or abandoning this business any time soon.? I know you still love your BlackBerry devices. I love them too and I know they created the foundation of this company. Our focus today is on finding a way to make this business profitable.

"BlackBerry is not a handset-only company. We offer an end-to-end solution and devices are an important part of that equation. That's why we're complementing our device business with other revenue streams from enterprise services and software, to messaging. We're also investing in emerging solutions such as machine-to-machine technologies that will help to power the backbone of the 'Internet of things'.

"We will do everything in our power to continue to rebuild this business and deliver devices with the iconic keyboard and other features that you have come to expect from this brand.?

"Rest assured, we continue to fight. We have not given up and we are not leaving the devices business."

Share