The ship has sailed - BlackBerry quits smartphone development

The ship has sailed - BlackBerry quits smartphone development
Rumors that BlackBerry is going to stop building smartphones were circling in the air weeks before today's earnings call – and, for better or worse, they turned out to be true. In the company's earnings press release, CEO John Chen clearly states that BlackBerry will stop all internal hardware development, preferring to "outsource" these duties to partnering companies like Foxconn instead. According to Chen, this will let the company reduce capital requirements and enhance return on investments.

While BlackBerry's handset division has to go, the company has "more than doubled" its software revenue year over year, delivering its highest gross margin since its inception. Around 44% of the company's $334 million quarterly revenue came from software and service sales, with service fees and mobility solutions accounting for 26% and 30%, respectively.

A strict leader, John Chen has stood true to his long-time warning that BlackBerry will stop producing its own smartphones if they fail to generate profit over time. However, the company will continue releasing branded handsets, custom-designed and manufactured by its partnering companies.

source: BlackBerry Earnings Press Release

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111 Comments

1. dimas

Posts: 3348; Member since: Jul 22, 2014

Blackberry's mistake, they didn't fire chen.

6. Podrick

Posts: 1285; Member since: Aug 19, 2015

Would've had a lot worse situation with older CEO. Chen is good CEO considering the situation BB was/is on. His mistake was pricing phones wrong.

16. dimas

Posts: 3348; Member since: Jul 22, 2014

I don't think great companies should be contented with only two choices. Millions of potential genius leaders around the world and they only fist bump with a few?

21. kiko007

Posts: 7493; Member since: Feb 17, 2016

"Millions of potential genius leaders around the world and they only fist bump with a few?" I don't know where you're getting such a preposterous number, but there are a select few who can actually run an organization as well regarded as a BB.

25. Podrick

Posts: 1285; Member since: Aug 19, 2015

Agreed. If there were so many genius leaders, then companies would have hired them. Genius leaders are few.

28. meanestgenius

Posts: 21798; Member since: May 28, 2014

And this^^!

34. dimas

Posts: 3348; Member since: Jul 22, 2014

Companies don't always hire people because of intelligence. Often than not it's about internal politics, relation or influence. Get real, remove that wonderland blindfold out of your blurry brain and see the real world. Everybody working for a corporation knows what I'm hitting with.

43. Podrick

Posts: 1285; Member since: Aug 19, 2015

"Companies don't always hire people because of intelligence. Often than not it's about internal politics, relation or influence." Misinterpret much? I never said anything close to that. And you're contradicting yourself with this. First suggest they should have hired genius leaders instead of few choices, then say its not possible in real world because of internal politics, relation and influence.

52. Mxyzptlk unregistered

I don't think you quite understand what he meant, unsurprisingly.

62. meanestgenius

Posts: 21798; Member since: May 28, 2014

This coming from the town idiot.

78. Mxyzptlk unregistered

Shouldn't you be in school, little kid?

96. meanestgenius

Posts: 21798; Member since: May 28, 2014

This is coming from the high schooler that still has a 8pm curfew.

53. Mxyzptlk unregistered

Apparently Chen isn't one of them.

61. meanestgenius

Posts: 21798; Member since: May 28, 2014

Apparently he is, especially since the stock is up.

79. Mxyzptlk unregistered

You don't know how stock works.

87. meanestgenius

Posts: 21798; Member since: May 28, 2014

You don't know how anything works.

27. meanestgenius

Posts: 21798; Member since: May 28, 2014

This^^!

32. dimas

Posts: 3348; Member since: Jul 22, 2014

Current global population is 7.3 billion. That's not preposterous, that's a fact and if you can't find another geek, nerd, leader or critical thinker in that number something's wrong in your head. Stick to your special snowflake leader thing and you sure are going to screw things.

39. kiko007

Posts: 7493; Member since: Feb 17, 2016

"Current global population is 7.3 billion." I was unaware that the ENTIRE human population had a business acumen...... my bad./s

48. meanestgenius

Posts: 21798; Member since: May 28, 2014

Lmao! +1.

50. dimas

Posts: 3348; Member since: Jul 22, 2014

Take 1% of 7.3 and you still got 73 million genuises and leaders fit for the ceo job. What's the use of Harvards and top state schools if you can only get 1 genius out of a hundred? You kick a sloppy, aging, non-adapting, financially-secured CEO then you get a better one. That's how business works to save more people from getting jobless.

45. jellmoo

Posts: 2567; Member since: Oct 31, 2011

I think you are grossly overestimating the number of people around that have the knowledge, experience, energy and drive to helm a multi billion dollar company.

47. Dr.Phil

Posts: 2340; Member since: Feb 14, 2011

Have you even looked at John Chen's resume? - Graduated magna cum laude from Brown University in 1978 with a bachelor of science in electrical engineering. Went on to receive his MS degree in electrical engineering from the California Institute of Technology. -Began his career in 1979 as a design engineer with Unisys, where he eventually served as vice president and general manager of, in turn, the Convergent RISC Platform Division and the Convergent UNIX Systems Group. In 1991 he joined Pyramid Technology Corporation as executive vice president. Chen was elected president, chief operating officer and a director of Pyramid in 1993, serving until 1995 -In 1997 Chen became CEO and president of Sybase, and in November 1998 he added the title of chairman. Chen developed and led Sybase’s re-invention strategy to evolve what had become a mature slower growth technology company into a $1B+ high-growth innovator. - Sits on the board of directors for Disney and Wells Fargo. And he has numerous other appointments and board appointments as well for many other companies that I didn't list. The guy has a longer and more diverse resume than even Tim Cook of Apple.

51. dimas

Posts: 3348; Member since: Jul 22, 2014

The guy sure have diverse resume but why did blackberry mobile collapsed under his management? Even nokia was the king of phones before but since they did nothing and declared smartphone as a fad, Steve Ballmer and friends went down the drain and made many people jobless. Intelligence is not just about academics, it's also about trusting your personal instinct that something will be good for the business even if you don't follow what the investors want. Steve Jobs and Bill Gates have that gift and I'm sure hundreds or millions of somebody out there have that talent as long as they'll be given a chance to lead.

67. Dr.Phil

Posts: 2340; Member since: Feb 14, 2011

Blackberry has actually grown as a software company, which is where they see more long-term profitability than making phones themselves. And if you actually read through the press release by Blackberry, you will see they talk about licensing out technology and software for other companies to build the hardware. I wouldn't call that an exit from the smartphone world. They are going to be collecting royalties on every handset purchased through these new partnerships. That's a pretty smart decision to make. Here's the difference: Old Blackberry: spend money on designing a device, spend money finding a partner to build said device, and spend money to buy a certain amount of devices on hand to sell at a profit to consumers. Also, spending money to market said device and the resources necessary to make it available globally. Oh, and on top of all of that, spend the money to design the software and applications for the device. New Blackberry: spend money on designing software and applications, outsource the entire hardware building and design to partners, and collect on royalties for every device sold. Now, which one to you sounds like the smarter financial decision? They're essentially doing what Microsoft was doing before it bought Nokia: designing the software and having others build the devices. The BIG difference being they are creating software for an operating system that is the most popular in the world, unlike Microsoft's operating system. So, they shouldn't see the same failure that Microsoft did with their business plan.

76. RH234

Posts: 52; Member since: Aug 21, 2013

Good luck collecting royalties on devices sold. First they have to find a manufacturer willing to take the risk on a brand that doesn't sell well. And the manufacturers that take on the venture are not exactly A1 companies. BB is pretty much a software and Enterprise firm. Hardware is gone, accept it. 400,000 handsets sold recent quarter, I doubt any major manufacturers would take on that order as it is so small. Chen wasted 2 1/2 years of BlackBerry's resources trying to make it in the Hardware business only to dump it by the end of this year. He should've done it earlier. In fact, this decision to shut down the Hardware business was probably more due to Prem Watsa as his investment in BB has turned into a loss on paper of 8 bucks a share for his hedge fund even with the recent rebound of 5.5% with no dividends since Chen took over in Nov 2013. The stock's performance under Chen has been flat, rising from $7.77 when he took over to recent price of $8.33. Watsa has been keeping his investors at bay for the past 3 years and finally it cracked, he wants a return. I wouldn't be surprised if the stock stays below $10 a share for him to divy up the company and sell it in pieces in order to get some of his sunk investment back. His opportunity costs on BB has been huge the past three years and his investment is also down 50%. In the end, Watsa will decide what to do with BlackBerry, not Chen.

77. Dr.Phil

Posts: 2340; Member since: Feb 14, 2011

The 400,000 handsets was sold in a period in which the latest DTEK50 was only available for one month. And you have to also remember that Blackberry really only has the Priv and the DTEK50, where the Priv is marketed as a premium device (so less people are going to buy that, and it's been out for almost a year now). Even HTC, with the amount of phones that they have is set to only sell 14 million this year. That's not exactly spectacular considering they offer 8 new devices made in the past year. Sony is in the same boat, only selling 3.1 million handsets in the last quarter with around the same amount of devices on hand as HTC. The problem is that unless you are one of the big manufacturers like Samsung or LG, you aren't going to be selling very many devices. So, I don't think 400,000 in a quarter where Blackberry only offered the new Priv which is a premium device is bad. And no, I disagree with your assessment that Watsa had something to do with the hardware exit. Chen made a very clear, definitive deadline last year of the end of September 2016. It also has to deal with Chen's strategy from the very beginning: we are going to build Blackberry into a software company first and a handset business second. He has made that strategy clear from the beginning, as it goes with his prior experience at other major tech firms like Sybase. And they already have had luck with manufacturers taking on their devices as they just announced a major carrier in Indonesia will be building their handsets. They've also already collected royalties on other devices sold by their licensing agreements they've touted in the past year. So, I'm not sure where you're getting your information from, but it's sadly inaccurate with what is actually happening. -

98. RH234

Posts: 52; Member since: Aug 21, 2013

And DTEK phones are flying off the shelves as you speak I assume. Next Quarterly report BlackBerry will have a huge uptick in sales of handsets. Where have you been the last three years? BlackBerry handset sales have been going south every quarter. As for Watsa, you have a naive view of how Companies operate. Board members, particularly majority shareholders have more influence than a CEO that doesn't own a substantial interest in the Company. At the end of the day the CEO is a paid employee. As for HTC, Sony, etc, no need to mention those firms as we're talking about BlackBerry and how they mishandled handset business even with Chen (High priced Priv). Handset business is dead and Blackberry did more than enough to kill it. You can harp about how great BlackBerry is but at the end of the day, BlackBerry is one of the companies that will be studied and discussed in Universities on how to not run a business.

100. meanestgenius

Posts: 21798; Member since: May 28, 2014

Or will they be studied and discussed at Universities on how to transform your company from a faltered handset business to a profit making software and services business? It can certainly go that way.

99. RH234

Posts: 52; Member since: Aug 21, 2013

"So, I don't think 400,000 in a quarter where Blackberry only offered the new Priv which is a premium device is bad." BlackBerry never disclosed the total sales of the Priv. In fact, that 400,000 figure is based on sales of all BB models. For all we know they probably only sold 20,000 Privs and the rest legacy models. "The problem is that unless you are one of the big manufacturers like Samsung or LG, you aren't going to be selling very many devices" Tell that to Xiaomi and Huaweii. Samsung's recent Note 7 woes will affect future sales and the handset companies that are around will take up that lost market share. Recent market poll in China said 51% will not buy Samsung phones when they upgrade, with most saying they'll buy IPhones Xiaomi and Huaweii. As for future BB handset sales via third party manufacturers, it's a known fact that most of BlackBerry's sales in the past three years have come from loyal BB users. What makes you think they will purchase a phone that's made by DTEK or TCL or some Indonesian company? Loyal BB users can only go so far as they know it's a pig with lipstick on it that's priced $100 over the original.

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