Blackberry’s turnaround, John Chen’s Road to Profitability

November 16, 2014

By: Adam Buckham

In early November 2013 Blackberry was in big trouble. The company was shedding customers and losing billions of dollars to its competitors. Its recent attempt to right the ship with the BB10 line of smartphones had failed and the company’s shares were getting pummeled with a year to date loss of 45%. Blackberry then made an unexpected move by parting ways with its CEO Thorsten Heins and appointing John Chen in his replacement. Mr. Chen, known in the business community for his track record as a turnaround specialist for distressed tech companies seemed like the right fit but many believed it was too late for the company. It seemed as though Blackberry was destined to suffer the same fate as fellow Canadian tech company, Nortel, and be sold off in pieces to foreign competitors.  His job was difficult but simple, take a look at management and try to redefine the company’s business strategy. His solution was two parted: first he needed to stop the hemorrhaging of customers and cash and second he had to realign the business with its core clients, the long neglected business community.

In the first step of his strategy Mr. Chen focused on drastic cost cutting measures to stabilize the business. He shifted operational burden to Foxconn, a Taiwanese based electronics manufacturer, by signing a 5 year agreement to make Blackberry devices. The company laid off 4000 workers in its Waterloo based home and sold a large chunk of its property to generate cash. Simultaneously, Chen met and listened to customers to determine how to readjust the strategy. From these meetings he decided that a customer-based strategy was needed. He believed that to stabilize the company he had to show customers that Blackberry was here to stay. Their new focus would be delivering better products and services with a focus on the Business community.

His next step was to end losses in the hardware sector, expand the Blackberry messenger (BBM) platform and to build Blackberry’s business enterprise services. To end losses in its hardware business they launched their first Foxconn built phone, the Z3. The phone was a low cost addition to its BB10 line set to compete for business in Asia with some of the cheaper brands. Chen then focused on recapturing some of Blackberry’s loyal business customers through the building of the Blackberry Passport and Classic. These two phones are built solely for business with an emphasis on functionality rather than fun. Though the Classic has yet to be launched, the Passport has been vastly more successful than its BB10 predecessors. Since its September 24th launch it has widely exceeded sales expectations. The Passport had sold out on both Amazon and the Blackberry websites within the first six hours of its launch and is on pace to sell more than 600,000 units this quarter. Along with this, Chen has increased the reach and functionality of the BBM application through its release to other mobile platforms and the broadening of BBM’s abilities. The launch to multiple platforms has increased monthly active users from 69 million to over 160 million since March of 2014. In parallel with this, they have added user-friendly enhancements such as BBM stickers and business oriented functions such as BBM meeting. Lastly, Chen has reinvented BBM’s enterprise services in hopes of growing the high margin software side of the business. Through its launch of Blackberry EZ pass, along with other enterprise services, Chen is hoping to double the revenue from its software business by February 1st 2015.

Going forward, the full success of John Chen’s efforts should be seen in Blackberry’s next two quarterly earnings reports on December 19, 2014 and March 26, 2015. The street is predicting EPS between -0.06 to 0.04 cents in December and -0.05 to 0.06 cents in March. Since taking the reins at Blackberry, John Chen has beat street expectations in every quarterly report. If past success is any predictor of future success, we could possibly see Blackberry’s first positive EPS posting since June 2012.

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