What next for BlackBerry?

January 2014  |  FEATURE  |  BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

On Monday 4 November BlackBerry Limited began another new chapter in its increasingly troubled story. The company announced that its proposed $4.7bn sale to its largest shareholder Fairfax Financial Holdings Limited had been cancelled and it will instead raise $1bn in investment from a number of parties, including Fairfax, which will contribute $250m to the fund. Fairfax CEO Prem Watsa will join BlackBerry as lead director. 

Furthermore, Thorsten Heins will leave Blackberry after six years, the last 21 months of which he spent as BlackBerry’s chief executive. Mr Heins will be replaced on an interim basis by John Chen, a well-known figure within the technology industry. 

Mr Heins’ departure from BlackBerry was all but sealed by the resounding failure of BlackBerry 10, the company’s latest smartphone operating system (OS). Although Blackberry 10 was launched with much fanfare at the start of 2013, significant sales of the company’s new flagship devices, the Z10 and Q10, which both utilise the new OS, have failed to materialise. Under Mr Heins’ watch, BlackBerry reported a loss of $965m in the second quarter of 2013, thanks to a significant write down of Z10 phones that have sold poorly since they first hit the market. 

Mr Heins’ replacement, Mr Chen, may well be ideally suited to help revitalise BlackBerry; indeed, he has a great deal of experience in saving struggling technology companies before eventually selling them off. In 1997 Mr Chen joined Sybase Inc, when the company was in the midst of a four year streak of net losses. Despite the company’s dire economic plight, after ascending to the position of CEO in 1998, Mr Chen managed to turn the company’s operations around before selling it to SAP AG in 2010 for $5.8bn – more than 15 times the company’s market capitalisation when he took over. 

Despite his impressive record at Sybase, it is possible that Mr Chen will feel some sense of pessimism about his new role at BlackBerry. Since the glory days of the early 2000s, the company has seemingly lurched from one crisis to the next. The company’s share price on 5 November reflected the overriding despondency around BlackBerry, as it closed down more than 16 percent down on the NASDAQ. 

However, despite these issues it would seem unlikely that Mr Chen will be looking for a buyer for the business at this point. Indeed, the company is ending its strategic review after it failed to reach a deal with Fairfax. Mr Chen is also well known for his work in software companies; accordingly, BlackBerry may well be looking to move away from the hardware market that it helped to pioneer, and into the software business. A sign of this newfound direction could be the company’s decision to launch a new cross-platform version of its popular BBM messenger service. Making BBM available on Apple Inc’s iOS and Google Inc’s Android OS has led to more than 20 million downloads of the application in just a few weeks. If BlackBerry commits to developing applications such as BBM for the major mobile platforms, the company’s chances of success could improve exponentially. By embracing the company’s significantly reduced role in the smartphone market, BlackBerry’s leadership can find a way to both keep the group relevant, as well as helping to set the agenda in the area of instant messaging. 

However, for BlackBerry investors, who have witnessed the destruction of more than $75bn of the company’s market value over the past five years, another dramatic shift in direction may seem a bridge too far. BlackBerry invested a great deal of time and money into the development of the BB10 OS, a system upon which the company could still base its recovery. No matter the choices that BlackBerry’s leadership makes in the coming months, Mr Chen was correct when he noted that “BlackBerry is an iconic brand with enormous potential – but it’s going to take time, discipline and tough decisions to reclaim our success”. 

Fairfax et al’s investment in BlackBerry should provide the firm with the much needed time it requires to take itself out of the deal rumour mill and try to undo some of the extensive damage that has been caused to the brand in recent years. Mr Chen’s appointment is on an interim basis while the company searches for a permanent replacement for Mr Heins. If the company is to recover any semblance of its previous standing in the smartphone sector, it is vital that BlackBerry makes the best use of the ‘honeymoon’ period that the new investment and the leadership change will provide.

© Financier Worldwide

BY

Richard Summerfield