Bloomberg Businessweek magazine’s cover showed a range of archeological objects: a flint arrowhead, a skull and a BlackBerry handset. The label? “Relic.”
On Friday, BlackBerry’s interim chief executive John Chen (程守宗) outlined a new strategy for the Canadian company in which he acknowledged that making smartphones was a thing of the past. Instead, the company will focus on intangible services such as offering cybersecurity for businesses and not making physical handsets.
Making smartphones has not been a good business for anyone who is not Apple and Samsung recently, as they have squeezed the profits out of the rest of the industry. BlackBerry has been crushed.
On Friday it announced a loss of US$4.4 billion on revenues of just US$1.2 billion; only a tax rebate of US$624 million saved its net figures from being worse.
Those three months to the end of last month marked a turning point: For the first time, BlackBerry now gets more money — 53 percent of revenues — from selling “services” such as sending data including e-mail and Web pages, than it does from selling handsets, which generated 40 percent. Software made up the other 7 percent.
However, that has come as the company’s revenues have shrunk to levels smaller than at any time since May 2007, and the number of smartphones shipped, 1.9 million, is the smallest since December 2006. BlackBerry, whose founders laughed at the iPhone’s lack of a keyboard, is out of the smartphone race. In future, Hon Hai (鴻海), also known as Foxconn (富士康) in China and which makes the iPhone, will co-design and manufacture BlackBerrys too, and hold the stock. BlackBerry will effectively become a reseller of its own smartphones.
“The smartphone business is brutal,” says Kevin Restivo, global smartphone analyst at the research company IDC. “It’s one where the big players — Samsung, Apple, and a few Chinese companies — are going to have success, and the others are scratching for crumbs.”
Societe Generale analyst Andy Perkins told reporters: “At some point it becomes uneconomic to make handsets in such small quantities.”
Chen is a turnaround artist. He was brought in to the software company Sybase, where he executed a successful reorganization. Since taking over 45 days ago (following the ejection by the board of former chief executive Thorsten Heins) he has overseen a number of departures of existing senior executives and hired some former colleagues. The obvious conclusion is that he is reshaping BlackBerry as a services and software company.
Unlike other struggling smartphone makers, BlackBerry can fall back on tens of millions of customers in large businesses, who rely on the security of its products. Chan said that 80 percent of users were business customers. That could be anywhere up to 50 million users worldwide, offering a substantial base for rebuilding any corporation, even the struggling BlackBerry.
However, the data also confirmed that BB10, the operating system launched in January by Heins, has been a flop. Since March, BlackBerry’s customers have bought a total of around 17 million phones, but only 5.6 million have been BB10 devices.
Consumers have been turned off because the BB10 functions differently from the old BB7 model, while businesses have backed away because BB10 devices cannot be hooked up to the older BlackBerry Enterprise Server (BES) systems that so many big customers use.
BlackBerry-using businesses have taken one of two paths: either sourcing old BB7 handsets to keep their existing users happy, or abandoning BlackBerry altogether.
Chen has an answer to both. For consumers, BlackBerry will try to somehow make money from the millions of people who have downloaded the BBM messaging software and installed it on iPhones and Android smartphones.
“Revenues might come from a per-user per-month model, or rolling out advertising,” he said on Friday. “We’re a long way from knowing how to do it.”
For businesses, he will offer “mobile device management” software that will be able to control not just BlackBerrys, but also iPhones and Android phones.
However, there are plenty of rivals there, and it’s not a big business — worth only about US$560 million this year globally for all vendors, and growing at 12 percent annually, according to ABI Research.
Even if a reshaped BlackBerry captures more than half of that, it would still look tiny compared to what it was.