John Chen’s Turnaround Efforts for BlackBerry Ltd (BBRY) Paying off – Part Two

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Part I of this series is available here.

When John Chen assumed the role of CEO at BlackBerry Ltd (NASDAQ:BBRY)(TSE:BB), he gave himself a 50% chance of turning the company around. As far as Chen was concerned, restoring confidence and changing the attitude from within was very important. It has now been over 15 months or five quarters since he took over as the CEO of BlackBerry.

While, it would be premature to say that he has gained all-round confidence. Investors’ and analysts’ are starting to see some very positive signs and reasons to believe that BlackBerry Ltd (NASDAQ:BBRY) could turn out to be an investor favorite in a few quarters. More importantly, the company has started to get back the momentum that it lost.

Turnaround Efforts

As part of turnaround efforts, Chen took a number of steps which boded well.

  1. John Chen reduced the workforce and preferred to outsource manufacturing before resizing it to the point of financial stability. Once the CEO filled the bleeding point, the chances of turning it around improved from the level of 50% to 99% now with the main focus  on software.
  2. Before Chen took over Blackberry Ltd (NASDAQ:BBRY) was alien to alliance or partnerships. However, that was something which was changed under the leadership of current CEO. He not only put behind rivalries but also forged crucial partnerships with Google Inc (NASDAQ:GOOGL) and Samsung. Its deal with telecom carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) allowing them to sell phones in its stores.
  3. Big push in Internet of Things: For a company that was down, the attitude was to capture where there is plenty of available growth. Therefore, it was not a surprise that Chen bet on making BlackBerry Ltd (NASDAQ:BBRY) as a new leader in the Internet of Things world. Its project Ion was to tap QNX division expertise to create a cloud-based platform enabling businesses to engage easily on the Internet of Things. In the auto industry, it was a leader as far as IoT was concerned. Ford Motor Company (NYSE:F)’s Sync 3 in-car technology is one of many based on the company’s QNX operating system.

It would not be unfair to say that BlackBerry Ltd (NASDAQ:BBRY) aimed more to understand the needs of customers as evidenced by its Enterprise Service Technology. The new architecture, which is scalable, strengthens its position in the enterprise mobility management as a single console. This apart, cross-platform enterprise mobility management solutions enable business community to manage enterprise mobility across Windows Phone, iOS, Android and BlackBerry devices, meeting the needs of today’s customers.

  1. Understands Investors’ Impatience: BlackBerry Ltd (NASDAQ:BBRY) CEO was interviewed by Bloomberg TV recently wherein he said that he could understand the impatience of investors’ to witness revenue upside. He expressed his confidence that the company would be able to record growth in the next fiscal year. His level of confidence also grew when he said that there was 99% chance of the company turning around compared to 50% chance he gave when he took over the reins some 15 months back.

There was also another reason for Chen to express increased amount of confidence. BlackBerry Ltd (NASDAQ:BBRY) was able to generate $43 million positive cash flow in the third quarter. The achievement came a quarter ahead of the promise he had made. On top of this, the company even posted adjusted earnings of one cent a share. The two parameters were key to suggest that Chen’s turnaround tactics have started to produce results.

The company is scheduled to announce its fourth quarter results on March 27. Chen has already set the bar at break-even cash flow for the fiscal year ended February 2015. This was a promise made by Chen even during the third quarter. If it could reach this, then the possibility of BlackBerry Ltd (NASDAQ:BBRY) returning to the sustainable profit, as well as, revenue growth looks promising  in the next fiscal year ending February 2016.

  1. Focus on Software: The smartphone inventor has focused itself in offering security and software for corporations and governments. At the same time, it also unveiled two models, Classic and the Passport, to cater to  business users. This might surprise some people since the company has disclosed that its future depends on software and services to professionals. Therefore, there was every reason for investors to question the motive behind in launching new phones. However the company is still aiming to target specific niches in the phone business and has created a more sustain lower cost model to do so. The difference now is that BlackBerry isn’t betting everything on it and can pivot quickly.

Ahead Of Schedule

During Mobile World Congress, John Chen told the press that BlackBerry Ltd (NASDAQ:BBRY) had a two-year turnaround plan. He said that the company was ahead of his schedule in the turnaround. What was more important was that Chen said that the company has financially stabilized. The company is expected to making money in the fourth quarter too on an adjusted basis. He has already confirmed that the company would generate more cash and predicts revenue to stabilize in the fiscal year 2016.

BlackBerry Ltd (NASDAQ:BBRY) CEO has set a target of generating $500 million revenue from software this year, and an even more ambitious goal of doubling Software Revenue every year. The company is fully committed to software as a business.

Expectations Boosted

In the last three month, analysts’ have revised their estimations. For instance, Wall Street analysts’ projected BlackBerry Ltd (NASDAQ:BBRY) to suffer a loss of 29 cents a share for the fiscal year 2015 three months back. Their projection has been narrowed to a loss of 15 cents a share for the fiscal year 2015. Significantly, the company’s earnings results provided positive surprises at least in the last four quarters with a minimum of 57.7% to a maximum of 120%.

Conclusion

BlackBerry Ltd (NASDAQ:BBRY)’s CEO has taken quite a number of steps to put the company back on its rails. More than anything else, its mind set has changed to generate more revenue and diversify while focusing on the customer. For this, the company enabled its devices, services, and software to load other platforms and made amendments to ensure that AT&T and Verizon stores sell its smartphones. While everything point towards a turnaround, one or two quarter of earnings and revenue beat would provide an even stronger confirmation.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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  • Kurt Windibank

    Great CEO…I think he has the right plan in place and has surrounded himself with proven experts. Just a matter of time before he completes a great turnaround. It will never be the huge company it was before but can definitely play a role in the next phase of mobile growth in IoT and be the gold standard for privacy and security in Mobile. Lots of profitability to be had there. If this were an IPO it would be valued much higher…but stock has the baggage of the past attached and Chen has to shake that off.

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