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John Chen’s Take on BlackBerry Ltd (BBRY)’s Second Phase Of Turnaround


BlackBerry Ltd (NASDAQ:BBRY)(TSE:BB)  CEO John Chen

One year back, no one would have given a chance to BlackBerry Ltd (NASDAQ:BBRY)(TSE:BB) to return to the profit path and generate cash. Such was the situation for the beleaguered smartphone inventor that whatever it tried failed to capture the attention of either the market or the consumers in the past few years. Everything has changed now for the better after John Chen, a turnaround specialist, assumed the office of the CEO. In an interview to Bloomberg, he claimed that the company has reached Phase two.

Throughout the interview, BlackBerry Ltd (NASDAQ:BBRY)’s CEO was confident about the path that the company has undertaken. He was also not worried to pinpoint any weakness on the part of the company when he said that the mindset of the company needed to be changed. He was responding to a question as to how long until he expects software to accelerate revenue growth.

Phase II Started

During the interview, BlackBerry Ltd (NASDAQ:BBRY)’s CEO said that the turnaround plan could be described in two phases. The first phase involved generating cash for the company and become a profitable one again. The company has been able to generate cash in the last two quarters and delivered non-GAAP profit in the last two quarters. Its adjusted profit in the third quarter was one cent a share and it increased to four cents a share in the fourth quarter. The company ended the quarter with cash and investments of $3.27 billion representing $608 million increase. The smartphone maker realized $76 million normalized positive cash flow in the fourth quarter. This reversed the normalized cash usage of $784 million in the preceding year quarter.

John Chen said that the second phase involved generating more revenue and profit and to be able to sustain it in the long-run. He pointed out the last few years revenue pattern and said that the priority was to ensure stability in the revenue generation. It has been volatile in the last four quarters and four years also. He said that currently, the company is in the phase two level as far as its turnaround plans were concerned.

Software Revenue

Turning towards the software revenue, BlackBerry Ltd (NASDAQ:BBRY)’s CEO said that the company was building up a software business based on security and privacy. He said that the company was heavily investing into it. When pressed as to why it was taking such a long time to accelerate revenue growth in software, John Chen said that there were number reasons for it. One among them was the market need to invest in privacy and security. Currently, companies are investing in patches. He refused to provide time-frame for accelerating revenue growth. However, he expressed his confidence that his software business model would yield business and growth.

While saying that the company needed to change its mindset, he said that so far the company has been selling hardware to the carriers. Now they have to focus on selling software to the carriers. He said that it takes time and preferred not to provide a time-frame. BlackBerry Ltd (NASDAQ:BBRY)’s Chen was asked about how many enterprise customers that the company has. He said that he was not chasing towards the number and it was in different stages. The company was looking at the conversion and the fourth quarter presented a good conversion. He pointed out that software revenue grew 22% providing a little bit of hint.

Handset Margin

The question turned towards the three handsets launched since September last year. They were BlackBerry Passport, Classic, and Leap. Another model, Slider, would be launched before the end of the year. He said that its products stood up very well in the market. He added that though the company was able to witness positive margin on handset sales, it was still losing money on it.

BlackBerry Ltd (NASDAQ:BBRY)’s CEO also admitted that there were enough rooms to make money on handsets also apart from improving its market share, which is roughly 1% currently.

Referring to the clients, John Chen indicated that all the major governments were on the board, the law enforcement, and medical for instance.

Keen For Acquisition

The company’s CEO indicated earlier that the company was keen to acquire a company in the security sector. This would go well with its plan of focusing on privacy and security. He said that acquisition was part of the strategy in the current fiscal year. His optimism was also based on the ability to generate cash in the coming quarters.

The company launched BES12 cloud mobility management software. Its focus was also to maximize the mobility management. For this, the BES12 could easily manage Apple Inc. (NASDAQ:AAPL)’s iOS, Windows Phone, Android, Samsung’s KNOX besides its own devices.

Conclusion

When John Chen took over as CEO of BlackBerry Ltd (NASDAQ:BBRY), he gave 50:50 chance for the successful turnaround. Now, he has achieved the first phase successfully in generating normalized cash and adjusted profit ahead of the schedule. The second phase involves stability in revenue, which might take few quarters. By the end of this fiscal year, the company might be able to stabilize revenue and limit the volatility that was seen till recently. The company is on the right path to turnaround.


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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