In danger of fading into irrelevance, BlackBerry (BBRY) put itself up for sale in August, announced it had a deal in September with Prem Watsa’s Fairfax Financial Holdings (FRFHF). But when the Nov. 4 deadline arrived, BBRY dropped a bombshell:
Instead, Fairfax is investing $250 million in the company — part of a plan to raise $1 billion to see it through restructuring — with Watsa returning as “lead director.” CEO Thorsten Heins is out with an estimated $22 million golden parachute. Meanwhile, the new executive chair of the BlackBerry board and interim CEO of the company is John Chen, a man who made a name for himself by turning around troubled software company Sybase.
Sybase was worth $362 million and circling the drain when Chen took the reins in 1998, but he led the company through a 13-year recovery, culminating in its 2010 acquisition by SAP (SAP) for $5.8 billion.
John Chen has proven he has the chops to fix a broken technology company, but BBRY is in dire shape, the competition smells blood and the nature of BlackBerry’s business limits its options. For instance, Lenovo (LNVGY) reportedly was serious about a bid for BBRY, but the Canadian government intervened to nix any deal with the Chinese company because of national security concerns.
So, what does Chen have to work with?
Secure Network: At a time when spying scandals are front and center, mobile security is big, and BlackBerry is the recognized leader. Yes, business customers have been ditching their BlackBerries for iPhones and Android devices and Samsung (SSNLF) is making a serious push for enterprise mobility with its KNOX security platform. But BlackBerries still are used by 21% of North American and European companies, and remain popular with governments — U.S. President Barack Obama still clutches his BlackBerry, in an ongoing PR boost for BBRY. Even with the company’s prospects fading fast, BBRY counted 25,000 of its BES 10 secure enterprise servers (which are compatible with iOS and Android) in use at the end of August, up from 19,000 in July.
BlackBerry Messenger: The launch got off to a rough start, but when BBRY finally released its cross-platform BlackBerry Messenger app that brings the popular secure messaging service to Android and iPhone users, downloads topped 10 million in one day and 20 million within a week. BBM subscribers instantly shot up from 60 million to 80 million.
BlackBerry Hardware: Sales of the Z10 touchscreen phone were a disaster, but there are diehard BlackBerry users out there. Many prefer the physical QWERTY keyboard that BlackBerry has perfected. Had the Q10 with its traditional keyboard been launched as the first BB10 device instead of being held back for months in favor of the touchscreen Z10, the situation for BBRY might not be so dire right now.
QNX: A 2010 acquisition to fast-track the next-generation BB10 OS, QNX specializes in embedded operating systems. In particular, its CAR platform is widely used in the automotive industry to power in-car entertainment systems. Customers include Hyundai, General Motors (GM) and Chrysler.
Patent Portfolio: BlackBerry holds a considerable portfolio of wireless patents, including a share of Nortel patents the company bought in 2011.
Can John Chen Pull It Off?
BlackBerry stock has plummeted more than 90% since 2009. The company has undergone massive layoffs, including 4,500 announced in September. And BBRY recently was pushed out of the third spot in global smartphone market share by Microsoft’s (MSFT) Windows Phone.
Still, John Chen might be up to the challenge. After stabilizing Sybase, he took the company out of its comfort zone and into the mobile world — before mobile took off. By 2006, he had turned Sybase into the largest enterprise software presence in the wireless market and turned four straight years of red ink into profitability.
Chen has proven himself as an executive that can stabilize a bleeding company — job one at BlackBerry. He’s proven himself canny at seeing where things are going and aggressively making the long-term move. And he’s proven himself in the mobile space.
More importantly, he has the pieces he needs to turn things around at BBRY: slimmed operations, more operational cash lined up, and gains in enterprise server deployment and BBM use.
The key will be to stop destroying the company by competing to sell smartphones to consumers. That battle is lost. Thorsten Heins refused to admit it and took a nearly $1 billion write-down on touchscreen Z10s that consumers shunned and corporate customers didn’t want.
Finally, Chen has to either find the ideal candidate to become the new BlackBerry’s permanent CEO, or take the role on himself.
John Chen doesn’t have to break up BlackBerry, sell it or drive it into the dirt fighting Apple (AAPL). He has a very real shot at turning BBRY around by leveraging its core strengths, playing to the growing panic over online and mobile security, and refocusing the company on enterprise.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
