It’s no secret that BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has shifted its focus away from handsets, preferring instead to focus on software. But the handset business has always remained critical to the company’s success. And this isn’t changing anytime soon. The company is slated to launch three new phones later this year.

But this approach may not last for long. In a recent interview, CEO John Chen admitted that the company may have to abandon smartphone production if its situation doesn’t improve. Why would BlackBerry do this, and how likely will this happen?

All about the brand

BlackBerry’s declining handset revenues are not good for its brand simply because it reinforces the notion that the company is shrinking. That’s really bad news for BlackBerry’s efforts at selling software; after all, if you were a chief technology officer, would you buy software from a company you thought was in decline?

Mr. Chen acknowledged this challenge in early May, saying that “one of the biggest things that I’m working and struggling with, that everybody here could help with, is our reputation…we haven’t established a growth…until that happens nobody will go willingly buy our products.”

So, there appears to be some merit in eliminating smartphone production altogether, even if the business still generates some small profits. At the very least, BlackBerry would transform from a struggling handset maker to a fast-growing technology company.

A couple of major obstacles

Despite the benefits, you shouldn’t expect BlackBerry to abandon smartphone production in the near future. There are two big reasons for this.

First of all, many of BlackBerry’s U.S. government customers don’t let their employees bring in their own devices for work. Instead these employees are issued BlackBerrys. So, if the company were to abandon smartphone production, it would alienate many of its most important customers.

Secondly, handset-making is still very much engrained in BlackBerry’s culture. As put by Mr. Chen, “That has a lot to do with the DNA of the company. A lot of good employees grew up building devices.” So, abandoning this business would be a major shock to the system.

What will happen?

Predicting John Chen’s ultimate decision is practically impossible, even for Mr. Chen himself. But there are a couple of things we can be reasonably sure of.

First of all, BlackBerry should continue to produce highly secure devices for its most important customers. Even if the company abandons smartphone production for the average consumer, you’ll likely see the company offer a very specialized device to go along with its software offerings.

Secondly, BlackBerry looks ready to launch an Android-based device dubbed the BlackBerry Venice. And the success of the Venice will go a long way in determining the future of the company’s handset business.

Either way, it is BlackBerry’s efforts on the software side that will determine its future as well as its stock price. It’s practically impossible to make any predictions on this front either.

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Fool contributor Benjamin Sinclair has no position in any stocks mentioned.