BlackBerry Ltd. Is Refusing to Accept Reality
According to BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) CEO John Chen, hardware is the company’s number one priority this year. “It’s time for us to get to the profitability … we’ve got to get there this year,” he said. Shrugging off past failures, Chen still believes the company has a shot at succeeding. “Hopefully, I’m not naive,” he added.
Good luck with that.
Hardware is already dead
If BlackBerry’s smartphone sales continue to disappoint this year (a good bet), John Chen said he would consider exiting the hardware business. “I will let the math and the market tell me that,” he said. “The device business must be profitable; we don’t want to run a business that drags on the bottom line,” he added this week.
Unfortunately, both math and common sense indicate that BlackBerry’s hardware push is already dead. Since 2011 BlackBerry’s smartphone market share has shrunk from over 20% to under 1%; nearly all of BlackBerry’s latest smartphones have been disappointments. Additionally, they’re expensive to continue developing; over 65% of BlackBerry’s research and development expenses are related to hardware.
With BlackBerry posting a $238 million loss last quarter and another loss expected this quarter, BlackBerry really doesn’t have a choice; it has to shed its hardware business. At the company’s latest investor meeting, Chen asked about BlackBerry’s lack of marketing for its latest phones. He responded that the company simply couldn’t afford it.
Turning a flagging business profitable without dedicating the necessary capital is a failure waiting to happen. On a positive note, BlackBerry actually looks fairly strong without its hardware segment.
This is the future
Even BlackBerry’s CEO knows software is the future. “I personally do not believe devices are going to be the future of any company,” he reportedly said. What’s left then?
This year BlackBerry is trying to grow its software segment by 30%–a stark contrast against sliding sales elsewhere. This software segment, which helps manage and secure enterprise mobile networks, has been gaining traction nearly every quarter. Last quarter it brought in revenues of $153 million, up 106% over the previous year. Not only are these sales higher margin than hardware, but 70% were recurring, meaning BlackBerry can count on these sales next quarter as well.
BlackBerry anticipates generating positive free cash flow and EBITDA by 2017. Ditching hardware sooner rather than later is the only viable path towards reaching this goal.
Stock buy alert hits astounding 96% success rate!
The hand-picked investing team inside Stock Advisor Canada, recently issued a buy alert for one special type of "bread-and-butter" stock where The Motley Fool U.S. has banked profits on 23 out of 24 recommendations. Frankly, with an astounding 96% success rate that has delivered average returns of 260%, chances are this new pick could deliver life-changing returns as well. Because the team at Stock Advisor Canada fully embraces the same time-tested investing philosophies that have led to countless Motley Fool winners globally. So simply click here to unlock the full details behind this new recommendation and join Stock Advisor Canada.
*96% accuracy includes restaurant stock recommendations from Motley Fool U.S. services Stock Advisor, Rule Breakers, Hidden Gems, Income Investor and Inside Value since each services inception. Returns as of 5/27/16.
NEW! 1 TOP STOCK FOR 2016 AND BEYOND...
Let’s not beat around the bush – energy companies performed miserably in 2015. Yet, even though the carnage was widespread, not all energy-related businesses were equally affected.
We've identified an energy company we think offers one of the best growth opportunities around. While this company is largely tied to the production of natural gas, it doesn't actually produce the gas. Instead, it provides the equipment required to get natural gas from the ground to the end user. With diversified operations around the globe, we think it's a rare find in the industry.
We like it so much, we’ve named it as 1 Top Stock for 2016 and Beyond. To find out why, simply enter your email address below to claim your FREE copy of this brand new report, "1 Top Stock for 2016 and Beyond"!
Fool contributor Ryan Vanzo has no position in any stocks mentioned.
According to BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) CEO John Chen, hardware is the company’s number one priority this year. “It?s time for us to get to the profitability ? we?ve got to get there this year,” he said. Shrugging off past failures, Chen still believes the company has a shot at succeeding. “Hopefully, I?m not naive,” he added.
Good luck with that.
Hardware is already dead
If BlackBerry?s smartphone sales continue to disappoint this year (a good bet), John Chen said he would consider exiting the hardware business. “I will let the math and the market tell me that,” he said. “The device business must be…