BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has been undergoing a turnaround for nearly half a decade. The iconic handset manufacturer gradually lost market share to both Android and iOS in what has been a multi-year drop in revenue from the hardware division.
When John Chen took over, the company was in a very different from where it stands today. But is the long-awaited turnaround over?
Here are a few reasons why I believe the turnaround is over and why we need to start viewing BlackBerry for what it currently does — not what it used to do.
Hardware has dwindled to nothing and that’s okay
In the fourth quarter of 2016, more than 430 million smartphones were sold globally, and BlackBerry devices accounted for a little over 200,000. BlackBerry is effectively a rounding error in the global market. To be fair, that report doesn’t include the new DTEK60 handset sales, nor does it count BlackBerry’s running of Android, but that’s unlikely to make much of a difference.
The hardware division once accounted for over 60% of the revenue, but it is no longer making new handsets, and most revenues now come from the software side of the operation. In the last quarter, that amounted to a non-GAAP revenue of $172 million.
The emergence of master agreements with hardware vendors around the world to build and bring to market devices bearing the BlackBerry name puts the heavy lifting of development and design onto those vendors, while BlackBerry realizes major savings from shuttering the hardware division.
BlackBerry plans to achieve 30% growth across the software and services sector this fiscal year.
Enterprise is the focus
BlackBerry has never really been considered a major consumer-driven device. Despite efforts to make BB10 appeal to non-enterprise consumers and draw in media-hungry consumers and gamers, all the consumer-oriented elements of BB10, such as media sales, downloads, and a complete and active marketplace, were gradually stripped out, leaving a confused, tangled mess.
The casualty in that gamble on the consumer side was the long-standing enterprise segment.
Under Chen, BlackBerry has re-approached the enterprise sector, realizing that security and enterprise are at the core of BlackBerry. To that end, BlackBerry has steadily increased the number of enterprise clients over the past few quarters, breaking 3,000 in the most recent quarter.
BlackBerry is branching out into lucrative areas
Chen has constantly said that today’s BlackBerry is different from the BlackBerry of the past. Two areas where the company has made significant advancements that highlight this are in the realms of cyber-security and the automotive sector.
BlackBerry’s experience in security and networking is unparalleled in the industry, yet, until last year, the company didn’t offer any form of consulting business. Cyber-security is a new and growing segment that industry experts peg as a multi-billion-dollar market. Given BlackBerry’s position and experience, the new cyber-security arm will no doubt be a revenue generator for the company.
BlackBerry’s QNX operating system not only powered the ill-fated BB10 operating system, but it also powers an assortment of mission-critical facilities and machinery around the world, ranging from nuclear power plants to medical devices. Another lesser-known use of that operating system is the infotainment system in your vehicle.
QNX is already installed in over 60 million vehicles, and BlackBerry has already an agreement with a major automotive manufacturer to push QNX deeper into the design of new vehicles, leveraging the scalability and security of QNX. Earlier this year at the CES show, BlackBerry showcased the latest version of QNX, which brings a host of improvements that will bring autonomous driving closer to a reality.
Is BlackBerry a good investment?
If I were to leave the BlackBerry name out of this article, it would sound like a screaming buy as an up-and-coming tech startup which has shown a resilience to succeed and expand into new areas where it has a competitive advantage.
Unfortunately, this is BlackBerry we’re looking at, and this is where part of the problem lies. Investors and experts still see BlackBerry as a device manufacturer, and the market share figures paint a very bleak picture. Until that changes and we begin to see BlackBerry for what the company really is, it will still be viewed as risky investment.
