The first month of 2014 was a good one for BlackBerry (TSX: BB)(NASDAQ: BBRY) shareholders. The stock started off January trading at the $8 level, then hitting $12 before the month even ended. The company was buoyed by general optimism that its turnaround was finally starting to get traction, its decision to outsource all production to Foxconn — which hopefully put an end to the company’s inventory issues once and for all — and positive news coming from the company’s QNX division. BlackBerry shareholders can look back fondly to January, since the last four months haven’t been up to expectations….
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The first month of 2014 was a good one for BlackBerry (TSX: BB)(NASDAQ: BBRY) shareholders.
The stock started off January trading at the $8 level, then hitting $12 before the month even ended. The company was buoyed by general optimism that its turnaround was finally starting to get traction, its decision to outsource all production to Foxconn — which hopefully put an end to the company’s inventory issues once and for all — and positive news coming from the company’s QNX division.
BlackBerry shareholders can look back fondly to January, since the last four months haven’t been up to expectations. The share price has slid back 33%, back to the level where it started the year. And yet, as a BlackBerry shareholder, I still see the company turning around the ship. The company has zero chance of replicating the glory days of 2007, but it still has a promising future as a technology company. Here are three reasons I think the company will turn things around.
Back to basics
Both Apple and Samsung have a pretty simple marketing strategy — they build quality phones for people in North America, Europe, and parts of Asia who can afford them. This leaves out a huge part of the world.
This is where BlackBerry must position itself, and it’s currently doing a nice job. The company just launched a new Z3 phone in Indonesia, which comes in at a price point of less than $200. This phone – which was the first joint project between BlackBerry and Foxconn – gives customers a touchscreen, and runs the new BlackBerry 10 software.
BlackBerry’s Bold model has been popular in emerging markets thanks to its low price point, but also because price-sensitive customers like the fact that BlackBerry Messenger (BBM) uses such little data. It’s no coincidence that BlackBerry models are popular in places where data is expensive.
The company is also planning the release of the Q20, aimed at the business market in North America. Investors are mostly pleased about this phone for one reason — it has a physical keyboard. There’s still a significant portion of the smartphone market that demands a physical keyboard. This is what BlackBerry is known for.
Wouldn’t it be ironic if the key to BlackBerry’s turnaround wasn’t even its handset division? It could happen.
QNX is the company’s technology that goes into in-dash entertainment systems which are built into new cars. These systems sync to your phone or MP3 player, or let you ask for directions, or control the increasingly complicated climate controls. These entertainment systems are a big draw to consumers who are buying new cars.
And companies are lining up to work with BlackBerry. Ford recently signed a deal with the company to have it replace Microsoft as the maker of its Sync in-dash entertainment system. QNX technology is already standard issue in Audi, Acura, and BMW vehicles, among others. Plus it connects easily to Apple’s Carplay device.
The key to most successful turnarounds is a solid balance sheet, and even investors who are bearish towards the company have to admit that BlackBerry has a solid balance sheet.
The company recently announced a plan to sell and then leaseback more than 3 million square feet of space over 19 different buildings. It received almost $300 million for its real estate stake. If you add that to the company’s more than $2.5 billion cash hoard, we get a company with the balance sheet to weather the current downturn.
BlackBerry also has many hidden assets on its balance sheet which aren’t necessarily easy to value, like BBM, the QNX division, and the company’s massive hoard of patents.
BlackBerry took away much of its balance sheet risk when it partnered up with Foxconn. Foxconn can do a better job manufacturing to demand, leaving BlackBerry free to do with it does best. Gone are the days when BlackBerry will take billion-dollar write-downs on inventory issues.
BlackBerry is reinventing itself as a leaner technology company that isn’t so dependent on smartphone sales for success. The company’s success is going to come from these other pieces of technology. CEO John Chen is making the right moves. Like any turnaround, it’s just going to take time.
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Fool contributor Nelson Smith owns shares in Blackberry. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford.