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Why BlackBerry Ltd. Shouldn’t Give up on Handsets Yet

In recent weeks there have been many calls for BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) to abandon the handset business altogether and focus on software. Even CEO John Chen has indicated this may be a possibility.

It’s no surprise that the idea is gaining so much traction. Dumping the handset business would instantly transform BlackBerry from a declining hardware company into a growing software provider. It could then focus on what it does best: security. The brand would likely improve, as would profitability metrics.

But it’s still too soon for the company to make such a decision. Below are three reasons why.

1. Some large customers still depend on BlackBerry devices

Many of BlackBerry’s core government customers don’t let their employees use their own devices for work. Of course, these customers are very concerned about security, and for that reason they prefer to issue BlackBerry handsets to their employees instead. Thus, BlackBerry would be doing its largest customers a big disservice were it to abandon the handset business altogether.

Granted, these large customers do have some alternatives. Boeing developed an ultra-secure handset that auto-destructs when tampered with. And the phone is integrated with BlackBerry’s BES 12 platform, making it that much more impenetrable.

But it would still be a big headache for governments to switch away from BlackBerry’s handsets. That’s not how the company should be treating its best customers.

2. We’ve yet to see an Android device

There are many reasons why BlackBerry lost the smartphone wars, but one reason had to do with the lack of available applications. In an attempt to fix this problem, the company allowed Android apps to run on its phones. But this was only a partial solution.

Now it looks like BlackBerry is ready to take the next step: launching an Android-based phone. Such a device is expected to be released later this year, and it could sell very well thanks to its slide-out keyboard and top notch security.

For now, nothing is official. But we should wait and see how such a device sells before we declare BlackBerry’s handset business dead in the water.

3. The handset business can still exist in a smaller form

Since taking over, Mr. Chen has already scaled down the handset business dramatically—his most significant move was outsourcing production to Taiwanese giant Foxconn. More recently, the company entered into joint development and manufacturing agreements with Wistron and Compal.

But the hardware division could be scaled down even more. Perhaps the company could only sell Android phones in the consumer market, and use its proprietary operating system in the enterprise world. Or maybe the company could give up on phones with smaller screens, such as the Classic. Whatever the company decides, clearly there are still many options. It’s too soon to throw in the towel.

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

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