For BlackBerry Ltd. to Succeed, it Must Go All-In on Software

If investors want to see BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) succeed, they should hope the company focuses entirely on software and ditches hardware.

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I remember the first time I got a phone from BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY). I had always had flip phones, and then suddenly I had a phone with a full keyboard, access to my email, and I could even visit websites (though they were not pretty). I loved that phone.

But when I switched to Android and finally made the jump to an iPhone, I didn’t even bat an eye. Many people have had similar experiences and, other than a niche group of holdovers, people are moving on to top-of-the-line smartphones.

If we look at the most recent quarterly numbers, it’s clear that BlackBerry’s phone division is running on fumes.

In the second quarter the company sold 800,000 devices with an average selling price of $240 per device. In the third quarter, those numbers dropped to 700,000 devices sold with an average selling price of $315. If the fourth-quarter numbers, which will be reported in the next few days, show that the number of devices dropped again, the time may come for this division to be shuttered.

Fortunately, the CEO of the company, John Chen, recognizes this. He has said that if the division doesn’t sell five million handsets, it will need to get out of the business of making phones. Frankly, that’s great news.

BlackBerry needs to focus on security

My belief is that BlackBerry would be better off focusing on what it is the absolute king of: creating secure software. And I believe that if the company focuses on being a software provider and patent licensor, it’ll be able to experience growth in the future.

The company has made three acquisitions over the past year that leave me very intrigued. The first is AtHoc, which is a crisis-management product. The second is Good Technology, which is a mobile-security provider. Finally, it acquired Encription Ltd., a cyber-security consultancy based out of the U.K. In essence, clients will hire BlackBerry to consult on securing their networks and, if BlackBerry feels it has a product that can do the job, it’ll offer it.

While the cyber-security business is certainly smaller than the mobile phone business, it’s worth about $16.5 billion a year. By the end of the decade, this number should increase to $23 billion. And if you think about it, that makes sense. People are worried that hackers will be able to gain access to their data, so strong security is a must.

There’s no denying that BlackBerry can make secure software. And there’s a big part of me that hopes the company will announce that it is licensing its software to other phone makers, so they could make their own phones. But at the end of the day, if investors want to see BlackBerry succeed, it’ll be on the back of software and security–not hardware.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Jacob Donnelly has no position in any stocks mentioned.

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