BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has come a long way in the past few years. It went from being the leader of the smartphone market and tech darling of Canada to the point of near collapse and billion-dollar losses.
While the days of posting billion-dollar losses are hopefully behind the company, there’s one thing the company still can’t shake off–at least not yet: the hardware business.
Plagued by delays, antiquated hardware components, awkward hardware designs, and priced well above what anyone would want to pay, BlackBerry’s hardware business has been on a steady decline for over five years.
BlackBerry’s endorsement of the Android operating system over its own failed BB10 system is a solution to the company’s software woes, but the hardware division is still making devices that nobody wants.
The DTEK50: is it BlackBerry’s last device?
BlackBerry recently announced the launch of the company’s second Android device: the DTEK50. Unlike the Priv, which launched late last year, the DTEK50 is a mid-tier device that is being sold at a mid-tier price of US$299.
The device should prove to sell better than the Priv, particularly with businesses that want to provide a BlackBerry device to employees but don’t want to pay a premium price. Furthermore, BlackBerry can carve out a niche market with the DTEK50, catering to those that want a highly secured version of Android.
An interesting point often overlooked about the DTEK50 is that the device is not designed or manufactured by BlackBerry; the company provided the necessary security requirements, which were then implemented by the manufacturer onto an existing device platform.
This is significant for a few reasons.
First, this reduces costs substantially. With another company designing and manufacturing the phone, this allows BlackBerry to focus on what it does best–software and security. With lower risk and lower overall costs, this is a win-win for all.
The second point worth noting is that by letting someone else build the phone, BlackBerry no longer needs to worry about designing (and paying for) phones that have had little appeal to the market. This addresses the long-standing concern of BlackBerry not knowing what its intended audience actually wanted.
While it’s still too early to determine if this new model will work, the DTEK50 release is an intriguing shift in direction for the company that will likely be adopted for the second device release BlackBerry said is set to come out towards the end of the year.
A BlackBerry without hardware
Over the past few years, BlackBerry has been shifting focus onto software and security–moving gradually away from selling hardware devices. The company has made a number of strategic acquisitions that have bolstered its software portfolio. BlackBerry has also expanded into new business areas, such as its new cybersecurity consulting business–a natural extension for a company like BlackBerry.
Investors are well aware of the problems plaguing BlackBerry and most of the measures the company has taken throughout the years to try and steer the ship towards stronger revenues. What has gone largely unnoticed, however, is how the company would fare if the hardware division was shuttered.
A software-focused BlackBerry would be a leaner company with a very high percentage of recurring business, extremely high growth prospects, and profit margins in the area of 30%. The company is also a market leader in the niche cybersecurity market, which is believed to have a market potential measured in the billions before the end of the decade.
In my opinion, BlackBerry is an investment that may be too risky for most. While the company has shown improvement for some time, the success or failure of the DTEK50 launch and the release of the next device will likely be a telling indicator as to whether or not BlackBerry can succeed in the hardware segment.