BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has been on a turnaround path since hiring current CEO John Chen back in 2013. Chen’s agenda was to improve the fortunes of the ailing former smartphone giant, and he has recently indicated that the strategic refocus of BlackBerry is now complete and the company is now growth oriented.
“I don’t consider ourselves a turnaround anymore; everything we had to do to address the downdraft of the business we addressed. Now we need to execute for growth,” Mr. Chen is quoted as saying in December 20, 2016, to news reporters.
The old BlackBerry has been transformed. Is the new BlackBerry any better? Should investors embrace the new software and services firm and hope to make money on its stock?
What to hope for
Higher gross margins are coming from the software and services portfolio.
The hardware division, which was losing a billion dollars per quarter back in 2014, has been totally transformed. The new licensing deals with TCL and BB Merah Putih and the newly launched devices — the KEYone and BlackBerry Aurora (for Indonesia) — may bring in high-margin licensing fees.
However, sales volumes will be critical and very uncertain.
New adventures with QNX may find BlackBerry genius in the new connected, self-driving cars come 2019. With the Ford deal, the company is expecting to see more revenue per each car driven as compared to the current royalty licensing agreement.
It’s not yet clear exactly what will BlackBerry’s role be in the autonomous driving vehicles as the terms of the Ford agreement are still confidential; it may not amount to much.
Investors hope for a new BlackBerry that is indeed a market leader in some identifiable niche the company can easily defend. The company’s competitive advantages in software are not clear yet.
It’s yet to be seen whether BlackBerry Secure will weather the cut-throat competition in security software or create a sizable niche for its services. This sector requires continuous innovation and agility — some qualities that BlackBerry has seriously lacked for some time.
Speaking of a niche, BlackBerry has been well supported by its government clients during hard times. Will this client base fully embrace the new BlackBerry hardware manufactured by TCL — an entity in which the Chinese government has some stake? The market is already aware of the “trust” issues between the Chinese and the European and American governments pertaining to cyber-security.
Foolish bottom line
There is no doubt that BlackBerry has transformed itself into a software-and-services-oriented corporation, making security its most-touted selling point. The new company has a high-margin, low-operating-cost business model. With growing software revenues, BlackBerry could return to GAAP profitability in three quarters or so.
However, BlackBerry’s competitive advantages are yet to be identified, and a lot still needs to be done for investor hopes to be sustained. Identifying the business with just security is not enough; new products beyond QNX are needed to bolster profitability going forward.
Re-branding is also needed to remove the notion of failure associated with BlackBerry.
Investors may not be content with a small, profitable BlackBerry; they might desire sustainable growth and the creation of clear, competitive advantages necessary to bring back the brand’s former glory.
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Fool contributor Brian Paradza has no position in any stocks mentioned. David Gardner owns shares of Ford. The Motley Fool owns shares of Ford.