For over half a decade, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has been working on a massive turnaround that could result in it operating in a bold, new segment with years of profitability or slowly eroding to nothing. Fortunately for investors, it looks like the once-great beacon of Canada’s tech industry is well on its way to a revival. The BlackBerry problem: what happened and why BlackBerry was historically known as the manufacturer of predominately small, physical-keyboard smartphones. A lot of people attribute BlackBerry as making the first smartphone and starting the revolution in personal technology. After years at the top, BlackBerry’s innovation stifled, and entrants to the…
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For over half a decade, BlackBerry Ltd. (TSX:BB)(NASDAQ:BBRY) has been working on a massive turnaround that could result in it operating in a bold, new segment with years of profitability or slowly eroding to nothing.
Fortunately for investors, it looks like the once-great beacon of Canada’s tech industry is well on its way to a revival.
The BlackBerry problem: what happened and why
BlackBerry was historically known as the manufacturer of predominately small, physical-keyboard smartphones. A lot of people attribute BlackBerry as making the first smartphone and starting the revolution in personal technology.
After years at the top, BlackBerry’s innovation stifled, and entrants to the market brought new technologies and more efficient means of personalizing the experience of a smartphone through various applications and media. BlackBerry’s attempts to catch up to the competition were ill-conceived and lacking; as a result, the company fell further behind. Part of that was due to BlackBerry’s technology platform, which was a generation behind others.
When BlackBerry finally built a modern operating system that could stand with the competition, it was too late; most consumers had already invested in competitors.
Throughout those crazy years of trying to keep up with the competition, one thing BlackBerry lost sight of was its core focus and audience. BlackBerry initially started out as a key component of the enterprise segment and put security above all else. That was lost, and the company paid a steep price until a management shake-up finally restored some balance.
The new BlackBerry is stronger, leaner, and smarter
When BlackBerry installed John Chen as CEO, one of the first things he did was put the company’s focus back on to enterprise and security. He also gave the company’s famed (and failing) hardware unit a year on life support to turn things around before it would be shuttered.
Chen masterfully re-oriented the company to being a software-first company. And since then, revenues have picked up throughout the software and services segment, ultimately surpassing hardware and other segments and helping the company post non-GAAP earnings per share of US$0.04 in the most recent quarter.
BlackBerry’s most recent quarter also resulted in the company posting a positive EBITDA of US$42 million, representing the 13th consecutive quarter of positive results. Free cash flow was US$16 million, and the total cash balance was US$1.7 billion.
The company expects to be profitable for the remainder of the year with growth and positive cash flow also being forecasted.
In short, BlackBerry is back.
Where is future growth coming from?
BlackBerry is focused on, and profiting from, the enterprise segment. It’s no longer making phones directly; they company is benefiting from partnership agreements with manufacturers that are building devices with the BlackBerry name. This not only frees up considerable resources to invest in other areas, but it lets BlackBerry continue to focus on one area without holding on to others.
One area BlackBerry has made significant progress in is connected automobiles. BlackBerry’s secure QNX system is already used in over 60 million automobiles around the world, and that figure is steadily rising with each passing year. QNX is a secure, stable, and modular operating system; automotive manufacturers are now starting to see potential uses in other automotive systems beyond use in infotainment displays.
This has the potential to snowball into a major source of revenue for BlackBerry over time.
Security is another growing opportunity for BlackBerry. The company is already renowned for its security and its stable network, which few, if any, companies in the market today can match. BlackBerry’s acquisition of a cyber-security firm last year was a masterstroke entry into the field; arguably, this move should have been made years ago.
Additionally, the growing needs of data applications on smartphones and the inevitable privacy concerns being raised by users offer BlackBerry yet another avenue of growth thanks to a suite of secure and privacy-focused applications that are now available for users of the Android operating system to download.
BlackBerry may have had a tumultuous past, but the future for this tech company could not be brighter.
Iain Butler, Lead Adviser of Stock Advisor Canada, recommended this little tech darling to thousands of loyal members last March... and those that followed his advice are up 127.7% (they've already made 2X their money!).
Not to mention this tiny Eastern Ontario company has already been recommended by both Motley Fool co-founders, David and Tom Gardner, because of its amazing similarity to an "early stage" Amazon.
Find out why Tom Gardner was recently on BNN's Money Talk raving about this company, and how you can read all about it inside Stock Advisor Canada. Click here to unlock all the details about his Canadian rule breaker!
Fool contributor Demetris Afxentiou has no position in any stocks mentioned.