N4BB

Here are two sides to the same coin. Is BlackBerry dead? Has no one told Mr. Chen, or are pieces in place for something greater—something more? In a sense, I firmly believe BlackBerry, as a core, is truly resilient, and has had to let Research in Motion die, inside and out, for the real value to once again surface. The game is far from over for BlackBerry, as they bolster forward to tackle new market challenges, and support a growing customer base in enterprise, but how long will that last, and will it matter years from now? To that end, let’s challenge the left and the right. Pick a side: Is BlackBerry Dead, or Undead? Big shout-out to @KevCollazo for his imagery used in this feature, utterly spooky.

Point Counter Point – BlackBerry is Dead:

Like a bad game of Sunday night football, BlackBerry has been fighting top market competitors whilst jostling the company through a major transition set to reshape (or create) a future from the ashes of the once-RIM. In early November of this year, Thorsten Heins was ousted from his recently appointed position of CEO, which he began in early 2012. Poor marketing support, and bad press coverage of BlackBerry 10 have driven market perception even lower – debilitating a company in dire thirst of good news.

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BlackBerry as a Brand is Irrelevant
Many argue that the BlackBerry brand is damaged beyond repair, and now BlackBerry 10 has a tainted public image. Coupled with public uncertainty toward BlackBerry, market reception for the new platform has dwindled to nearly nothing. The monetary investment to revitalize this brand (even with stellar new devices/services) would be in the hundreds of millions of dollars. BlackBerry’s CMO has been redacted for his grassroots marketing attempts, which added no fuel to the embers ignited by the BlackBerry 10 pre-launch buzz. BlackBerry will face a global issue as they fight to preserve a dying brand with a new public image. Many of the failures over the last two years have brought a shroud over BlackBerry Ltd., while the brand equity has also suffered.

Brand Power Eroding in Emerging Markets
iOS hit BlackBerry in the face, and Android hit it at the heels. iOS overtook the high end, while various Android OEMs have attacked the low end with cheap handsets saturating the developed markets where BlackBerry once found vetted strength. Still a contender for market share, the slide continues for BlackBerry.

Slow Enterprise Adoption
BES 10 revolutionizes the enterprise service platform for BlackBerry. It also modernizes MDM with secure containers across iOS, Android, and BB10. This, in a way, makes BES 10 the most robust EMM system out there – backed by a rich security heritage and cryptology patents, BlackBerry acquired by Nortel. Despite its richness, BlackBerry has had slow-and-steady adoption, but strategic review publicly affected confidence in the BES solution; which in turn also hurt BB10 handset sales. Top competitors MobileIron, Airwatch, and Citrix are tried solutions, but BES 10 is the only way to manage BlackBerry devices for the workplace. This puts the customer, and the CIO, in the face of an MDM ultimatum between security, and flexibility. Many enterprises are starting to compromise top-security for support of multimedia devices like iOS and Android. In turn, this invalidates BES 10 as a top MDM solution. Only government and top Fortune 500 enterprises really value BlackBerry’s level of security.

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BlackBerry Assets Trapped in Motion
The year-long strategic process (which essentially slapped a FOR-SALE sign on the company) brought to light for potential investors, the complex BlackBerry software/services issue. Assets like the QNX-powered BlackBerry 10, patents, hardware division and global data-network are all intrinsically interwoven; buyers looking to pull pieces out of the company had a hard time finding ways to separate these assets at a reasonable price. Couple this with the legacy 70M BBOS users (all connected to the NOC via BIS), and you see a shrinking business model behind the blooming new services and software with assets trapped, and in use by government organizations around the globe. Potential buyers must tread around national securities, and many ongoing partnerships between BlackBerry and its partners. BlackBerry is not a “dying” company, but they definitely face many real challenges. The value of BlackBerry is necessitous – any owner will have to respect this – destroying a solution trusted by millions a day across BBM, enterprise and hardware. This makes value hard to extract for potential bidders.

BlackBerry Turnaround Will Be Expensive
Instead of shanghaiing $4.7 billion in debt to place into the company’s books, Prem Watsa has instead helped fund a one billion dollar investment to increase the cash position and negate the pre-tax hardware write-down. Cash is liquid, and they need to spend to keep the ball rolling; without continued financial aid it will be difficult. It’s very hard to coax value from underperforming assets (such as the hardware division). Running the NOC traffic for BBM costs upwards of 200 million a year – a price which increases with subscribers and hardware needed to deliver these services. As BBM grows, it will demand attention from employees/assets, further tying them up and allowing cost to inflate. Which is why I believe the company cost-cutting is far from over at the nearly 40% exodus.

With lack of mainstream apps, the terms by which BlackBerry can restructure and compete are fuzzy. Can BlackBerry whittle their way in from their outlier position to bust down the doors, and regain the market? Services can drive revenue for the short term, but because many of the key assets are not monetized on the new platform, hardware will have to remain a tenant of their strategy moving forward. This, in turn, brought about high hardware costs at launch which further contributed to slow overall adoption. Long-term, this is a software and services company, but they need hardware to sell the vision. Technologically, BlackBerry is well-suited to compete – but the cost of changing a cultural disconnect may be too steep for FairFax and institutional investors to bear.

Point, Counterpoint – BlackBerry is Undead:

Infused by a preliminary $1 billion investment (20% funded by Fairfax Financial, the other 80% of this fund is from Canadian companies), BlackBerry has taken on a small debt-stock investment that puts more cash into the company’s books. As Globe and Mail regails, “Brookfield Asset Management Inc., and a unit of Power Financial Corp. headlining the list of institutions joining Fairfax Financial Holdings Ltd. in its bet that the smartphone maker will succeed.”

This was a very interesting move from Watsa. Essentially, it gave him more than 10% holdings, and authority to take the strategic review “for sale” sign down. Watsa also leveraged a new CEO on “interim” terms to help negotiate a new direction for the embattled brand. They have worked CEO Chen into a 5 year plan, with the potential of $85m across those years. This allows us to frame this executive long term, in the interests of BlackBerry.

$4.7 billion bid, the original Fairfax deal was crooked for shareholders. A $9-a-share buyout for privatization was never going to build long-term value for shareholders (many who bought shares at $10+). I strongly believe Thorsten Heins was leveraged into the CEO chair by Lazaridis & the old RIM B.O.D.s, tasked with the lackluster, and premature, launch of BlackBerry’s software platform. A total restructuring effort for the company would take years, not months. New interim-CEO John Chen says it will take “six quarters” to realize a turnabout. Previous CEO, Heins, made very similar statements at the start of his tenure.

Watsa’s investment cleans up the cash on hand position, erases the pre-tax hardware write-off, and more or less eradicates the financials of 2013. I believe this was purposeful, strategically executed to allow BlackBerry 10, and the platform to grow in the market. Heins, who prior to being named CEO was COO of Research In Motion, understood how to internally fix some of the layered management bloat, and streamline cost cutting. He was a CEO BlackBerry needed at the time, but not the man to bring the story full circle. Heins’ real job was to create value for BlackBerry. He’s done just that.

BlackBerry ‘New’ Value Proposition:

QNX powered BB10 OS
BES 10 Enterprise Server
> Secure Workspace (iOS & Android)
> Enterprise Mobility Management
Cloud Based EMM
OTA Car Updates
Cross-Platform BBM (iOS & Android)

Highlighted above are five potential venues for new, and renewed veins of service revenue. Moving away from the shrunk BIS base, and into a new enterprise/services model. Beyond these venues (which need to be expanded and enriched), the QNX OS can be used as a reference platform for licensing in automotive, and in use for handsets and other computing peripherals. QNX has every bit of caliber that Windows 8 and Mavericks have, and BlackBerry 10 takes a mobile-first mentality that can drive technological convergence of their OS across hardware. Connected, embedded devices running connections with QNX will allow BlackBerry to leverage themselves into new, exciting industries, uniting a hardware ecosystem/app ecosystem to directly rival the App Store and Google Play.

Loads of work, and innovation was unearthed by Thorsten Heins. In many ways, he has brought BlackBerry to a very prudent level of operational capacity – now it’s time to bring the transition full circle and use these new channels to deliver software/services that can accrue revenue for the company, and drive it back into profitability.

The chain of events that have brought $BBRY into the 3rd Quarter of Fiscal 2013 are complex, and misunderstood. The gluttony from the media–biased opinions have framed this company as a tragedy. We neglect $BBRY’s market positioning, and potential. Their new executive, John S. Chen, doesn’t really need to make many huge directional changes, but will have to pull away more layers internally. Heins made the brute of the tough operational changes, Chen has been tasked to invigorate this new potential and drive a new path for the company.

Marketing, and further executive changes, will bolster the viability of the platform. It’s here to stay. With confidence in new leadership (and other bids that may loom) $BBRY is far from dead. It’s got 3.6+ billion reasons to “keep moving.” What’s more, BlackBerry is rumored to be seeking an accelerated tax refund that could bring their cash potion upward of $4+ billion in total. If they are able to pull this cash together quickly, we can expect the new reigns at BlackBerry will do some smart spending, and turn the engine into high gear.

Despite the competitive challenges, BlackBerry has the pieces to build a bridge and conquer. Windows Phone has taken 3 years to finally take root. BB10, still nascent, will mature, as will its app ecosystem. Given time, the company can continue to invest in the message, and direction to attack the prosumers of the world. Creating a trend: enterprising consumers from consumption, into content creation machines.

BB10 is early to a market that has not yet matured in the direction the platform is intended for. Connected machines, the Internet of Things—that is where the latest devices are aiming. BB10 will become a powerful accessory to your everyday, allowing handheld connections with your most important devices. This is a very real future one we should see kick into high gear by 2015.