BlackBerry Will Be Back in 2014

BlackBerry's  (NASDAQ: BBRY  ) stock price took a beating last year, with shares down 37% year-to-date. Several events have continued to force the company's share price down. A $1 billion inventory write-off and Fairfax Financial's failed takeover attempt pushed shares to the $6 range. But, there is still hope for BlackBerry.

Here are three catalysts and one challenge for BlackBerry in 2014:

Restructuring
BlackBerry announced that it will be split up into four new divisions: enterprise services, messaging, QNX, and devices. This new structure will allow each division to focus on its respective products and services, instead of having to work in tandem with multiple divisions at the same time.

According to a Wall Street Journal report, BlackBerry was considering cutting up to 40% of its global workforce by the end of last year as part of its restructuring efforts. Investors could also see additional employee cuts later in 2014. With BlackBerry shedding extra costs, the company has a better shot at becoming profitable.

BlackBerry's interim CEO, John Chen, said that he plans to realign the company's top management. With the company's top marketing executive, Frank Boulben, recently out the door, BlackBerry may take on a new marketing approach. Telecompaper reported that Chen appointed a new senior vice president of marketing, Mark Wilson, who was previously chief marketing officer of Avaya. Chen also appointed another executive last week.

Both of these new appointees have worked with Chen in the past. If Chen can continue packing the company's leadership with former colleagues, he should be able to steer the company toward profitability with greater ease.

Partnership with Foxconn
BlackBerry has struggled with it's new mobile devices. Sales have been sluggish and, in turn, BlackBerry has had large inventory write-offs. But, that's about to change thanks to its partnership with Foxconn

ValueWalk reports that the two companies will be working to produce smartphones for Indonesia and other emerging markets. BlackBerry's interim CEO said that Foxconn would likely be taking over device design since it had so much experience controlling costs in handset production. 

Foxconn has experience manufacturing mobile devices for one of BlackBerry's competitors, Apple (NASDAQ: AAPL  )  as well as other technology firms like Dell and Acer. Foxconn, thanks to Apple, has been good at controlling the supply of Apple's devices being manufactured at its plants. Foxconn's expertise from manufacturing devices for Apple should be valuable for BlackBerry.

With Foxconn also controlling the cost of BlackBerry's new handsets, investors could see much higher margins from sales of new, lower-end BlackBerry phones in 2014. High margins on low-cost phones could prove very valuable in emerging markets such as Indonesia, Nigeria, and the Philippines. 

By allowing Foxconn to design and manufacture BlackBerry's mobile phones for emerging markets, BlackBerry can focus on improving its lucrative enterprise devices. BlackBerry announced that its BlackBerry Enterprise Service 10 was gaining traction. It said that there are now more than 30,000 commercial and test servers installed, compared to 25,000 in September. 

BlackBerry Messaging
Earlier this year, BlackBerry rolled out its messaging service, BBM, on iOS and Android. ValueWalk reports that BBM could have up to 80 million users, with 60% of those users visiting the app daily. 

More than 12 companies that manufacture Android devices have also agreed to preload the BBM application onto new handsets. The most notable firm is LG, whose handsets are sold all over the world. 

This year, Kaokao, South Korea's most popular messaging app, expects to have $200 million in revenue. Most of the revenue is generated from paid advertisements within the application. With BBM gaining access to South Korea, one of the most lucrative mobile messaging markets per capita, through its partnership with LG, BlackBerry could earn significant advertising revenue. 

Inventory risk
Two of the biggest blows to BlackBerry's stock price last year stemmed from inventory write-offs. With BlackBerry manufacturing far more phones than in can sell, it is setting itself up for disaster. However, investors should not be worried about significant inventory write-offs in 2014, thanks to the companies partnership with Foxconn.

BlackBerry will still control production of its higher-end devices, and may end up making the same inventory-related mistakes it made last year. Investors should keep an eye on inventory write-offs in the company's earnings report for the third quarter of 2014. A smaller inventory write-off could indicate improvement. 

Foolish takeaway
BlackBerry is looking strong heading into 2014. Thanks to the new divisions at BlackBerry, there will be innovative products and services coming out of each division, instead of the mediocre attempts at collaboration seen in the past with BlackBerry 10's rollout.

Its new partnership with Foxconn will likely help sales of mobile devices and leave BlackBerry with higher margins. This new partnership will also allow BlackBerry to focus on its enterprise business.

Investors could see BBM become a vital component of BlackBerry revenue over the next year. With 80 million users already, investors could see 100 million BBM users by June. BBM could become one of the world's most popular messaging apps.

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  • Report this Comment On January 01, 2014, at 8:26 PM, Sunpowergo wrote:

    Why does anybody think that shedding employees is a sign of a company improving it's fortunes? Only a person who is dumb enough to think that employees don't add value to a company far beyond the wages they earn. The one exception is management, especially CEO's who are grossly over paid. Instead of wasting millions in compensation"packages" Blackberry should be hiring the best and most creative engineers it can find. Blackberry is a classic example of serial bad management driving the company into oblivion and the people who built the company (engineers and sales) are taking the blame. Get somebody creative with a hands on track record of tech products to lead the company, hang the "suits" out to dry for a change!

  • Report this Comment On January 01, 2014, at 11:11 PM, dhmcinnes wrote:

    Hmmmm. I don't think they will be "back in 2014".

    From the Q3 2014 results:

    - Revenue dropped 24% in Q3. If BBRY can reduce costs faster than revenue is falling, they might make money in the short term, but the long term outlook seems fairly bleak.

    p. 56:

    "Service revenue decreased by $342 million to $632 million in the third quarter of fiscal 2014, compared to the third quarter of fiscal 2013. The decrease is primarily attributable to a lower number of BlackBerry users and lower revenue from those users, compared to the third quarter of fiscal 2013."

    Revenue breakdown: Services 53% / hardware 40% / software & other 7%

    - it looks to me like BBRY won't be developing any new hardware. From the press release: "New organizational structure to drive greater focus on services and software, while establishing a more efficient business model for the Devices business". I guess this means they will continue manufacturing and selling their existing devices as cheaply as possible via Foxconn. Hardware sales made up 40% of Q3 revenue. I assume revenue from hardware will decline given the lack of new investment.

    - I think 'services' refers to software services consumed by blackberry handset users such as security & MDM services. 'software' revenue is sales of BES servers.

    - Services revenue depends largely on the number of blackberry handsets in circulation.

    - If revenue is largely dependant on selling hardware, and revenue is falling 24% per quarter, and there are no real plans to develop new hardware, I can't see how blackberry can survive. They might carve out a niche in the Mobile Device Management area, but that would be a minnow-sized operation compared to the curent behemoth.

    - BES10: "Mobile Device Management" market penetration increased 20% during Q3. This is good news, but to put it in context, software revenue makes up only 4.7% of total revenue, and has fallen 12.5% compared to last year.

    Software Revenue

    "Software revenue, which includes fees from licensed BES software, client access licenses, technical support, maintenance and upgrades, decreased by $8 million, or 12.5%, to $56 million, or 4.7% of consolidated revenue, in the third quarter of fiscal 2014, compared to $64 million, or 2.3% of consolidated revenue, in the third quarter of fiscal 2013. The decrease was primarily attributable to decreases in maintenance and client access license revenue."

    - In the past 3 months, BBRY lost $8.37 per share - more than the current market cap. Selling, market and admin costs actually rose ($527m - $543m).

    p. 58: "Service revenues for the third quarter of fiscal 2014 decreased by approximately 9.6% compared to the second quarter of fiscal 2014. [...] The Company expects service revenue to decline in the fourth quarter of fiscal 2014 by a percentage consistent with the decline experienced in the third quarter of fiscal 2014."

    "The Company is targeting to return to generating positive cash-flows by the end of fiscal 2015."

    Q3 income from continuing operations of $0.03 per share.

    - The Q3 press release brags about > 40M newly registered ios / android users in the last 60 days - so what? It is a FREE app that does the same thing as numerous other free apps. I can't see how this will be a money spinner.

    Disclaimer: I am short BBRY

  • Report this Comment On January 01, 2014, at 11:48 PM, dhmcinnes wrote:

    "Investors could see BBM become a vital component of BlackBerry revenue over the next year."

    How? It is a free application, which does roughly the same thing as many other free applications.

  • Report this Comment On January 02, 2014, at 5:15 AM, JesseAtlas wrote:

    @dhmcinnes The application is free; however, BlackBerry can sell advertising on the messaging platform. It's the way most of the free messaging application companies earn revenue.

  • Report this Comment On January 02, 2014, at 5:26 PM, dhmcinnes wrote:

    Thanks JesseAtlas, I didn't know.

    Re. BES10, I note that while "Mobile Device Management" market penetration has increased 20%, revenue has decreased by 12.5%. This indicates BBRY are having to cut prices (from $59 MSRP to $19, I believe) to maintain market share.

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