Why BlackBerry Is Hiring SAP Executives

Learn why BlackBerry, a manufacturer of mobile hardware, is hiring former managers from SAP, the world's largest enterprise resource-planning company.

Jan 21, 2014 at 12:15PM

Canadian smartphone manufacturer BlackBerry (NASDAQ:BBRY) has been busy hiring former SAP (NYSE:SAP) executives lately. Last week, CEO John Chen -- a former Sybase chief -- hired Eric Johnson, formerly SAP's general manager of global database and technology, to be BlackBerry's new global sales chief.

This is not the first time Chen hired a former colleague. In November 2013, Chen hired John Sims, formerly the head of SAP's mobile services operations, to be BlackBerry's new enterprise chief. And in December 2013, Chen hired two more colleagues. But considering that SAP is the largest enterprise resource-planning software company in the world, why is a mobile company like BlackBerry hiring SAP executives?

BlackBerry's enterprise-focus
After BlackBerry posted a whopping $4.4 billion loss in the third quarter of 2013, the need for a radical change in business focus became evident. The company failed to establish itself as a viable alternative in smartphones to Apple (NASDAQ:AAPL) or Google. Its most recent attempt to catch up in the smartphone arena, the Z10, was a great device in terms of tech specs. But a lousy pricing strategy, combined with an underestimation of Apple's iOS market power, contributed to the device's poor sales. 

Aware of its lack of competitive advantages against Apple, the new BlackBerry may be more interested in enterprise mobile software than in manufacturing high-end smartphones. The company plans to return to profit by 2016 by refocusing on its core business drivers, which include enterprise services and messaging. Despite its failure in the smartphone arena, BlackBerry still has more than 80,000 enterprise customers, and many organizations in highly regulated industries -- from banking institutions to government -- continue depending on BlackBerry's software to secure their mobile infrastructure.

Hardware sell-off may be a matter of time
The company's pursuit of SAP personnel signals a strategic business shift, from being a hardware-oriented company to focusing on mobile software for enterprises. Eventually, BlackBerry may sell of its entire hardware business.

BlackBerry may be able to secure a moderate valuation for its hardware division, as more than one company could be interested in owning BlackBerry's patents. Microsoft and Lenovo could be among the potential bidders.

Microsoft will be making $2.6 billion in support payments to original equipment manufacturers in order to compel them to make devices based on Windows Phone, according to Mobile-review.com's Eldar Murtazin. On the other hand, Lenovo, the third-largest smartphone manufacturer, is expected to sell 70 million smartphones globally this year, compared to 50 million units in 2013. Both companies could use BlackBerry's hardware to obtain an extra edge in the fight for the smartphone market.

From now on
BlackBerry's main software applications are BlackBerry Enterprise Service 10, BlackBerry 10, and BB Messenger. These products do not generate significant revenue on their own, according to Morningstar.

However, their presence in the software industry should not be underestimated. For example, soon after BBM Messaging service was released to iOS and Android users, the company managed to add 40 million new smartphone users. And there are more than 28,000 servers powered by BlackBerry Enterprise Service globally.

Chen and the company's new executives will need to transform these figures into revenue. Chen, who specializes in turning around failing companies, is well-known for his role as CEO of Sybase, a tech company that was struggling with poor sales in the late 1990s. Chen changed the company's focus from developing programs that provided generic client/server communication to providing analytics and mobile services.

Sybase was worth just $362 million by the time Chen stepped in. After 13 years under Chen's management, SAP acquired Sybase for $5.8 billion. 

Final Foolish takeaway
BlackBerry's enterprise focus could help the company to stop bleeding cash and hopefully return to profit zone by 2016. The company's global reputation for being a developer of safe mobile software is a strong asset that Chen and BlackBerry's new executives can use to make a new, more efficient, profitable company. 

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Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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