BlackBerry CEO Saves Face, But Should Still Consider Exiting Handsets For Good

And here's why it's about time...

Apr 13, 2014 at 12:00PM

BlackBerry stock, Apple stock, Samsung stock

As Apple & Samsung continue to dominate, BlackBerry considers exiting its handset business.

The smartphone market is booming these days, but why stay in if you can't make any money?

That's the sentiment expressed in a Reuters interview this week by BlackBerry Ltd. (NASDAQ:BBRY) CEO John Chen, who finally suggested his company would consider exiting the handset business if it remains unprofitable. Curiously, Chen followed up with a blog post to clarify, indicating he still loves their Devices segment and has "no intention of selling off or abandoning this business any time soon."

But you know what? I think it's about time.

Don't get me wrong. At first glance, Chen's statement seems a painfully obvious observation. BlackBerry's still losing money hand over fist as the popularity of its handsets wanes. That's why, even with the help of a risk-reducing manufacturing agreement with Foxconn -- which so happens to also consort with Apple (NASDAQ:AAPL) -- I went out on a limb earlier this year to insist BlackBerry's decision to stay in was a big mistake.

But because BlackBerry already experienced the massive early potential of the smartphone market only a few short years ago -- it shipped over 52 million devices in fiscal 2011 -- I can understand why Chen wouldn't want to give up so easily. After, all, what better way to promote its promising software platforms than to ensure consumers are holding a tangible piece of related hardware in their hands? 

To put BlackBerry's former glory and current struggles into perspective, however, consider the fact Apple sold an incredible 51 million iPhones in its most recent quarter ended Dec. 28, bringing Apple's 2013 units sold to nearly 151 million for a global market share of 15.6%. Samsung (NASDAQOTH:SSNLF) sold nearly twice as many smartphones as Apple over the same period for a 31% share.

Meanwhile, as Samsung and Apple continue to dominate, BlackBerry's market share has effectively fallen to zero in the U.S. as it recognized hardware revenue on just 1.3 million devices during its fiscal fourth quarter ended March 1, down from 1.9 million in the previous three months. 

Time is running out
But here's where it gets really interesting: Chen also noted the time frame for his decision was "short," and elaborated BlackBerry could turn a profit on as few as 10 million shipments per year. The latter statement, of course, is undoubtedly a nod to BlackBerry's newly reduced cost structure and Foxconn partnership.

It's the "short" time frame, however, that really piqued my curiosity. Remember, BlackBerry told investors less than two months ago it was planning an April launch for its new low-cost, touchscreen Z3 smartphone, which will initially focus on Indonesian consumers. BlackBerry also stated at the time it was planning to launch another low-cost device in the keyboard-centric Q20 -- which Chen has since renamed the "Classic" -- during the second half of this year.

BlackBerry has since confirmed training for the Z3 distribution channel has been pushed to late April, which means it's likely looking at an early May launch. Meanwhile, Chen stated they're now targeting a "calendar Q4" release for the Q20, er, Classic.

However, judging by Chen's "short" time frame, I can't help but wonder whether his decision rides solely on how the Z3 holds up after its launch next month. If the Z3 fails, it could quite possibly mean the Classic will never see the light of day.

The silver lining
But if the Z3 does fail, there is an upside. BlackBerry could use its newly freed resources to focus on investing in or partnering with other companies. Specifically, Chen listed regulated industries like health care, financial, and legal services, all of which require exactly the kind of secure enterprise communications BlackBerry's software handles so well.

Even so, that still doesn't mean I'm anxious to go out and buy shares of BlackBerry today. While I'd applaud the move, exiting the handset business would damage Chen's rapport with otherwise-patient investors who might not take kindly to the perceived failure. Moreover, the resulting enterprise investments would take time to bear fruit, which means BlackBerry will also have its work cut out to convince the market its new plans will succeed.

In the end, Until BlackBerry shows it has what it takes to not just survive but thrive over the long term, it remains a risky bet I'm not willing to take.

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Steve Symington has no position in any stocks mentioned, and neither does The Motley Fool. 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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