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Will BlackBerry's Passport Phablet Derail its Turnaround?

BlackBerry  (NASDAQ: BBRY  ) plans to release a phablet in September, the company quietly announced during its recent earnings call.

To call the idea odd would be an understatement. BlackBerry -- once the businessperson's phone of choice -- has shed users at an alarming pace. This led it to sensibly refocus its strategy away from phones and onto enterprise services by making its popular features work on Apple  (NASDAQ: AAPL  )  and Google  (NASDAQ: GOOG  )  operating systems.

BlackBerry has made huge strides in the past year in doing that and proving that it might still have a future. The release of the company's popular BlackBerry Messenger for IOS and Android resulted in 20 million new users joining the service in the first week it was available as an app.Focusing on growing that user base (while working on behind-the-scenes technology) seemed like a much less foolhardy path than attempting to win back market share from Andoid, iOS, and even Microsoft's  (NASDAQ: MSFT  ) Windows Phone 8 OS. 

But now, the company has decided to continue partying like it's 2009 and devote some of its dwindling resources to an odd hybrid device.

What is the phablet?
The new device, dubbed the Passport, has not been formally unveiled. It has what could be described as an awkward form factor with a 4.5-inch display and a full QWERTY keyboard. It theoretically caters to the hardcore BlackBerry audience, which presumably still wants a keyboard. The problem is that audience has shrunk dramatically. A weird new in-between big phone/small tablet form factor is unlikely to help BlackBerry shift its business away from being a phone platform.

Is it really that bad?
BlackBerry still has its fans, but so do MySpace and Color Me Badd. In the device market the company has lost much of its once-loyal fan base and the numbers are expected to get worse. 

BlackBerry's global shipments are projected to fall almost 50% in 2014 to about 9.7 million smartphones, according research firm IDC. BlackBerry's worldwide market share will slide to .8% in 2014 and may slip to .3% by 2018, IDC said. The company's operating system accounted for 1.9% of the market in 2013.

"The question of whether BlackBerry can survive continues to surface," IDC said in a statement. "And with expectations that share will fall below 1% in 2014, the only way the company will be viable is likely through a niche approach based on its security assets."

CEO John Chen seemed to understand that ... he's said all the right things since he took over in November 2013. So it was profoundly disturbing for shareholders to see Chen proudly showing off the Passport in photos taken during the investors call.

It's not just a phablet
If BlackBerry were simply releasing a phablet as an attempt to serve a tiny piece of the market (people who want a phone that does not fit in their pocket with a full keyboard) you could justify this as a slight deviation from its adjusted strategy. But that is not the case -- it also just announced a deal where its phones (and presumably the Passport) have access to all the apps from the  (NASDAQ: AMZN  ) app store.

"Making the Amazon Appstore available on BlackBerry 10 devices will help BlackBerry continue to meet two essential needs: greater app availability for our smartphone users and enhanced productivity solutions for enterprises," Chen said. "We've listened to our customers and have taken this important step to deliver on their needs, while executing on our strategy."

This move is the equivalent of buying new merchandise to sell during a liquidation sale. Having access to the 240,000 apps available in the Amazon app store will be popular with BlackBerry users, but those legacy customers are not where the future lies for the brand.

Stay on target
Under Chen, BlackBerry has made strides, and it even reported a surprise profit of $23 million in the first quarter of its fiscal 2015. The company also increased its cash and investments balance to $3.1 billion at the end of the first quarter, up from $2.7 billion in the prior quarter. That was achieved partly by cutting operating expenses by 57% year over year and 13% quarter over quarter. 

Most importantly Chen's BlackBerry has started to move away from being a business that's dependent on phone sales. Revenue for the quarter was 39% for hardware, 54% for services, and 7% for software. That's a huge shift from the same period a year ago when the breakdown was  71% for hardware, 26% for service, and 3% for software.

Chen is succeeding, but if he forgets that his company is no longer in the handset business, the gains he has made could disappear quickly. Making devices that people see and use is sexier than being a company that operates in the background. The lure of trying to remain a player in handsets is powerful, but it's one Chen has to ignore to remain focused on the task at hand.

Being a less-cool company seems more lucrative than playing the lottery with new devices for which there is no clear expressed consumer demand. I'm sure some at IBM still wish the company was making whatever the current successor to the PC Jr. would be. Most, however, are probably happier being a large, successful business than a historical footnote.

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Read/Post Comments (6) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 23, 2014, at 1:37 PM, cbglobal wrote:

    Since Chen clearly stated the Phablet is not for the US market, but for markets where a big phone/small tablet is in demand; your article only demonstrates your weak research skills. Chen has also shown with the Z3 release timing, that he will not order too many of anything and end up with unsold inventory.

  • Report this Comment On June 23, 2014, at 2:25 PM, wickorama wrote:

    I'm buying one - and so will many practitioners in the medical community. Size and resolution is key for this industry. This is what Passport is all about. Don't fret about the impact on Blackberry's turnaround as it can only be positive.

  • Report this Comment On June 23, 2014, at 2:55 PM, greenember wrote:

    BlackBerry has said repeatedly that they weren't exiting the handset business. Why this new device comes as a shock, I'm not sure. Apparently writers don't also have to know how to read...

  • Report this Comment On June 24, 2014, at 6:17 AM, Sotograndeman wrote:

    "But now, the company has decided to continue partying like it's 2009 and devote some of its dwindling resources to an odd hybrid device."

    With this comment, the author demonstrates a total lack of understanding of both the company and CEO John Chen.

    The articles is remarkable in its misunderstanding. Please, no more.

  • Report this Comment On June 24, 2014, at 10:32 AM, infektu wrote:

    No, it won't.

  • Report this Comment On June 30, 2014, at 12:49 AM, rmiers1 wrote:

    Why is it that this seems to have been read before?

    maybe a figment of my imagination? nope! inventoried my brain and this is a repeat. Surprised the fool allows repetitive facts and nothing new posts. The fool helped me make some serious money but lately has cost me some serious money also. I miss my "rule breakers" but still sticking with stock advisor.

    Posts like this weaken my trust.

    Bottom line, BBRY outperformed and has a clear, understandable plan to profitability. This clown is acting like the herd of trained monkeys with skin in the competitor's pocket.

    BBRY owns total security. I have seen it work at the highest levels........period

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Daniel B. Kline

Daniel B. Kline is an accomplished writer and editor who has worked for the Microsoft's Finance app and The Boston Globe, where he wrote for the paper and ran the business desk. His latest book "Worst Ideas Ever" (Skyhorse) can be purchased at bookstores everywhere.

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