BlackBerry's Suing Ryan Seacrest's Company: But Does it Matter?

Typo 2 case with Apple's 5s. Source: Typo

BlackBerry's (NASDAQ: BBRY  ) back in the news again. This time it's courtesy of a court order in a Northern California courtroom. The lawsuit, filed against American Idol host Ryan Seacreast's company Typo, is a classic patent infringement case --Typo's main product is a keyboard for Apple's iPhone that BlackBerry claims infringes on its keyboard patents.

It should be noted that this case was initially decided in March, with the judge agreeing with BlackBerry and banning Typo from selling the keyboard in an injunction. This case was a follow-up in which BlackBerry argued Typo had violated the terms of the initial ruling by providing replacement keyboards and selling to foreign retailers. Typo argued that its new keyboard, the Typo 2, did not infringe on BlackBerry's patents.

Regardless of how the lawsuit turns out, this is at best a distraction for BlackBerry and, at worst, an indication that the company doesn't have a plan forward. BlackBerry's future isn't in consumer-based handsets, and it shouldn't waste cash on such frivolity.

A history lesson
As far as smartphone device makers go, there probably isn't a more cautionary tale than BlackBerry -- formerly Research In Motion. Widely considered to be the creator of the modern smartphone, the company was the first successful mass-produced product that incorporated both phone and email functions into a device. What followed was a tremendously successful stock run that led the company from a split-adjusted low-$20s per share to its all-time high of nearly $150 per share in early 2008.

Unfortunately, the good times wouldn't continue. Both macroeconomic and sector-specific trends weighed on the device maker. First, the U.S. economy virtually melted at the end of 2008, depressing valuation multiples for most companies -- especially for cyclical, vanity-type purchases, such as cell phones. However, the more prevalent threat was new and dynamic entrants. Apple released its first iPhone in mid-2007, and it quickly caught on with fans.

Eventually, new entrants emerged, many sporting Google's wildly successful Android platform. BlackBerry continued to hemorrhage customers. The company went from the dominant smartphone maker to its current position of fourth among smartphone operating systems in 2014's second quarter, with an estimated 0.5% market share, according to IDC. It's increasingly evident that BlackBerry's future isn't in consumer-based handsets.

If your future isn't in consumer-based handsets, why waste time and focus?
Eventually, BlackBerry got the memo. After a rocky tenure for former CEO Thorsten Heins, in which the company released the widely panned BlackBerry 10 operating system and handsets and endured failed plans for an acquisition, John Chen took the reins.

Things have improved under Chen. Matter of fact, he's known for turnarounds from his time at Sybase. Chen took over a firm that missed the '90s tech boom. He was able to buy other firms that helped Sybase grow -- he ended up selling Sybase to SAP for a nearly 60% gain.

As far as BlackBerry is concerned, he's starting to right the ship. The restructuring period with its draconian cuts are over; he recently sent an email outlining plans to grow and invest. In addition, he's focusing on BlackBerry's core customers -- governments, health care, and banking, who remain loyal because of BlackBerry's ultra-secure network.

A vigilant focus on growing enterprise
So there's where BlackBerry finds itself, fighting to compete on enterprise solely on the basis of its ultra-secure network. Not only that, but it's also fighting an uphill battle against bring-your-own-device plans that increasingly favor consumer-based brands such as Apple and Google's Android-based hardware makers. If one looks at BlackBerry's hardware sales over the past four years, you see how hard it's been on the Canadian-based brand.

Source: BlackBerry's 40Fs. Figures in millions.

The end result is a company that's reported net income losses and negative operating income for each of the past two fiscal years. And while much has been made of BlackBerry's rather large cash pile, especially when viewed in relationship to its market capitalization, more recently it's been bolstered by a debt issuance of nearly $1.25 billion. For perspective, as of its last annual report, BlackBerry's cash pile is $400 million more than three years ago, including that debt issuance.

Final thoughts
Obviously, BlackBerry's seen better days. But the company is actually on a run of sorts this year -- up nearly 40% year to date in what appears to be a relief rally. When Chen took over BlackBerry, many thought the company was on a fast track to bankruptcy after striking out with the Fairfax Financial offer.

If the company plans to turn things around long term, it will be to grow its enterprise footprint by stressing the importance of network security and hoping Chen has the magic touch again with acquisitions. Both of these things are going to take cash and focus. BlackBerry would be wise to leave Ryan Seacrest's fledgling accessories business alone and focus on the big picture.

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Jamal Carnette

After working at The Motley Fool, Jamal Carnette decided to try his hand at writing for a change. You can find him writing about technology, consumer goods, sports, and pontificating on any competitive advantage. His previous jobs include Mortgage Trainer, Financial Advisor, and Stockbroker. Jamal graduated from George Mason University with a bachelors of science in finance and is a CFA Level III candidate. Follow me for tech trends, info on consumer brands, and sports banter.

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