For BlackBerry (NYSE:BB), it is safe to say its hardware division has seen better days. For example, in its recent quarterly results, the company reported a 31% year-over-year revenue decrease in its beleaguered hardware division. This dragged down the company's results, despite a rather solid 154% year-over-year jump in software and technology licensing revenue. All in all, it appears that new CEO John Chen is transitioning BlackBerry to being a software company.
To be fair, it isn't as if Chen is unilaterally making this decision. In many ways, the market is making this decision easy for him. Chen's predecessors, particularly Thorsten Heins, doubled down on devices and BlackBerry's mobile operating system with BlackBerry 10 and its Z10 model. After numerous delays and lackluster demand, BlackBerry wrote down nearly $1 billion in Z10 inventory in its fiscal quarter ended August 2013 and cut 40% of its workforce.
Chen has shown a willingness to think outside the box with BlackBerry's former market-leading smartphone line. For example, the company has forged manufacturing partnerships with third-party firms to reduce the costs of device manufacturing. Perhaps the most exciting rumor was a recent report that BlackBerry is planning to partner with Samsung to make an Android-based phone. Apparently, that rumor is just heating up.
Could a DroidBerry be on the market this August?
According to BlackBerry site N4BB, and building upon earlier reports from Reuters, it appears that BlackBerry's Android phone may be coming sooner than most expected.
According to the site, sources familiar with the matter claim that a low-end, touch-screen device tentatively dubbed "Prague" will be coming to market in August. Of course, the big story is that this BlackBerry device will run Android's operating system, and be focused on the high-growth emerging markets.
If this report is correct, you may not want to play poker with BlackBerry CEO John Chen. Last week, when asked on CNBC if he would consider making an Android phone, Chen's response of "if I can find a way to secure the Android phone, I will also build that" appeared to hint toward a cautious stance.
Either Google was able to allay Chen's concerns rather quickly or Chen is an amazing bluff artist. Of course, that assumes that the report is correct.
Is this bye-bye BlackBerry 10?
Many of BlackBerry's nay-sayers, myself included, have dismissed BlackBerry's phone business. Quite frequently you'll hear analysts call the business "mostly worthless." Of course, most are looking at the totality of the phone business, including the investments in its mobile operating system, BlackBerry 10, needed to keep powering the devices.
If BlackBerry is able to reduce its development costs by utilizing the open-source and highly popular Android OS, and use the aforementioned manufacturing partnerships to save money, the company may be able to leverage its brand in developing markets to sell units. In the end, BlackBerry could save a considerable amount of money if it could axe its troubled operating system. While not mentioned, it is probably a safe bet that the company will attempt to leverage its profitable technologies, like BlackBerry Messenger, where it can, to eke out as much profit as possible. Eventually, full-scale BlackBerry 10 might not make the cut.
Of course, even this still may not be enough to save BlackBerry's phone business. This appears to be a low-margin line, and profit margins are razor thin at best in the developing markets. Eventually, Chen needs to see profit or decide to exit the market. As a former software guy, Chen was quite happy with recent results that had a massive drop in hardware; it appears he's currently looking past devices.
Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Google (A shares) and Google (C shares). The Motley Fool owns shares of Google (A shares) and Google (C shares). 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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