It seems like every year, BlackBerry (NYSE:BB) faces the inevitable dilemma over whether or not it will continue making phones. Well, that's because the important question actually does come up every year, since BlackBerry's phone business has been struggling for years.
After becoming CEO in 2013, John Chen acknowledged that BlackBerry was not competitive in high-end consumer smartphones, but remained strong in high-end enterprise devices.
In April 2014, Chen was quoted as saying, "If I cannot make money on handsets, I will not be in the handset business." In a follow-up blog post, Chen said these comments were taken out of context. He wanted to reassure BlackBerry's shrinking but loyal hardware fan base:
I want to assure you that I have no intention of selling off or abandoning this business any time soon. I know you still love your BlackBerry devices. I love them too and I know they created the foundation of this company. Our focus today is on finding a way to make this business profitable.
As such, you'd be forgiven for experiencing a little bit of deja vu from his appearance at Code/Mobile last week.
Stop me if you've heard this one before
At the conference, Chen made comments very similar to ones he's made in the past.
Once again, the BlackBerry CEO suggested a possibility that BlackBerry could exit the handset business if it doesn't become profitable within the next year. Once again, Chen took to BlackBerry's blogs to set the record straight and clarify what he really meant.
Chen estimates that BlackBerry needs to sell approximately 5 million units per year to be profitable, which is interestingly down from his prior estimate of 10 million units per year to achieve profitability. It's true that BlackBerry has been busy cutting costs, slimming down its product portfolio, and outsourcing manufacturing to Foxconn, but it's still peculiar that this figure has been cut in half even with all of those reductions in operating expenses.
Conveniently, this is roughly the current scale of BlackBerry's handset business. For reference, BlackBerry has recognized revenue on 5.2 million smartphones over the past four quarters, and sold through 7.2 million smartphones to end customers. The difference in those figures is attributable to changes in channel inventory, as BlackBerry has been trying to streamline distribution and reduce inventory risk.
In his response, Chen reaffirmed that BlackBerry may be forced to exit the device business if it can't be sustainably profitable, but making it profitable is one of his priorities. The upcoming Android-powered PRIV is a bold bet on a new platform strategy for the Canadian company.
Every time the possibility that BlackBerry may exit the handset market comes up, its loyal base of die-hards get all riled up and fear that they won't be able to get their "CrackBerry" fixes anymore.
Walk the line
Chen is trying very hard to walk the fine line between business common sense while still catering to a very vocal minority of "CrackBerry" addicts. And it's not as if this demographic can single-handedly provide enough financial support to bring BlackBerry's hardware business to fiscal sustainability.
BlackBerry hasn't revealed official pricing for the PRIV yet, but it's rumored to be over $600, which puts it squarely in flagship territory. Chen says he has "100% confidence" in the PRIV, but it's still a distinct possibility that the device will flop like virtually every other handset the company has launched in recent years.
PRIV is easily the most exciting phone to come out of Waterloo in years, but if Chen has to abandon hardware in order to focus on software, he'll have to do what he has to do.
Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.