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Is BlackBerry Ditching BlackBerry 10?

By Jamal Carnette, CFA - Jan 12, 2016 at 7:18AM

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BlackBerry appears to be focusing on making smartphones with Android's operating system.

Source: BlackBerry

In smartphones, no company has fallen further than BlackBerry (BB 0.59%). After essentially creating the smartphone by bringing email functionality to a standard cell phone, BlackBerry failed to understand the importance of having a top-notch ecosystem, and chose to compete with superfluous features like a full-sized keyboard as their differentiator. As a result, the company lost tremendous market share to Apple's iOS and a host of device manufacturers sporting Alphabet's (GOOG 2.36%) (GOOGL 2.39%) Android OS.

Unfortunately for the Canadian smartphone maker, its attempt to reinvent its ecosystem, BlackBerry 10 OS, was widely considered a failure. Beset by numerous delays, the first phones sporting BlackBerry 10, the Q10 and Z10, widely undersold versus expectations and led the company to record an inventory writedown of $1 billion in its second fiscal quarter in 2013. The company axed 40% of its jobs and prepped for a pressured sale to Fairfax Financial. After this sale fell through, the company cut ties with its former CEO Thorsten Heins and gave the reins to turnaround specialist John Chen.

Instead of continuing his predecessor's plan to reinvent the company's smartphone line amid a grand vision that BlackBerry could win back former defectors, Chen appears to be transitioning the company toward software and services. In an attempt to build upon its security and privacy focus, BlackBerry recently purchased mobile-security software provider Good Technology. In the meanwhile, Chen has taken steps to trim the smartphone line's costs. During an interview at CES, Chen announced perhaps its best plan to streamline operations.

The Priv will have a follow-up unit, and it will also use Android's OS
In an interview at the Consumer Electronics Show is Las Vegas, Chen confirmed BlackBerry will only be using Android's operating system instead of its BlackBerry 10 system this year and plans to release at least one new unit. Late last year the company released its first Android-powered device, the Priv, and the response has been favorable. According to analysts, the company sold 700,000 total units last quarter -- probably around 200,000 or so of the Priv in particular -- which is mildly encouraging considering the company's current market position and the unit was only available through AT&T during this period.

The benefit for BlackBerry is two-fold: Not only does Android have a deeper ecosystem chock-full of apps, music, and video content, but plugging into Android's system allows BlackBerry to spend less time and assets developing, updating, and improving its home-grown BlackBerry 10 operating system. As a result thereof, BlackBerry can now shift those assets to Chen's newest emphasis of security-focused software and services. It really makes sense and meshes with Chen's vision.

Bye, Bye BlackBerry 10 OS?
While Chen was decidedly less forthcoming with his plans for BlackBerry 10, it's safe to say the worldwide smartphone operating system market is a duopoly. Worldwide, Android and Apple command nearly the entire market, with most analysts pegging their combined market share at more than 95%. The only other smartphone operating system provider with more than negligible market share, Microsoft, has not been able to parlay its newfound success in tablets to smartphones.

If BlackBerry is throwing in the towel to use Android, it could be an omen for Microsoft's ambitions. For BlackBerry, however, turning to Android was a smart move. The Priv will roll out to all major U.S carriers this year, which should boost acceptance. Between its new software focus and a revamped hardware policy, it seems BlackBerry is executing on Chen's turnaround plan. 

 

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jamal Carnette owns shares of Apple, AT&T, and BlackBerry. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. 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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