BlackBerry to Focus on Enterprise Business, Drop Consumer Business in North America

In its new alliance with Foxconn, which replaced Jabil Circuit as a BlackBerry supplier, the company will be “happy with a breakeven, low-margin device business” to help sell software and services by “providing an end-to-end solution,” said Chen, who joined BlackBerry in November, replacing Thorsten Heins. Foxconn will manufacture handsets for North America in Mexico and take responsibility for any “excess and obsolete” inventory going forward, the risk of which will be built into BlackBerry’s product cost, Chief Financial Officer James Yersh said. BlackBerry took a $1.6 billion inventory-related charge against earnings in fiscal Q3 ended Nov. 30, Yersh said.

BlackBerry’s focus on the enterprise market in North America doesn’t “imply that over a long term we're not going to get back into the consumer space, but in the foreseeable future until we get our financials back on solid footing that is what we are going to do,” Chen said. BlackBerry fielded the Z10 and Q10 smartphones for much of this year, adding the Z30 this fall, an LTE-based model with a five-inch OLED display with 1,280 x 720 resolution and 16 GB storage.

The first of the jointly developed products -- Foxconn providing the hardware, while BlackBerry supplies software -- will be a BlackBerry 10-based device that ships by April, targeting the Indonesian market, with six-seven other regions to follow, Chen said. The initial products will be made at Foxconn’s factory in Indonesia. Foxconn will manufacture only BlackBerry 10 handsets, selling the product into emerging markets and leaving BlackBerry to focus on some high-end models for North America and other Western regions, Chen said. About 80 percent of BlackBerry customers are enterprise users, with the remainder consumers, Chen said.

The pact with Foxconn “takes away the biggest choke hold on the company during the past two to three years and now we're ready to fight back,” Chen said. “We want to make sure we don’t lose money from the device business and I am going to examine that as soon as we start to stabilize. This will be an ongoing conversation. We have to focus on building high-end handsets and we are going to work the joint development agreement more than anything."

BlackBerry will rely on Foxconn for “most of the other” hardware designs for new products and this will “truly be a collaborative relationship,” Chen said. Foxconn will “manage the cost of our devices” and provide “the ability to design newer and faster hardware turnaround designs.” It will position BlackBerry “well in the developing markets,” Chen said. Foxconn also manufactures Apple iPhones.

BlackBerry has restarted discussions with Verizon, AT&T, Vodafone and a “number of other key carriers around the world” all of which are “very interested in our enterprise offering, Chen said. “We have established various engagement and re-engagement models,” he said. On the retail side, “I am still working on it and this something that will take a little bit of time to do,” Chen said. AT&T, Sprint, Verizon and others sell BlackBerry devices through their retail stores.

To help broaden its market, BlackBerry is “working hard” on making its software compatible with Android and iOS operating systems, Chen said. But it will take “one to two quarters to formulate that strategy in my head with the team’s advice and support,” Chen said. “We also need to tap various people in the ecosystem to make sure that we're not just smoking our own stuff here,” he said. “Collaboration is very important.” BlackBerry recently released version 10.2.1.1259 of its BlackBerry 10 software, including an option for adding applications from sources outside BlackBerry World. Its BlackBerry Messenger (BBM) app added 40 million Android/iOS registered users in the past 60 days, the company said. It ended Q3 with 80 million monthly active BBM users, 60 percent of whom use it daily, BlackBerry said.

With $3 billion cash on its balance sheet, BlackBerry’s cash position “will definitely allow us to engineer a turnaround,” Chen said. BlackBerry potentially will turn cash flow positive by March 2015, Chen said. Fairfax Financial Holdings and its partners invested $1 billion in BlackBerry in November.

BlackBerry, saddled with a $2.7 billion asset impairment charge tied to licensing agreements, had a $4.4 billion fiscal Q3 net loss vs. a $9 million profit a year earlier, the company said. Excluding special charges, BlackBerry’s Q3 loss was $354 million, as revenue tumbled 56 percent from a year ago to $1.1 billion. About 40 percent of BlackBerry’s Q3 sales came from mobile devices, the company said. BlackBerry’s U.S. revenue fell to $340 million from $647 million a year ago, while that from Europe, Middle East and Africa plunged to $549 million from $1.1 billion. BlackBerry had revenue on 1.9 million units in Q3, down from 3.7 million the previous quarter, most of them being BlackBerry 7-based devices, the company said. About 4.3 million units sold through to customers in Q3, including 3.2 million BlackBerry 7 and 1.1 million BlackBerry 10 devices, the company said.