BlackBerry Seeing ‘Lots of Interest’ After Decision to Exit Handset Development, CEO Says
BlackBerry views its decision to exit handset development and manufacturing in favor of a royalty-bearing model that licenses its brand and intellectual property to other smartphone makers as “the best way to drive profitability in the device business,” CEO John Chen said on a Wednesday earnings call. The company no longer will develop its own consumer hardware and expects to be out of that activity completely during the fiscal year ending Feb. 28, Chen said.
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PT BB Merah Putih, a new Indonesian consortium led by PT Tiphone, Indonesia’s largest wireless carrier, will source, distribute and promote BlackBerry-branded devices that use BlackBerry’s secure Android software and applications, Chen said. The agreement with PT BB Merah Putih, in which BlackBerry will hold no financial stake, is the first major deal “under our new strategic direction” to license BlackBerry to other smartphone makers, he said.
The company instead “will focus on providing state-of-the-art security and device software,” Chen said. It also will “discontinue internal hardware development and fully outsource this function” to third parties for per-unit royalties the company won’t disclose, he said. Under the Indonesian deal, BlackBerry retains the "option" to take any handsets that PT BB Merah Putih develops and distribute them to other markets throughout the world, though it has no plans to do so, Chen said.
This approach has “important benefits for BlackBerry,” Chen said. It frees BlackBerry to pour all its efforts into areas “where we can deliver differentiation,” including software and security, he said. The move “plays into our strength and it’s aligned with where the market is going.”
Chen thinks licensing the brand to third parties will expand BlackBerry’s global reach in ways that wouldn't have been possible had the company continued to go it alone, he said. It also will “greatly reduce our need for working capital” for inventory and manufacturing, he said. “Overall, we believe this is a very viable model, as we’re getting lots of interest around the globe for bringing BlackBerry-brand devices to market with the security and user experience we are known for.” Chen is “very encouraged with the proof points we are seeing with our new strategy,” he said. Having landed the Indonesian deal with PT BB Merah Putih, “we are pursuing similar device software licensing agreements” globally, and especially in China and India, he said. “The outlook here is promising, but those, of course, are not guaranteed.”
BlackBerry expects to generate “quite a bit” of savings with the new strategy, Chen said in Q&A. Though the company previously took “one or two products” and outsourced them to others, “we’ve been developing our own handset also,” he said. “With what I announced today, we will end that activity and rely completely on partners.” BlackBerry will work with brand licensees to “make sure that their hardware portfolio is up to spec and competitive,” he said. As for the potential cost savings, above and beyond the operational expenses BlackBerry no longer will need to pay, “we don’t have inventory we need to carry anymore,” he said. “So it’s a long list of savings -- people, equipment, and so forth.”
It always has been BlackBerry’s strategy to build its version of Android “up to the same level of security” as its proprietary “BB10" platform, Chen said. “We’re working very hard at it. We have a long, thick team of people working on it, and when we get to that point, the customer will be quite happy migrating.” On when that might happen, “when we get there, we’ll let you know,” Chen told an analyst questioner.