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Why BlackBerry Is Sweeter Than Apple

March 27, 2014 | About:

With software bugs, system breakdowns and tardy upgrades, BlackBerry (BBRY) had been rotten to the core for five long years due to managerial arrogance, incompetence and plain laziness. Once the sweet juice turned sour, it had burned too many stomachs and broken too many souls on Wall Street. The lingering bad taste is so widespread that people failed to see a new BlackBerry, sprouting out from their solid security roots, led by strong and proven leadership, charging into new growth areas with moats and recurring revenue, poised for long-term growth, while still in the first-inning of a historic turnaround.

BlackBerry Transplanted from a Bad Business Garden to a Good One

BlackBerry’s five year slide has cast such a long shadow in people’s mind that most investors still see it as a handset manufacturer. That misconception has caused significant undervaluation for the hidden treasures in the company such as QNX, BBM and Enterprise Software. Most analysts are blindsided by the drop in hardware sales in their valuation model that they failed to see the future potential as BlackBerry CEO John Chen mobilize their troops to sell Sybase-type of mobile security, communication and productivity software to BlackBerry’s extensive client lists which includes major governments and corporations.

Wall Street is not patient enough to wait for BlackBerry to turn sweet again when John Chen’s Sybase experience meets BlackBerry’s corporate client list. And that’s why BlackBerry is a hidden treasure for value investors. It is transplanted from handset manufacturing, a bad business, to mobility enterprise software and services, a great business with locked-in users, high switching costs, and recurring revenue.

John Chen Gets an A+ for His First 100 Days

I have been watching BlackBerry for some time now after Prem Watsa (Trades, Portfolio), the Warren Buffett (Trades, Portfolio) of Canada, piled into the stock. My big concern was that BlackBerry was in a cut-throat hardware business facing winning giants like Apple (AAPL) and Google (GOOG). After Sybase Savior John Chen arrived at the battle field, I became interested in Mr. Chen's background at Mobility Database Software.

Following Peter Lynch’s advice, I bought a BlackBerry Z10 to do research myself. In the beginning, in the eyes of a Samsumg Galaxy user, Z10 had a laughable offering of apps and many buggy functions. Yes, BlackBerry has great features like multi-tasking, action hub and new message notices. But BBM has very limited functionalities. Popular messaging apps like WeChat, QQ and Skype do not work very well in BlackBerry.

A Flurry of Updates Made My BlackBerry Z10 Much More Valuable

However, after John Chen completely revamped BlackBerry’s management team, its software update cycle become much shorter. I saw the bugs got fixed one after another. And then with a BB10.2 upgrade, all Android apps could now be downloaded via Amazon Appstore or 1Mobile Market, which can be installed into BlackBerry by simply visiting their respective webpages. It used to be a pain in the neck to play a simple video file on my BlackBerry unless I buy a paid video app, which is always too expensive for a value investor. Now I can simply download the free VLC app via Amazon Appstore. BBM used to have very limited utility beyond text messaging. Now it has added voice and video, with phone call and payment functions to come.

During my four months firsthand research with BlackBerry Z10, I saw the culture of BlackBerry change in front of my own eyes. While Apple is sleeping at the switch, John Chen plunged into 100 days of whirlwind of urgent actions, which substantially increased the value of BlackBerry shares and my BlackBerry Z10 handset.

Besides, BlackBerry Z10 comes unlocked through Verizon Wireless. So I bravely cut my China Mobile sim card and slip in. Wow, it works! As to added disk space, I can easily open my BlackBerry and insert a memory card. So additional memory cost a lot less than what’s available from iPhone.

So essentially, within a few months and a few software updates, John Chen and his team quickly make BlackBerry a better and more powerful phone than competitors like iPhone and Samsung. I say this because I have tried a Windows Phone Nokia Lumina and my household has iPhone 5c and Samsung Galaxy S4.

Why Is BlackBerry Sweeter Than iPhone?

Here are my reasons. Please note that I could be biased because I just sold my Apple shares to buy more BlackBerry. So do your own research before investing.

  • BlackBerry has powerful multi-tasking, much more useful when you have to do work to make a living.
  • BlackBerry’s Priority Hub, notifications and new message push make users much more productive.
  • BlackBerry is much more secure. I can simply disable mine via web if my phone was lost.
  • Additional memory comes a lot cheaper.
  • The device can be unlocked making it very useful for international travelers.
  • With access to all Android Apps, there is practically nothing an iPhone can do that my BlackBerry can’t.

The new BlackBerry management is quickly making all the right moves. Chen flew around in economy class to visit the big customers, including the White House. When T-mobile betrayed BlackBerry fans, Chen stood up to fight for his customers. For the last several months, I see him fighting for BlackBerry users and shareholders with a sense of urgency.

What about the people Chen hired? They seem to be hustlers on the move. Take John Sims, head of BlackBerry’s Enterprise and BBM segment. He is looking at adding phone call functions to BBM and turning BBM into a mobile payments platform – something Sims had experience with at SAP, where he helped launch a mobile banking ­system in Bangladesh. “I don’t think the cadence [of BlackBerry software releases] is going to slow down. If anything you’re going to see a flurry of activity. We’re all used to working hard. We like working hard. No pain, no gain.” (He reportedly mentioned that BBM on desktop is not priority. But I think it should be. With BBM on desktop enabling desktop-to-handset communication, BlackBerry would be one step ahead of competitors like WeChat and Whatsapp.)

In conclusion, I personally think BlackBerry is a lot sweeter than Apple now because BlackBerry’s speed of innovation dramatically increased while Apple’s tech improvements slowed down a lot.

Disclosure: The authors and his investment advisory clients are long BlackBerry (BBRY).

About the author:

Brian Zen
Brian Zen, CFA, PhD, author of "Superinvestor Lecture Notes", serves as Chief Investment Strategist at Zenway Group, a New York-based registered investment advisory firm providing asset management services, training Certified Securities Appraisers (CSA), and teaching Graham-Buffett Value Investing. Previously, Brian served as vice president at JPMorgan Chase and portfolio manager at Prudential-Bache Securities and Janney Montgomery Scott, while teaching graduate-level investment analysis at St. John's University. Brian was a Bernard Baruch Fellow and graduated summa cum laude from Bernard M. Baruch College. He is also a graduate of Columbia University's executive program in value investing. Brian appreciates your feedback at: bzen@zenway.com

Visit Brian Zen's Website


Rating: 3.6/5 (9 votes)

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Comments

glavacem
Glavacem - 8 months ago
Great article.
BrianZen
BrianZen premium member - 8 months ago

Thanks, Galavacem! People expecting an instant turnaround are selling now. But there are flaws in their arguments:

1. BlackBerry already solved the lack of apps problem. Users can visit 1Mobile Market webpage, download it, and access ALL the android apps.

2. Microsoft has no expertise securing handsets and mobile messages. They don't even have a security-certified solution.

3. The handset ecosystem that is lack apps out there now is Windows Handsets because BlackBerry now runs Android.
The huge misconception about BlackBerry is creating a bargain now. The entry of Microsoft into mobile security just confirmed John Chen's vision. It's huge market.

kfh227
Kfh227 premium member - 8 months ago

Just read that Microsoft is bringing another ... MDM solution to market soon.

Microsoft doing what Microsoft does best. Take soemone elses product, clone it, include it in some "suite" that is sold in bundle form to large corporations. Thus killing the little guy.

I hate to say it, but MSFT is about to eat what little cake is left in BBRY's fridge.

Still holding my shares. But have little hope for the long term.

kfh227
Kfh227 premium member - 8 months ago

And oh ... Chen ius an AWESOME CEO. He doesn't dance around issues. He knows what shareholders concerns are and brings them up at CCs. He doesn't wait for questions that are obviously coming just to have some horrible answer.

BrianZen
BrianZen premium member - 8 months ago

Keep the faith and hold on, Kfh227! And thanks for your insights.

Traders expecting another price jump after John Chen's 2nd earnings release got disappointed. They are seeking a quick exit. And all the weak hands got shaked out.

But the Wall Street analysts missed a huge point. BlackBerry's revenue will be depressed for a few quarters. Why? Big corporations stopped buying as they wait for John Chen's new offerings of software suits. Old subsciption fees stopped causing the revenue drop. But it will end soon.

Wait until India and Indonesia sales figures kick in, wait until BES 12 kicks in, I am quite sure the revenue growth will come, maybe as soon as next quarter.

vgm
Vgm - 8 months ago

Thanks for a stimulating article. I'm fascinated by Chen and have started researching BBRY as a possible investment. Friday's decline was welcome. As ever, Wall St is missing the bigger picture as you point out. Chen has a good grasp of the main problems/priorities, and his plan is grounded and plausible and realistic. He has begun to execute well already, with achievements under his belt even after a couple of months. And there's an urgency and clarity about him that's encouraging. The jockey has become all-important.

I found this Globe and Mail article to be quite educational http://www.theglobeandmail.com/report-on-business/rob-magazine/john-chens-simple-plan-to-save-blackberry/article17065516/?page=1

vgm
Vgm - 8 months ago
Looks like Francis Chou (Trades, Portfolio) has bought more BB. Do we know how much he owns?

BrianZen
BrianZen premium member - 5 months ago

Big Blue IBM just copied a page from BlackBerry John Chen's playbook: Enter cellphone security, device management and big-data analytics. This proves that John Chen's vision is right for the future of the industry.

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