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Blackberry CEO John Chen Tells Fox Business “I Don’t Have Any Plans to Jettison the Handset Business”

April 10, 2014 | About:
Holly LaFon

FoxBusiness

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BlackBerry (BBRY) CEO John Chen spoke with FOX Business Network’s (FBN) Maria Bartiromo during Opening Bell with Maria Bartiromo about BlackBerry’s handset business. Chen said, “I actually do plan on making money in the handset business and I don’t have any plans to jettison the handset business.” When asked about how long he expects the handset business to turn profit Chen said, it “is going to take about 6-8 quarters and somewhere before that 6-8 quarters is going to have to happen” otherwise “we need to do something different.” Chen went on to discuss Blackberry’s patent business saying they’ve had outside interest to sell their patents, “but that’s not what we are going to do. I am not in the process of selling off patents, I am actually creating more patents as I go along.” Chen went on to talk about the potential growth rate in the patent business saying, “we haven’t even started a patent business, but it is something that I am looking at intensely. I think there’s an opportunity there for the company and for our shareholders.” Chen also commented when the company plans to stop making cuts, saying, “We are almost done [cutting]. I am sorry that we had to go through that phase” and that “I think it’s more like 90 than 50 [percent done] … we’re almost there” and “we are working on shoring those up and investing money back into the customer facing side of the equation.”

Excerpts from the interview are below.

On whether he is going to sell the handset business if he doesn’t make money on it:

“I’m glad you mention it in the sense that if I don’t make money. I actually do plan on making money in the handset business and I don’t have any plans to jettison the handset business. We love the handset business and it’s really an identity for us. So I put out a kind of milestone for us to make money in less than two years and I still hold to that milestone, so I’m good with that. And handset being such a big part of our business, that implied that we need to make money by then.”

On how long he expects the handset business to turn a profit:

“I’ve been very open about the turnaround is going to take about 6-8 quarters and somewhere before that 6-8 quarters is going to have to happen…If we could not make our handset business profitable, and that could not actually make the company profitable in eight quarters, than that we need to do something different.”

On whether they are looking to sell off their patents:

“From time to time, but that’s not what we are going to do. I am not in the process of selling off patents, I am actually creating more patents as I go along. But I would love to share those patents…and people can license from us.”

On potential growth rate in the patent business:

“In the patent business, we haven’t even started a patent business, but it is something that I am looking at intensely. I think there’s an opportunity there for the company and for our shareholders. As far as the BBM business, we are growing quite well. We now have 115 million registered subscribers and we’ve announced that we are putting on a Windows platform, and so we should expect a pretty good uptick. I don’t know what the real growth rate is going to be, but the more important thing is how we monetize it. The monthly active use is roughly 85 million right now I am hoping by the end of the year we at least get close to 100 million if not more. But the registered users is going to be a lot higher.”

On whether he’s done cutting:

“We are almost done [cutting]. I am sorry that we had to go through that phase. It’s necessary but it’s a prudent thing we had to do. I never see how a company can turn around by keep cutting. You need to invest, you need to turn around and you need to focus on growth.”

On how much more cutting he’s planning to do:

“I think it’s more like 90 than 50 [percent done] … we’re almost there. It affected a lot of our loyal employees, which it’s a really bad thing. It affected some of our customer interactions, which is a terrible thing. So we are working on shoring those up and investing money back into the customer facing side of the equation. We definitely have a different attitude right now and we are focusing on where we can grow the good assets we have. I think our cost space is about where it should be at this point.”

On whether there’s a potential buyer in the market for the handset business:

“I don’t think this is how I think about it. Our business is going to be very concentrated in software and end to end solutions. Handset is just a point of them. We have the handset business, the server business, we have the messaging business in BBM, and the embedded business. And the whole thing actually tied to each other to provide something called machine to machine interactions. If the handset business for some reason I am unable to make profitable in hardware, but a lot of software in there that can be used as part of our system or I can license to other people…One thing about blackberry, we have 44,000 patents. I think there’s a lot of business to be had in just collaborating in the industry and licensing to others. I’d be more than open to license to anybody for that matter.”

On what areas of the business he’d like to monetize better:

“Our server business has been under monetized. We have 80,000 installation around the world but we aren’t making a lot of money there. Some of the serve in the past have literally been given away. I think we need to add a lot more value to it and then we need to start charging for that technology. BBM is one I think that is going to be a good as integrated into the enterprise world. I’d like to have a secure messaging system for every company using BBM. And its secure and highly reliable. And then the embedded space. We have this product called QNX which is embedded microkernals, right now we have dominant connected car market shares. But the connected car industry is just coming to age and you see us putting those into medical, financial industry, retail, machines industry, manufacturing and so far.”

Oh making money against his competitors:

“There are a number of them. I think there’s the cost part of the equation and then there’s distribution part of the equation and there's a product part of the equation. So the cost part of the equation, you can see that we have good partnership with different supply chains like Foxconn and other supply chain partners that work with us. In the distribution part of the equation, I'm now concentrating on distribution agreements, carriers agreements around the world, that actually align with our vision. So, want to focus on the technology and the customer base and enterprise, so this is the other part, which is I'm building product where the serious people wants to use it for fast decision making in a very secure manner. And there are a number of industry, a very, very broad-based IT spending on those. And, by the way, security is a big thing already today and it's going to be bigger and bigger going forward. You talked a little earlier with eBay and with John, and a mobile commerce is it going to be the norm, and it's already, I mean, arguably, it's the norm. Not only data security is important; identity security already is important and this is where we excel.”

On how he is going to make money in the handset business:

“There is no doubt that I have to turnaround the handset business and broaden the channel and reach in the market. There is no doubt that I have to enhance the handset in such a manner that people will want to buy it. And we’re working that as I said many different areas and one of the areas is you got to have products that people want, but an important thing is I don’t want to chase the consumer world as you pointed out. We have big competitors in the consumer world that has certain advantages especially in the application space. I want to focus on what we do well and security is a great thing we do well. Productively is a great thing - very dependable, there are a number of important people around the world government and financials and in your industry that use BlackBerry day in and day out.”

On growth in the security business:

“I don't have a number broken out, but, I believe that we could build a software business - not only space for security, but security is a big part of it, that could actually cover the handset decline you've seen in the past.”

On emerging markets:

“On the emerging world, those developing markets, we're still going to be very competitive in the consumer space. But in the developed world, where we used to be a big player, I like to focus very much on the high end.”

On market share being dominated by competitors in emerging markets:

“It depends on where. For example, in Indonesia, we are the market share leaders. And so depends on where. And this is why the next phone - the first phone that we collaborated with Foxconn is going to release in Jakarta first, Indonesia first, and it's go be to fun to see how it develops…we have plans for India and Vietnam and Thailand, but a lot of those, we're doing it with partners, whether distribution partners or partners like Foxconn.”

On eBay’s announcement to add Founding Partner of Centerview Capital Technology David Dorman to their board:

“I congratulate them. I think this is a great outcome that you've pointed out and Dave Dorman is a wonderful gentleman and a very high quality person, so I think that everybody wins in this whole situation. You know, I think -- I have some experience in the past dealing with activists and it's unfortunately distracting for CEOs, for boards that run the company, and I'm not here to challenge one way or the other. But, you know, I'm glad in this case the situation resolved itself positively and I hope I don't have to deal with it in the future.”

On the reception from customers:

“I am very encouraged by that. I think this one thing that we now have a plan, we are able to explain what happened to us and why we are going to be better, and now it’s a matter of execution. And every customer that I am able to see, for those who are willing to see me that is, they are very much in sync with our strategy and our vision and a lot of them have decided to wait for our products come out instead of just switching off. So I am seeing good signs there.”

On why the handset business is such a tough market:

“Handset is a very big volume driven industry. You have to have big volume. It gets to, even the automotive industry rule of there, more than three, nobody makes money. And it gets to a little of that situation right now. There’s also a lot of strong high value provider, even in the auto industry you know Porsche does really well and if people want to buy a Porsche you have to wait in line to get a Porsche. And they don’t have dominant market share as a percentage but they do have very strong value, and I do want to make sure Blackberry is viewed as a very strong value added brand. In the case of Google, I think it’s a matter of the fact that they have a lot of handset partners and I think they want to concentrate on what they do best.”

On whether being a Canadian company has hurt their business:

“I was not here…I haven’t seen any special impact one way or another. Obviously a good impact is as a Canadian company, the Canadians are very supportive and want us to win. Like you pointed out our customer base is very loyal, including the United Sates government also wanted us to win. I think being a Canadian company has not hurt us and in some cases has helped us in the country that is very friendly to Canada.”

**CREDIT FOX BUSINESS NETWORK**


Rating: 5.0/5 (1 vote)

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Comments

vgm
Vgm - 4 months ago

Informative interview. Thanks. I liked the analogy with Porsche - an up-market company that is not the market leader but highly profitable nevertheless, and with a loyal (fanatical?) customer base.

Here's the whole interview: http://www.foxbusiness.com/industries/2014/04/10/blackberry-chen-plan-to-make-money-on-handsets/

(I'm long BBRY, having initiated a position recently when the stock fell below $8)

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