With More Breathing Room, BlackBerry Could Still Turn Around

Former Sybase CEO John Chen will now steer BlackBerry; photo via Flickr / JD Lasica

Monday was the deadline for bids for BlackBerry, but rather than announce a full takeover as investors had hoped, the struggling smartphone vendor said it was going it alone and buying more time instead.

Fairfax Financial, the Canadian insurance firm that was the first and only suitor to publicly throw in a bid for BlackBerry, reportedly struggled to raise money to finance its bid, and has now done the next best thing: help lend it another $1 billion to keep it going. The loan comes in the form of convertible notes that could turn into equity with the prospect of a recovery.

Fairfax, already BlackBerry's biggest shareholder with a 10% stake, covered $250 million, or 25% of the total loan, (other investors were not named) and the transaction is expected to be completed in two weeks.

Barbara Steymiest, who chairs BlackBerry's board, said Monday's announcement represented a 'significant vote of confidence in BlackBerry and its future.' Shareholders clearly disagreed, sending BlackBerry's shares plummeting on Monday by 17% to $6.46.

But the new investment does value BlackBerry at approximately $6.25 billion, which is higher than many observers had predicted as a sale or breakup value. It's higher, also, than the $4.7 billion that BlackBerry was valued at with Fairfax's preliminary bid to take it private on Sept. 23.

The upside to the failed bid is that as BlackBerry cuts operating expenses and eats into its cash pile, the $1 billion loan gives it some much-needed breathing room. 'If BlackBerry can turn around, the acquisition of 15% of the stock will bring it a good return,' said Jack Gold of Massachusetts-based research firm Jack Gold Associates. He added that if the company were acquired, the investment group 'has essentially valued it at a price where it can also get a good return.'

BlackBerry investors have been hoping for a turnaround for the last year, but the other big news today - a reshuffling of BlackBerry's C-suite - keeps that possibility alive for a while longer. After six years in the driver's seat, BlackBerry CEO Thorsten Heins is being replaced n the interim by John Chen, former CEO of enterprise mobility firm Sybase.

Chen, 58, will become chairman of the BlackBerry's board of directors, and acting CEO until the board can find a permanent head. Gold points out that Chen is well-regarded in the tech industry, having led Sybase through a period of substantial growth before selling the company to SAP in May 2010 for $5.8 billion. His experience in enterprise software clearly suggests the board wants BlackBerry to move away from selling phones, to selling software to companies instead.

'It's going to take time, discipline and tough decisions to reclaim our success,' Chen said in an official statement.

Chen, who also sits on the boards of Well Fargo & Company and The Walt Disney Company, is a native of Hong Kong and started his career as a design engineer before holding executive decisions at Siemens and Pyramid Technology Corp., and joining Sybase. He's played an active role in international relations, testifying before Congress on U.S.-China relations and has been called one of the most knowledgeable American business leaders on the inner workings of China. Last year he was appointed senior advisor to Silicon Valley venture capital giant Silverlake Partners, giving him access to other high-level investors in the tech industry.

New leadership at BlackBerry could be just what the company needs, said Stephen Beck, a partner at management consultancy cg42. Beck points to other technology giants like Apple and IBM who once lost their way but came back stronger after a management reshuffle. 'Their server business continues to be a key asset,' he said of BlackBerry, as is its position on security in the mobile industry. 'Tech cycles turn quickly and businesses can be fundamentally changed in a slow period of time.'

The trouble is BlackBerry's servers and enterprise management platform currently generates very little revenue for the company, and till now server upgrades by corporate customers have come hand-in-hand with sales of its latest devices; its latest BlackBerry 10 did not perform well. And while its new cross-platform BBM messenger services has seen more than 20 million downloads in the last few weeks, its still significantly behind other messaging services like WhatsApp, WeChat and LINE.

'The company needs a new strategy more than ever,' said Jan Dawson, chief telecoms analyst at Ovum.

For now, BlackBerry can also rely on brand recognition among consumers. Out of the 16% of Americans who plan to buy a mobile device in the next year, more than 60% will go for either either Apple's iPhone or devices on Google's Android platform, according to a survey conducted by cg42. But Microsoft's Windows devices and BlackBerry are still neck and neck, with 3% and 2% of those remaining respectively. That's a long way to climb, but it does suggest there's still room for a number big three platform player.

'The question is can BlackBerry refocus its energies and assets around a place it can win, as opposed to playing catch-up and 'me too,'' adds Beck, 'which is what it's been doing for the last five or six years.'

Also on Forbes:BlackBerry 10 Launch



via Odienk News copy copy http://#