Skip to main content

The big question remains: What is BlackBerry evolving into?

John Chen wouldn't admit it, but the BlackBerry Ltd. CEO probably wishes the company's diehard smartphone users would hang on to their aging devices as long as possible. Many seem to be doing just that: Sales of new BlackBerry smartphones have been well below his initial modest target of 10 million a year despite the launch of several decent new products on his watch.

But as long as the diehards hold on to their aging Bolds and Curves, there is still a bounty of cash to harvest – and to spend on the company's future, like its $425-million (U.S.) purchase of rival mobile device management firm Good Technology announced on Friday. Thanks to deals that former co-CEO Jim Balsillie and his team negotiated with eager carriers when BlackBerry was the world's "it" smartphone, users of older devices generate monthly service access fees for the company.

Mr. Chen's short-lived predecessor Thorsten Heins stopped charging those on BlackBerry 10 phones released from 2013 on – a move Mr. Chen has questioned – but the legacy revenues continue to roll in. At one point these high-margin service fees – which translate into almost pure profit – topped out at more than $1-billion per quarter. Now they are falling steadily by about 15 per cent quarter over quarter. The gravy train is running out of gravy.

Story continues below advertisement

That's one way of looking at it. Another is that if Mr. Chen can tightly control costs in other parts of the business, as he has to date, and keep the device business breaking even, those service access fees will continue to shower the treasury with cash: service fees should amount to $800-million this fiscal year, $420-million next year and $200-million-plus the year after that, based on current trends. This may be a dying business, but it's a lucrative one.

Mr. Chen is in an interesting predicament. When you add up those service fees and BlackBerry device sales, they account for about 80 per cent of the company's $3.3-billion in revenue last year. Both revenue streams have been heading downward and are likely to fall faster than Mr. Chen can replace them with new revenue from selling software and services to enterprise customers. The company is destined to become smaller before it can turn things around.

In the meantime, however, Mr. Chen has a trove of assets at his disposal: $2-billion in net cash as of May 30 and thousands of patents (which the company has already started to squeeze to generate licensing revenue from others). If he can keep the business cash-flow positive and profitable and keep building his war chest from the service fee runoff, he'll be able to boost his business by buying others.

That's what he's doing with Good, which had more than $200-million in revenue in 2014. You could hear the glee in Mr. Chen's voice on a conference call Friday as he anticipated the cash he could generate by cleaving down costs in the acquired company in pursuit of synergies, while fortifying his top line.

It's a sensible deal in many ways for a company that hopes to make its future helping corporate and government customers manage their fleets of smartphones and selling them services to run through them. BlackBerry picks up a better-quality software for managing iPhones than its current offering. It also strengthens its position in industries where Good had a stronger presence, such as defence.

But the bigger question remains what BlackBerry is evolving into: the "enterprise mobile management" space remains highly competitive and BlackBerry counts heavyweights IBM, Google, Citrix and VMWare as rivals, where it didn't just a few years ago. It's also a sliver of an industry compared with the giant smartphone business where BlackBerry barely registers any more: market research firm IDC has estimated the entire mobile enterprise software and services market – where BlackBerry will be playing for the foreseeable future – is expected to grow from $5.3-billion in revenue in 2013 all the way to $10.4-billion by 2017, or less than half of what BlackBerry generated four years ago. That's a tiny pie to share between some very hungry and enormous competitors. BlackBerry may yet prevail in some fashion, but as a leader of a niche business in the shadows of much bigger sectors of the smartphone industry.

Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter