Can John Chen, Fairfax Deal Make a Difference at BlackBerry?
BlackBerry backed away from a $4.7 billion sale to Fairfax Financial Holdings, its largest shareholder, announcing a new plan Nov. 4 that includes replacing CEO Thorsten Heins with John Chen, the former CEO of Sybase.
Chen told Reuters the same day that he intends to stay in the smartphone business, despite the company's dramatic losses in that area.
"I know we have enough ingredients to build a long-term sustainable business. I have done this before and seen the same movie before," Chen told Reuters.
He added that he expects turning around BlackBerry will take at least six quarters, and that he will make additional changes to BlackBerry's top leadership.
"I'm doing this for the long term," said Chen. "I am going to rebuild this company."
In its press statement, BlackBerry explained that it will be receiving a $1 billion investment from Fairfax and other, unnamed investors for a right to purchase 16 percent of the company, effectively valuing BlackBerry at $6.25 billion—a better deal than the original $4.7 billion offer. Still, industry analyst Jack Gold, a principal with J. Gold Associates, says the replacing of Heins with Chen is the more significant detail.
"He was chief executive at Sybase during the years it had a major impact (and substantial growth) in the mobile marketplace, and he subsequently sold the company to SAP," Gold wrote in a research note. "John Chen knows how to manage a mobile company, and perhaps more importantly, can make things happen in the industry."
Ovum Chief Telecoms Analyst Jan Dawson said the appointment of Chen suggests BlackBerry's investors see more of a future in software than devices.
This means "using BlackBerry servers as the core of a broader enterprise device management platform, but this generates very little revenue for the company today," Dawson wrote in a Nov. 4 research note. "Though it's achieved some traction with enterprises upgrading their BlackBerry servers, it has failed to sell many BlackBerry 10 devices, and this looks unlikely to change."
Dawson added that BlackBerry's new investors buy it some time, but it needs a new strategy and quickly.
"With BlackBerry remaining a public company, Chen and Fairfax Chairman and CEO Prem Watsa need to start communicating that new strategy very soon to inspire confidence in a turnaround," said Dawson.
BlackBerry has said Chen will serve as CEO "pending completion of a search" for a new CEO. Analyst Michael Finneran, president of dBrn Associates, calls the choice of Chen not a bad one.
"At Sybase he is credited with turning the company around and introducing its Afaria product, one of the pioneering mobile device management solutions. However no one is banking on his ability to pull off the same trick at BlackBerry, whose shares dropped almost 16 percent to $6.55 on this morning's news," Finneran wrote in a Nov. 4 post on NoJitter.
Finneran marveled that as recently as 2010 BlackBerry was the top-selling smartphone in North America and second-ranking worldwide, but added that there are "only so many punches that a dazed fighter can take."
Still, he wrote that he still sees the value in BlackBerry, and its 70 million plus users. But "unless management can get its act together, the bumblers from Waterloo might still be able to kill this thing."
Canaccord Genuity analyst Michael Walkley doesn't expect the new team to turn things around, but simply delay the inevitable.
"While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability," Walkley told investors Nov. 4, "we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now-longer public sale process under new management."