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Hard Questions Remain on BlackBerry’s Turnaround

Hard Questions Remain on BlackBerry’s Turnaround

DAN GALLAGHER

June 19, 2014 2:54 p.m. ET

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BlackBerry BB.T +9.33% may no longer be doomed, but what it will look like in a year remains up in the air.

BlackBerry wants to shed its dependence on selling smartphones in favor of software and services mainly for enterprises to manage their fleets of mobile devices. Thursday’s quarterly results offered several encouraging signs for this effort. Adjusting for one-time items, BlackBerry’s loss of 11 cents a share was less than half what analysts expected. And service revenue came in 9% above Wall Street’s estimates. The stock duly jumped on Thursday.

But that owed at least something to the high proportion of BlackBerry’s shares sold short. And one quarter does not a turnaround make. BlackBerry says it is at the “tail end” of restructuring efforts that have effectively been under way for more than two years. It must now demonstrate that it can be a profitable services company.

Yet hardware will remain part of the picture, which should give even investors pause. On Thursday’s conference call, Chief Executive John Chen said BlackBerry plans to hold an event in September to showcase devices planned for the current fiscal year. These will include the Passport and the Classic, both of which are expected to feature the physical keypad that is popular with BlackBerry loyalists.

BlackBerry struck a deal with Foxconn 2354.TW +0.29% Technology late last year, making the Chinese manufacturer a partner in its handset business. But Mr. Chen noted Thursday that the deal doesn’t shield BlackBerry from the need to invest in device launches: “So it will still cost us money, and we have to spend it judiciously.”

As for the software-and-services end of the business, the full picture has yet to emerge. The firm launched the EZ Pass program in March to switch over business customers to its BlackBerry Enterprise Service 10 offering for free, including new customers coming from rivals. BlackBerry said Thursday more than 2,600 customers have registered under the program. But they won’t begin paying support fees until January 2016, so it will take time to gauge whether the effort has paid off.

BlackBerry trades at only about 1.3 times forward sales. That might look cheap given the potential for the turnaround to gain traction. Given the competitive pressure that continues to squeeze BlackBerry, though, more evidence is needed before buying in.

 

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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