BlackBerry Ltd. (BB)’s new chief executive officer is starting to win over Wall Street skeptics.
Bets against the smartphone maker have fallen to their lowest level in almost a year, according to research firm Markit. The shares are at a four-month high, and now the Canadian company is adding cash by selling off most of its real estate in its home country.
Almost three months into his tenure, John Chen is replenishing his executive ranks, refocusing on business users and promising more of the keyboard-based devices that first endeared BlackBerry to customers. While the company generates a mere fraction of the sales it recorded during its heyday, Chen’s strategy is beginning to yield results at a business that wrote off billions of dollars in unsold inventory last year.
“It’s like walking into a factory and the machinery is not humming, but you know there’s a lot of value there if you can put it together and get it to work again,” Don Yacktman, founder of Yacktman Asset Management, said in an interview. His Austin, Texas-based firm held 5.9 million BlackBerry shares as of Sept. 30, valued at about $59 million at yesterday’s close. “The stock was just dirt-cheap when you look at the assets.”
BlackBerry is trading at 0.66 times its annual sales, compared with an average of 2.15 for stocks on the S&P 500 Technology Hardware & Equipment index.
Adam Emery, a spokesman for BlackBerry, declined to comment, citing company policy not to discuss stock movements.
BlackBerry jumped 8.6 percent to $10.78 at the close in New York after the company announced its real-estate plans last night. The smartphone maker said it will sell 3 million square feet (280,000 square meters) of space, leasing back what it needs.
The property may raise as much as C$550 million ($501 million), based on sales prices for previous BlackBerry buildings and the leaseback agreements on some buildings, said Ted Davis, a property broker with Avison Young Inc. who specializes in southwestern Ontario.
Loyalty from some clients has helped buoy BlackBerry shares. A stock gain of 9.4 percent yesterday was fueled by a U.S. Defense Department decision to support the company’s smartphones as the primary device on a new network, with only limited backing for Apple and Android products.
The shares are still down 40 percent from a year ago, a sign that Chen, 58, has more converts to win over. Analysts remain bearish on the stock, with only 3 out of 43 recommending buying it, according to data compiled by Bloomberg.
“Chen’s downsizing and enterprise-software-focused strategy is pragmatic, but we’re still cautious on his ability to successfully turn around the business,” Ittai Kidron, an analyst at Oppenheimer & Co., wrote in a note earlier this month.
The reception on Wall Street for Chen, who led a previous turnaround at Sybase Inc., has been warmer so far than that of his predecessor Thorsten Heins, who presided over a 63 percent decline in BlackBerry shares in the first nine months after he became CEO in January 2012. The stock eventually recovered, rising as high as $17.90 a year ago today, on short-lived optimism that a new line of devices would help the company win back customers.
The new CEO has set expectations lower, choosing not to concentrate on the consumer market so he can reinforce BlackBerry’s position as a provider of technology to businesses. Chen told Bloomberg News this month that Waterloo, Ontario-based BlackBerry will “predominantly” produce smartphone models with physical keyboards that appeal to business users who need to bang out frequent e-mails.
The shift away from touch screens, back to the style of phones that made BlackBerry famous, reflects Chen’s campaign to reassure business customers, many of whom had been loyal to BlackBerry until they began wavering in recent years.
Chen struck a deal in December with Foxconn Technology Group to outsource design and production of BlackBerry’s phones, giving him more time to wring value out of its software and services business.
BlackBerry is drawing on the experience of Chen and some of his former deputies at Sybase, which was trading near a record low when he took over as CEO in 1998 and was sold in 2010 to SAP AG for $5.8 billion. Chen has hired onetime colleagues at both companies for some of the top sales, corporate strategy, marketing and enterprise services jobs.
Chen’s moves are shooing away short-sellers, who borrow a stock that they expect to fall and collect profits by repaying the shares at a lower price. BlackBerry’s short interest tumbled to 29 million shares on Jan. 20, the lowest since March 1, 2013, according to data compiled by Bloomberg and Markit.
Short interest in BlackBerry soared in March 2013, peaking at 63.5 million shares on March 15. It is now less than half that level. That has pushed the stock’s short-interest ratio -- a measure of how many trading days it would take for short sellers to cover their positions -- down from a high of 3.32 to 1. A rising number indicates bearishness on a stock.
Still, it remains more than 10 times the 0.07 ratio of Apple Inc., and higher than Google’s 0.83. Apple’s iPhone and Google’s Android platform have steadily won market share from BlackBerry over the past six years. BlackBerry’s share rally is probably also causing short sellers to cover their positions, contributing to its declining short interest, Yacktman said.
It may be too early in Chen’s tenure to judge him completely, Yacktman said. He said Chen’s appointment reminds him of when Hewlett-Packard Co. replaced CEO Leo Apotheker with Meg Whitman in 2011. After becoming Hewlett-Packard’s fourth CEO in two-and-a-half years, Whitman took an $8.8 billion writedown and told investors she’d need five years to reshape the company.
“When they replaced Leo Apotheker, it was like a breath of fresh air,” Yacktman said. “You didn’t know how well Meg Whitman would do but you knew it was an upgrade. I think there’s some of that.”
Stepping in after BlackBerry scrapped an attempt to sell itself, Chen has described his new employer as “in the game for the long term.” Whether he ultimately finds a buyer, as he did at Sybase, or puts the company in position to remain independent, he’s shifting the perception of the smartphone maker.
“BlackBerry is no longer a device company. It is an enterprise software company,” said Citron Research, a stock commentary site that often sells stocks short, in a report last week saying it was long on BlackBerry shares. “Note to Wall Street: Change your mindset, and get a new expert analyst on the job before you miss a real opportunity.”
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