BlackBerry Prepared to Move Past Smartphones, CEO Chen Says

BlackBerry Ltd. may be forced to stop making smartphones if turnaround efforts fail to gain traction, Chief Executive Officer John Chen said in an interview.

The company could still reduce the number of models, discontinue low-end devices and focus more on professionals and government workers to bring the smartphone business back to profitability, Chen said.

“That’s the most ideal case,” Chen said. “At a certain point in time, the economics take over,”

BlackBerry’s smartphone revenue fell 31 percent to $263 million in the most recent quarter from a year earlier. If the current state continues for a “long time” and drags down the company’s shareholders and balance sheet, it wouldn’t be right to keep going, Chen said.

Since taking over a year and a half ago, Chen has outsourced manufacturing to several Taiwanese firms to cut costs and also allowed the Waterloo, Ontario-based company’s software to work on devices made by other manufacturers.

He’s still got a long way to go before the software business becomes dominant. Smartphones accounted for nearly half of the revenue for the company’s fiscal year that ended in February. BlackBerry cited an average analyst estimate in its annual general meeting presentation in June that showed the device business’s proportion of revenue growing this year, even as Chen works to double software sales to $500 million.

Chen joined the company just as its share of the smartphone market sunk to less than 1 percent. He began building and acquiring software that helps companies communicate and work securely without worrying about hackers, regardless of what kind of mobile device they’re using.

Even with the new focus on software, BlackBerry has introduced several new phones under Chen, including the square-screened passport and keyboard-equipped Classic.

Lower-cost phones like the Leap, unveiled in March, aren’t likely to be part of a profitable BlackBerry device business, Chen said.

“It’ll be a high-end phone that you can walk into AT&T and get it, as a professional,” he said. It’s hard to compete with Chinese and Indian manufacturers for the lower end of the market. “The low-end phone is not BlackBerry’s sweet spot,” he said.

A key reason that BlackBerry’s stuck with devices is that many of its core government customers don’t let their employees use personal devices for work. The development of other super-secure devices, like Boeing Co.’s self-destructing smartphone, could fill that gap if BlackBerry were to exit the market, Chen said.

One of the challenges of shifting focus to software from devices is pressure from within the company to keep developing new smartphones, Chen said.

“That has a lot to do with the DNA of the company,” he said. “A lot of good employees grew up building devices.”

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