BlackBerry rolls the dice with new strategy
BlackBerry's (BBRY) decline has been a case study in mismanagement, faltering innovation and killer competition from the likes of Apple (AAPL), Google (GOOG) and Samsung. For most consumers, the brand these days is an afterthought, with even the commercially lackluster Windows phone beating BlackBerry in North American web traffic.
But CEO John Chen, who took over the troubled company in November, has a high-stakes plan to return the company to profitability, according to the Wall Street Journal.
The last six months haven't been particularly kind to the stock. Shares had dipped to a low of $5.44 in November, around the time Chen started, approached $11 in January, but fell back $7.22 when the market opened on Tuesday.
Revenue for the last quarter of the company's 2014 fiscal year, which ended March 1, dropped below $1 billion for the first time in years. According to a recent report from RBC Capital Markets, it will take the company until March 2015 to break even on cash flow, and profits aren't in the cards before 2016.
One step BlackBerry has taken is to outsource manufacturing, once an unthinkable step for the Canadian firm. The company's products are now assembled by contract manufacturer Foxconn, which also makes gear for Apple and many other major hardware companies. Chen expects that to reduce costs while also ensuring quality. "BlackBerry phones are always well put together," he told the Journal.
Chen may be underestimating the difficulties of manufacturing its products overseas. Apple has had some stunning quality failures, including the iPhone 5 coming scuffed out of the box a couple of years ago. And clearly Blackberry has less of a margin of error than Apple's beloved brand.
Another problem for Blackberry concerns pricing. Chen is overseeing the company's new Z3 phone, which at retail price of $191 represents a low-cost entry in the generally upscale smartphone market. The company hopes to tap into into emerging economies around the world where price-sensitive consumers might flock to an affordable device. And there are signs that at least some consumers are convinced, with BlackBerry saying on its blog that initial inventory of the Z3 is sold out.
At the same time, Chen maintains he wants the company to be a "global player" and not focus on a niche market. That's easier said than done. Developed markets have shown themselves largely indifferent to prices, particularly when, as in the U.S., carriers subsidize the initial cost of the phone and regain the outlay through higher monthly service charges. As a result, consumers often aren't aware of how much they're really paying for high-end phones, which can make it hard to compete on price.
Chen also touts the BlackBerry's deserved reputation as as unusually secure device. But given that many buyers don't seem to prioritize security, that may not sell many phones, either.