BLACKBERRY LTD (BBRY)
7,305 USD @ Nasdaq+0,07% | +0,00 30/12/2013 21:08
Lazaridis Cuts BlackBerry Stake - Company To Transition Back To The Black?
Last week there was big news of Michael Lazaridis, the co-founder of BlackBerry (
BBRY)
reducing his stake to under 5%. He also came out and said that he had no plans to make a joint bid for the company as a whole (yet he left himself room to make an offer for part of the company).
But, as of last Monday Lazaridis
sold 3.5M BlackBerry shares (there are roughly 525M shares of BlackBerry). This means
he sold just about 00.66% of BlackBerry's shares in the week - what is the big deal and why is it getting so much attention?
I believe that this transaction marks the turning point in BlackBerry. The previous executives are stepping out of the picture (since Lazaridis now owns less than 5% he no longer is required to report to the SEC if he sells stock), and the new ones are taking control.
Lazaridis and his other co-founders fell off of the bandwagon the last few years of their roles as executives, keeping out of touch with BlackBerry and its businesses. Because of the events that occurred when he was an executive, I believe that his sale might not be justified now that he is no longer "inside BlackBerry" and that the general investing community should not blindly follow his actions.
The company is now under the command of John Chen, noted for turning around Sybase (
SAP). He is bringing with him a
new executive team, along with the a plan he revealed in BlackBerry's Q3 FY 2014. Chen was able to admit BlackBerry's lackluster performance in its handset business, which has fallen far behind Apple (
AAPL), Google (
GOOG), and Nokia (
NOK) in terms of sales and market share. As many people have said, BlackBerry's technology might not be lackluster, but it is the way that BlackBerry is marketing it.
On his first BlackBerry conference call, he addressed this issue by announcing a
deal they struck with Foxconn (
OTC:FXCOF) to manufacture and design their lower-mid range phones. Not only will this deal increase BlackBerry's margins because of cheaper components, but will also allow BlackBerry to cut its costs through saving on labor and allow BlackBerry freedom from managing inventory (Foxconn designs and manufactures). I believe that BlackBerry is now using other company's' innovations to help them grow and catch up. They are using the same manufacturer as Apple, Foxconn, and are transforming into a software and service company like Google.
What's BlackBerry Worth?
There will be a much better picture of BlackBerry's turnaround and value after several key events in 2014, including CES (Consumer Electronic Show) in January where it will reveal "New Technologies" and business for QNX, updates on BBM pre-installation on Android, and Q4 where it will provide an outlook for FY2015.
(click to enlarge)
As you can see, the Service revenue represents more than the Hardware revenue this quarter, perhaps the future for BlackBerry.
BlackBerry is now divided into 4 major groups (Enterprise Services, Messaging, QNX, Devices), though it plans on cutting costs all around.
John Chen announced that they
expect profitability by 2016, the news all BlackBerry investors were waiting for. No longer will BlackBerry have to trade based on its declining balance sheet or declining sales; instead it will be able to grow its value and trade based on profits.
However, we are assuming that John Chen's prediction comes true, and in the time frame he predicted. I believe that BlackBerry can become profitable in 2014 based on John Chen's plan and the results of the quarter under his belt. BlackBerry is now making most of its revenue from software, which comes with higher margins, as well as moving over low-mid range phones to Foxconn. This move allows them to get rid of most of the risk associated with low margin phones.
BlackBerry lost $354M in the quarter (excluding the write off), which will surely shrink in Q4, and maybe even disappear by FY 2015.
(click to enlarge)
BlackBerry is in the process of turning around its margins, and should begin to see profitability sooner than Chen announced. Chen has said that BlackBerry is a financially strong company, with over $3B in cash (and counting). With BlackBerry expected to grow its cash position in Q4 FY2014, improve margins in the next two quarters, and introduce new phones and technologies (QNX), I believe it is worth to hold on to BlackBerry shares until FY2015 (the middle of 2014).
With very little downside for the coming months, and new products and cash to back growth, BlackBerry looks like it will be entering profitability again very soon. The sale of stock by previous executives shouldn't be a sell signal, but maybe even the opposite. BlackBerry is moving in a different direction than the previous executives lead it and want it to be in, transitioning BlackBerry into a new era.
BlackBerry Ltd faces another year of uncertainty as CEO launches rescue effort
Simon Dawson/BloombergThe odds are stacked against John Chen, but the new BlackBerry Ltd. CEO insists he will rebuild the company's name by chasing the business customers who helped make the firm a powerhouse in the smartphone industry. Simon Dawson/Bloomberg
TORONTO — BlackBerry Ltd. hopes to clean the slate again as it heads into the new year with another lease on life and a leader who believes he can do what his predecessors couldn’t — save the company from a slow death.
The former BlackBerry executive, who earlier this year had considered making a bid for the Waterloo, Ontario-based company, sold more than $26 million of stock this week, according to the filing. Together with co-founder Doug Fregin, he had controlled about 8% of the stock.
Keep reading.
After months of painful uncertainty and dismal financial results, BlackBerry is in the hands of chairman and chief executive John Chen who hopes to navigate the company into 2014 with reinvigorated vision.
It’s a long haul journey — no question
“I need to go out and convince the world that the fight has now started,” said Chen during a recent media event at the company’s headquarters.
“It’s a long haul journey — no question,” he added.
The odds are stacked against him, but Chen insists he will rebuild the BlackBerry name by chasing the business customers who helped make the company a powerhouse in the smartphone industry.
“It’s really kind of going back to the roots,” he said.
If the situation sounds familiar, that’s because BlackBerry has been here before.
The Waterloo, Ont.-based company has spent the last few years losing the fight for a stronger position in the market as Apple’s iPhone and other smartphones on the Android operating system pulverized its reputation with consumers as a cutting-edge technology developer.
THE CANADIAN PRESS/AP-Richard DrewJohn Chen, BlackBerry's new CEO.
Last January, after two major delays, BlackBerry lifted the curtain on its latest smartphones and operating system in New York, ushering in what it hoped was a new era that would prove naysayers wrong.
But once the dust settled, it was clear the new BlackBerry 10 phones didn’t connect with consumers.
Most of the advertisements sold vague ideas about the phone’s features, and often the products were leaning on the clout left in BlackBerry’s name, rather than promoting features of the phones.
Chen believes BlackBerry executives were lost as they struggled to deliver the new devices.
“In the past when we were a little troubled … there were too many different paths to see,” he said, reflecting on the days before he started at the company.
“We lost some good, valuable market time that people have taken advantage of (and) from this point on the fun for them will be greatly curtailed.”
A few months ago, even BlackBerry executives weren’t this certain about the company’s future.
The smartphone maker looked like it was about to be broken up and sold, or shrunk into a private company, until a group of investors agreed in November to inject US$1 billion — enough money for another swing at a recovery.
It was a surprise decision by Fairfax Financial (TSX:FFX), one of BlackBerry’s largest shareholders, who led the charge to raise the financing, but also a sign that few others were interested.
BlackBerry had spent months shopping around its assets, but was never able to find a suitor. The company’s co-founders Mike Lazaridis and Doug Fregin sidelined their attempted bid, while big players like Facebook were reported to have entertained the possibility before deciding to bow out.
The new financing agreement brought many quick changes to BlackBerry, including the exit of CEO Thorsten Heins and the departure of various other high ranking executives and board members, some who helped build the company to its former heights.
Chen is confident about the direction he’s headed, even though the reality facing the smartphone maker isn’t so optimistic.
The government agencies and companies he’s determined to chase are notoriously loyal, but once they’ve strayed to alternative platforms it’s hard to lure them back, mainly because business contracts are typically long term.
Many customers prefer BlackBerry’s security technology, but even some big Canadian banks and U.S. corporations, have started to defect to alternative offerings from competitors.
According to the latest financial statements, BlackBerry has lost about 68% of its enterprise business customers over the past few years, dropping to 80,000 from about 250,000 at its heights.
To help retain customers, BlackBerry has given away free upgrades and trials to its latest enterprise operating system that last until the end of 2013. After that, it will make a case for customers to start paying for the service.
“We are going to take the technology message out,” Chen said.
“With the last company I ran, I kept the message on for like 10 years. It probably took five years before anybody even listened to me, and it took another five years for people to believe it. You just need to focus.”
Whether or not BlackBerry has time is debatable.
In its most recent quarter, BlackBerry posted a US$%4.4-billion loss as sales of its smartphones continued to fall. The company also burned through about $1.1 billion in cash, though the total amount in its coffers — which sits at $3.2 billion — was propped up by the Fairfax-led investment and a significant tax return.
On Tuesday, Lazaridis grabbed attention for selling $26 million of BlackBerry shares, a move that came before the tax-loss deadline in Canada, but also lowered his stake below 5%.
Investors appear optimistic, at least for now, helped by Chen’s determined persona. The company’s badly beaten stock has climbed 24% since its latest financial results were released a week ago. On Tuesday, BlackBerry shares closed at $8.25, up 27 cents, on the Toronto Stock Exchange.
“People are excited today, but we’ll see how patient they are in two more quarters when there probably won’t be any evidence of a turnaround,” said Mike Genovese, an analyst at MKM Partners.
He said BlackBerry will need at least another year before any semblance of a turnaround can materialize, while Chen has said he doesn’t expect the company to become profitable until at least the middle of 2016.
Whether the rest of the world has that sort of patience remains to be seen, and investors are taking a risk holding the stock in their hands, Genevese said.
“Six months from now I’m not so sure investors are going to be as excited as the stock price seems to be telling us right now,” he said.
“The stock is a lottery ticket on the miracle they get something right.”
