BlackBerry chief executive John Chen speaks at the BlackBerry Security Summit in New York, in this July 29, 2014

To Keep BlackBerry Alive, CEO Leans on the Internet of Things

BY :ALEX BARINKA

JANUARY 15, 2015

Chief executive John Chen’s turnaround plan at BlackBerry comes down to two words: network security.

Since taking over in late 2013, he has worked to revamp the once-iconic device maker after its share of the global smartphone market fell to less than 1 percent. Chen’s BlackBerry has focused on providing software and security for governments and corporations. When the Waterloo, Ontario, company releases new phones, they still cater to business users.

BlackBerry’s secure technology could make the company an enticing target for Samsung Electronics as it attempts to focus on Web-connected devices, said Desmond Lau, a research analyst at Toronto-based Veritas Investment Research Corporation.

BlackBerry and Samsung on Wednesday denied they had engaged in takeover discussions, responding to a Reuters report that the South Korean conglomerate approached BlackBerry with an initial takeover offer of $13.35 to $15.49 a share. Reuters cited an unidentified person and documents.

The high end of that range would value BlackBerry at about $7.1 billion after subtracting net cash, or 24 times its trailing 12-month earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. Investors haven’t assigned BlackBerry such a rich valuation since it was the leader in smartphones.

Software focus

Chen showed the first signs of pivoting BlackBerry to software from hardware just two months after taking the job in November 2013. He struck a deal with Foxconn Technology Group, handing over much of the design, production and distribution to the Taiwanese electronics manufacturer.

That helped free up BlackBerry’s resources for software development.

Using the Web to connect everyday electronics in the so- called Internet of Things will be a major source of growth in the future, Chen said last month.

“As to when it’s going to shore up the top line, it’s probably going to take a little while, but it’s not going to be a long while,” Chen said this month in an interview on CNBC.

Since Chen joined BlackBerry, the company’s stock has gained 62 percent.

BlackBerry brought on Chen after he turned around software maker Sybase. When Chen became chief executive of Sybase in 1998, the company was restructuring, had announced plans to cut 10 percent of its workforce and was trading near a record low.

Chen shifted the California company into mobile-data management, reducing its focus on database software, more than tripling the company’s per-share earnings. In 2010, he sold Sybase to SAP for $5.8 billion, with the stock trading more than six times higher than at the start of his tenure.

Car connection

At BlackBerry, the success of the QNX operating system — which connects climate control, navigation and other functions in vehicles — will be central to Chen’s winning back investor confidence. The platform is embedded in 50 million cars and is being tested at hospitals to connect medical devices, he said.

One of QNX’s biggest selling points is that it has technology to keep operating even if one part of the system shuts off or freezes. Such stability is indispensable in environments where a server crash could be fatal. QNX has won contracts with the US Army’s unmanned Crusher tank and at nuclear power plants operated by Atomic Energy of Canada.

Chen has said that the company is on track to double software revenue by next year. Even so, total revenue recently has fallen well short of analysts’ estimates. Third-quarter hardware revenue, which still makes up about 46 percent of the company’s sales, fell from a year earlier.

BlackBerry rose 30 percent to $12.60 at the close in New York following the Reuters report. The shares fell 14 percent in late trading after BlackBerry’s statement that it wasn’t in talks with Samsung.

Bloomberg

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