Buried in the avalanche of bad news in BlackBerry Ltd. (BB)’s latest quarterly results was a 32 percent increase in companies installing its servers. The gain may hold the key to the company’s survival, whether or not a tentative $4.7 billion offer to take the smartphone maker private works.
Customers had installed or were testing more than 25,000 of its enterprise servers used to manage secure networks for corporate smartphones — BlackBerry, iPhone or Android — at the end of August. That’s up from 19,000 in July. The increase was a bright spot amid the 45 percent plunge in sales and $965 million second-quarter loss the company reported last week.
Focusing on its network and security-software strengths could be BlackBerry’s best bet, said Ramon Llamas, an analyst at technology research firm IDC. BlackBerry has already said it will scale back in the consumer market to focus on business customers, and this could be the next step.
“There’s a huge opportunity for them if they choose to go there,” Llamas, based in Framingham, Massachusetts, said in a phone interview. “If you take a look at a lot of enterprises, they want a full turn-key solution for mobile security. Guess who’s been supplying that on a certain level? BlackBerry has proven itself time and again to be a secure system.”
BlackBerry once had a stranglehold on business from banks, law firms and other large companies, which bought its smartphones along with the secure e-mail servers that run them. The grip is slipping as more employees demand the right to use iPhones at work and information-technology departments see an opportunity to save money, spurring the growth of the workplace “bring your own device” trend.
Waterloo, Ontario-based BlackBerry (BBRY) could copy smaller companies like Good Technology and MobileIron Inc. and concentrate on the enterprise business for all phones, said Anil Doradla, an analyst with William Blair & Co. in Chicago.
“Mobile Iron and Good Technology are exploiting that weakness of BlackBerry by going after the iPhone and Android market and enabling those devices in the enterprise market,” Doradla said in a recent phone interview. “This is a growing multibillion-dollar market and BlackBerry has had the incumbency factor with its devices. The question is how they become device-agnostic.”
BlackBerry is debuting new Internet-based device management software at a conference today in Orlando, Florida that offers exactly that, said Peter Devenyi, senior vice-president, enterprise software.
“The platform we’re announcing as part of this cloud solution is 100 percent platform agnostic,” Devenyi said in an interview today. “It’s not an adaptation for what was originally designed for BlackBerry.”
The new software allows companies to manage fleets of BlackBerry, iOS and Android devices using cloud-based software that replicates BlackBerry-type security without using physical servers, Devenyi said. For large government or banking clients that still want to deploy servers behind their own firewalls, BlackBerry will continue to offer that, he said.
The cloud model will allow BlackBerry to more aggressively go after small and medium-sized companies in “a much wider opportunity base than we were able to address before,” with its BlackBerry 10 server-based packages, he said.
While BlackBerry’s customers include the Pentagon and the North Atlantic Treaty Organization, or NATO, Good Technology has made inroads with governments and the military. Its customers now include the U.S. Air Force, Department of Homeland Security and the U.S. Federal Emergency Management Agency, helped by the fact that it has earned government security certifications for Apple Inc. (AAPL)’s iOS and Google Inc.’s Android operating systems.
Good Technology and Mobile Iron’s software packages have proven popular with business because they are designed to work with iOS and Android, the world’s fastest-growing smartphone platforms. Android and iOS together controlled 93 percent of the global smartphone market in the second quarter, according to IDC. BlackBerry’s share was 2.9 percent, down from 12 percent two years earlier.
MobileIron, based in Mountain View, California, has about 5,000 customers, including Barclays Plc (BARC), Fidelity Investments and private-equity firm Blackstone Group (BX) LP. Good Technology, based in nearby Sunnyvale, says it has more than 5,000 customers including Vodafone Group Plc (VOD) and AstraZeneca (AZN) Plc.
Faced with poor demand for its new BlackBerry 10 phones, Chief Executive Officer Thorsten Heins announced a $934 million writedown for unsold inventory on Sept. 20, along with a plan to cut more than a third of BlackBerry’s workforce. Three days later, Fairfax Financial Holdings Ltd. (FFH) made a tentative offer to buy the company for $4.7 billion, or $9 a share, as part of an investment group. Fairfax CEO Prem Watsa has yet to name the other backers and hadn’t secured financing at the time the offer was announced.
Reuters reported last week that companies including Cisco Systems Inc. (CSCO), Google Inc. (GOOG) and SAP AG (SAP) also are in talks with BlackBerry about buying parts or all of the smartphone maker, though it’s unclear if any of the parties will bid.
BlackBerry shares climbed 3.6 percent to $7.97 at the close in New York. That’s down more than 10 percent from the offer price.
Heins said in the Sept. 20 statement that BlackBerry plans to continue producing both software and hardware, and Watsa has said he wants to keep the company whole.
“We definitely believe the focus on enterprise is key, but we do not want to prejudge any aspect of the business until diligence is complete,” Fairfax President Paul Rivett said in an e-mail.
Sticking with smartphone production may not be an option if suppliers and retail partners balk at the brand, said Peter Misek, an analyst at Jefferies LLC in New York. Jabil Circuit Inc. (JBL), one of BlackBerry’s biggest suppliers, said last month it will probably stop working with the Canadian smartphone maker.
That’s a sign the device business will shrink further and “could even disappear,” Misek said. T-Mobile US Inc. (TMUS), the fourth-largest U.S. carrier, said last month it will begin removing BlackBerry inventory from its stores, forcing customers who want one to have it shipped.
BlackBerry’s former bright spots like Asia and Latin America also are seeing sales declines. Sales in Latin America plunged 62 percent last quarter and 28 percent in Asia.
There’s also the chance a large investor may demand the closing of the money-losing handset business as a condition of joining Fairfax’s consortium. The Ontario Teachers’ Pension Plan and Alberta Investment Management Corp. have held talks with Fairfax but are targeting BlackBerry’s secure server network and other business units and are not interested in backing a bid for the whole company, said people familiar with their plans.
Even BlackBerry has admitted the device-management business is getting tougher.
BlackBerry “has continued to encounter challenges with the BYOD trend” faced with “competitors who are increasingly promoting the merits of their own security and reliability,” the company said in an Oct. 1 filing. “This has impacted the company’s enterprise subscriber account base.”
The company’s total subscriber base fell to 72 million in June from 76 million in March, and BlackBerry has now stopped giving subscriber numbers. While it charges businesses $19 a year per device, BlackBerry doesn’t disclose its breakdown of corporate versus consumer users.
Its competitors in the server market are taking advantage of BlackBerry’s weakness. Good Technology is promoting a seminar this month entitled, “Migrate Without Migraines: Managing Your BlackBerry Transition.”
“We’re trying to be helpful as we can be to BlackBerry’s government and business customers looking for alternatives,” said Karen Reynolds, a spokeswoman for Good Technology.
Employees, not IT departments, now decide what phones they use and that’s hurting BlackBerry, Ojas Rege, said MobileIron’s vice president for strategy.
“There’s no such thing as a pure enterprise device anymore,” he said. “The world has definitely gone multi-OS and as long as you produce phones, you have a conflict of interest.”
That means BlackBerry has to stop thinking just like a smartphone maker and more like a software shop that caters to all if it’s to survive, said Maynard Um, an analyst at Wells Fargo & Co. (WFC) in New York.
“The company should focus its efforts on platform agnosticism in order to defend and grow its enterprise installed base,” he said.