BlackBerry: risky rally

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President Barack Obama is sticking with his BlackBerry. So are the smartphone maker’s shareholders. Rumours that the president would participate in a pilot programme to test Android devices proved false. And since bottoming a few months ago, just below $6, BlackBerry shares have rallied to $9. New chief executive John Chen has stabilised the company. Its fourth-quarter loss of 8 cents a share, reported on Friday, was not as bad as feared. But it is unclear if the turnround that shareholders are counting on will take hold before the bandages Mr Chen has applied fall off.

BlackBerry’s most recent, and presumably final, attempt to compete in high-end phones flopped last year. Mr Chen’s plan is to use the company’s entrenched position in corporate IT to become a software and services company. Until then, selling phones accounts for about 40 per cent of its (disappearing) revenue base; fourth-quarter revenue was $976m, compared with $1.6bn two quarters ago. It isn’t fully quitting phones, but is shrinking risk through a manufacturing deal with Foxconn.

Other measures BlackBerry has taken to secure breathing room include selling Canadian real estate and getting a $1.25bn convertible bond investment led by Fairfax Financial (the bond can turn into BlackBerry shares at a price of $10). The company burnt about $500m in cash in the fourth quarter and has $2.5bn left. It predicts breaking even by year’s end.

What hopes have caused the shares to soar 60 per cent in recent months? BlackBerry Messenger, while still a fraction of WhatsApp’s size, has 85m users. The services business, which manages corporate email, is shrinking as BlackBerry’s overall user base erodes. However, that installed base is an advantage to move into “mobile device management”: corporate email control across iPhones, Android and BlackBerry devices. Finally, its operating system is being used in connected cars, including at Ford.

The puzzle is that the fading businesses are still responsible for most of the cash flowing into the business. It remains risky to bid up the stock when the new BlackBerry may not emerge until after the next administration takes office.

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