John Chen, 58, appointed interim CEO for Blackberry

http://www.bloomberg.com/news/2013-11-04/blackberry-takeover-bid-collapses-ceo-is-ousted.html

On October 15th I wrote an article about the troubled Waterloo, Ontario-based smart phone maker Blackberry’s demise.

You can read it here if you’re interested.

Blackberry’s shares fell 16% to $6.50 after Fairfax Financial abandoned their plan to buy Blackberry for $4.7 Billion. Instead, Blackberry plan to raise $1 billion in convertible debt of which $250 million is to be invested by Fairfax Financial as their lead investor.

This is a big shortfall from the $4.7 billion in cash that was going to be added to their balance sheet from the original Fairfax deal.

Their cash burn rate has also come under scrutiny, funnily enough my last article suggested that their comeback may be weighted down by their cash burn rate: today, Bloomberg stated that $500 million of cash was ‘burnt’ during the last quarter, which is a large chunk of their $2.6 billion cash pile along with a short-term financing commitment of $2.9 billion. Short term financing is recognized as a short-term liability on a balance sheet, with payments falling due within 12 months, and is used as a vital part of a business’ working capital cycle  and as a short-term cash flow relief.

New CEO

A new interim CEO, John Chen, 58, has been appointed to take over Blackberry Ltd until a permanent CEO has been found. Much of the media has welcomed this news because of his favorable career history: he managed to turn around Sybase Inc in 1998 after they were announcing a major restructure. He then sold it to SAP AG in 2010 for $5.8 billion: over 6 times its value the company was when he began his post. He also sits on the Board of Wells Fargo & Walt Disney.

Chen will tackle Blackberry’s future from a different angle, rather that preparing the company for a sale, he will try to overhaul the business to add value and to complete effectively in the marketplace in the long run.

The biggest challenge that Chen will, I think, face is not only getting customers to come back to Blackberry, but to also get suppliers trusting in the business again.

Stakeholder Trust Diminishing

In my last article, I wrote that T-Mobile US, Blackberry’s largest carrier has planned to drop stocking Blackberry handsets in their shops across the US, as well as a major supplier, Jabil Circuits Inc has ceased their relationship with BB. Although they didn’t give a specific reason about why their relationship ceased, it was obvious that it was speculated that BB’s finances will be put under strain.

Any supplier who does choose to do business with the phone maker will probably not offer very good credit terms for a while (all current suppliers may need to be renegotiated with) and will affect their cash conversion cycle, their cost of capital will be relatively large, and their remaining unsold inventory will either need to be written off (after a $950 million write down) or sold at a heavy discount.

The $1 billion raised in convertible debentures will offset the inventory write down loss which is a good start, but a sustainable cash burn rate, making use of their current patients, and the removing of all ‘toxic’ assets as well as attaining a good cash conversion cycle will all go a long way to a sustainable, competitive business.

Source: Bloomberg.com

Contact Todd Gilbey at gilbey.todd@googlemail.com

Well #Blackberry, what are we going to do with you?

It comes as no secret that the Waterloo, Ontario-based Smartphone maker Blackberry is falling short against Apple and Google in the everlasting technological race that is the smart phone market; a 45% sales decline during the last quarter of this year, coupled with a $934 million inventory write down and some notable clients of the company, namely Morgan Stanley, USB AG and Credit Suisse are all stalling on the brakes as to whether they will upgrade to the latest Blackberry phone.

T-Mobile US Inc, one of Blackberry’s largest network carrier’s are considering a discontinuation of their handsets from their stores, furthermore one of their major suppliers Jabil Circuit Inc has stated that they are considering discontinuing their relationship with the smart phone maker.

The last statement actually surprised me, if Blackberry are ‘flush with cash’ as they say they are, then I wouldn’t have said that they have any outstanding bills with the supplier, the company has no debt on their balance sheet either, so why would they want to stop their relationship?

I don’t think that the cash balance is the issue with Jabil Circuit’s here, I reckon the issue they have has something to do with their speculated cash burn rate, they may have lots of cash on their balance sheet for now, but with sales declining and unsold inventory in their warehouses, they may not be so easily able to pay their bills in the future! Food for thought.

However, the mention of their major supplier ceasing the relationship with Blackberry, of course raised speculation that they will stop making handsets altogether. It is worrying however, that they can still, starting from today, place full-page ads on over 30 publication’s including the major financial magazines when their supplier is threatening to stop supplying!

So, what are Blackberry missing? How did the worlds most successful smart phone maker fall to the back of the race? There was a time when Blackberry, one of the first phone makers to support e-mail, was the phone to have across companies as well as government agencies, so what’s changed?

What Next?

Their branding, in my opinion, looks very old-fashioned. They need to clean up their brand reputation as well as their reputation. They need investment, serious investment, people need to want to be ‘seen’ with a Blackberry in their hand, just like people want to be seen with an iPhone in their hand. With Apple and Windows, they seem to be the ‘cool’ phones to have, since when people say they have a Blackberry, not so much enthusiasm is there. The trouble is, the smart phone market is becoming a very saturated marketplace now, and Blackberry are going to need something really evolutionary if they are going to win back client loyalty.

One bidder for Blackberry was Fairfax Financial, but seriously, what skills and experience in the smart phone industry does that company have? What could they possibly bring to the table and bring value to Blackberry, apart from their cash? No one would have heard of Fairfax Financial if it were not for Blackberry’s demise. Take Microsoft and Nokia for instance, two compatible companies. Blackberry and Fairfax Financial? Not so much.

Blackberry seem to keep missing the boat, and from here, it seems like they are making impulse decisions to turn the company around: spending on advertising, failing to make the Z10  appeal to their clients, record losses and revenue declines. They need to start from the bottom again and build it up slowly, as if it were a new start-up: new brand, new logo, and a new ‘feel’.

Good luck, Alicia Keyes..

Contact the Writer

gilbey.todd@googlemail.com