Friday, November 8, 2013

For a fallen star of the smartphone industry, things go from bad to worse

The Economist

BlackBerry

Only thorns


Nov 9th 2013 | OTTAWA |From the print edition
THE signs do not look good. On November 4th, six weeks after BlackBerry said that its biggest shareholder, Fairfax Financial, wanted to take the ailing Canadian smartphone-maker private for $4.7 billion in cash, the sale was called off. BlackBerry instead declared that it would raise $1 billion in debt, convertible into 16% of its shares. Fairfax, a Toronto holding company that focuses on insurance but owns 10% of BlackBerry, is taking a quarter of the issue. Barbara Stymiest, who chairs BlackBerry’s board, called this “a significant vote of confidence in BlackBerry and its future”. The stockmarket called it a flop: the share price, already a fraction of what it once was (see chart), fell by 16%.
Thus BlackBerry ended a “review of strategic alternatives” with no visible alternative strategy—and no chief executive. Thorsten Heins, its boss since January 2012, was unseated. He brought a much-delayed operating system, BlackBerry 10, to market, but this will not make much difference. Although lots of people still carry BlackBerrys, not many of those devices are new. BlackBerrys have not only been squished by Apple’s iPhone (and iPad, to which BlackBerry responded feebly) and by Android devices; they are also being outsold by phones with Microsoft’s Windows. In its latest quarter BlackBerry lost $965m, mostly because of a write-down of unsold phones. Last month it made its BBM instant-message service available as an iPhone and Android app.
Mr Heins has a temporary replacement: John Chen, the former head of Sybase, a software company that he knocked back into shape before selling it to SAP, of Germany, in 2010. Once a permanent chief executive is found, Mr Chen will stay as executive chairman. It is not yet clear whether his background in software is a clue to BlackBerry’s future. He seems keen to keep selling handsets. Roberta Cozza of Gartner, a research firm, thinks BlackBerry should become a “niche player”, focusing on applications and services for companies to which secure communication is especially important. “I don’t think their priority should be hardware at all,” Ms Cozza says.
Mr Chen told Reuters that at Sybase he had “seen the same movie before”. Canadians also know the story. The version they saw involved Nortel Networks, a telecoms-equipment company that was heading for oblivion when Research In Motion (as BlackBerry used to be called) was on the rise. Nortel too was a high-tech source of national pride. It also brought in a turnaround specialist when its fortunes darkened. Alas, the ending was unhappy: it went bankrupt in 2009, albeit bequeathing a pile of patents worth billions. “The demise of Nortel hit the Canadian psyche very hard and the same thing would happen if BlackBerry failed,” says Don Drummond, a former senior civil servant.
It is no comfort that others in the cruelly Darwinian smartphone business have also begun to look like wounded gazelles. On November 5th Taiwan’s HTC reported its first quarterly loss. It added that sales in the first ten months of 2013, at NT$175.5 billion ($5.9 billion), were down by 29% from a year earlier and by 57% from 2011, when HTC was briefly the biggest seller of smartphones in America. HTC has made mistakes, but its chief problem has been having Samsung, with its scale and marketing clout, as a competitor in Android phones.
A third national phone champion, Nokia of Finland, has sold its device division to Microsoft. The other two are battling on alone, HTC apparently out of choice—its chairwoman says it is not for sale—but BlackBerry out of necessity. Its shareholders will be praying that Mr Chen can direct a sequel to “Sybase”, not “Nortel”.

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