Under New Leadership, BlackBerry Unveils Its Newest Smartphone
OTTAWA - There are plenty of signs suggesting that John S. Chen, chief executive of BlackBerry, should sprint as fast as possible away from making phones.
Handsets drove the company's initial success, but they then brought the company to the edge of financial ruin, also-rans behind Apple and Samsung. Even Mr. Chen, who was brought in last November to salvage BlackBerry, has made it clear that the company's future lies mainly in selling mobile data management security and services to governments and corporations.
But on Wednesday, BlackBerry reached for smartphone magic once more, introducing the Passport, the first major BlackBerry device since Mr. Chen's arrival. But if the phone fails, it will like signal the end of BlackBerry's handset business instead of its revival.
The company presented the phones on Wednesday at big events in London, Dubai and Toronto. Yet in an interview earlier this month, Mr. Chen suggested that BlackBerry has comparatively modest goals for the Passport, which features a novel square display and a physical keyboard that doubles as a touch sensitive track pad.
And his support for BlackBerry's handset business was not unconditional.
'It could be extremely important to me in the turnaround as part of the strategy, but it does not have to be it,' he said. 'As long as it does not lose money, this will not affect my turnaround plan in a negative way.'
He added: 'We will make money on the handset - if we don't, we'll have to get out.'
Mr. Chen plans to aim sales efforts for the Passport toward BlackBerry's traditional customers base - regulated industries like banks, health care and governments, particularly law enforcement and the military. The security concerns of such users makes them far less concerned about price than many buyers.
But some analysts say that BlackBerry must overcome several significant hurdles to re-establish its phone business with the Passport and a second model, the BlackBerry Classic, which has not yet been released.
'I do wonder how they can actually have an impact,' said Nick Spencer, a mobile-devices analyst with ABI Research in London who once worked for BlackBerry. 'It's an awfully long way back for them.'
Making the hardware business at BlackBerry simply break even will be a difficult balancing act between cost and price.
Unlike, say, makers of sports cars, BlackBerry cannot sell the Passport as an executive phone that commands an unusually high price. Apple, most analysts agree, has set the ceiling for smartphone prices. The Passport, when bought without a carrier subsidy or large corporate buyer's discount, will cost $600 in the United States, $50 less than the basic iPhone 6.
But smartphones, like all electronics, are a product for which large-scale manufacturing brings significant savings - and scale is something the much-diminished BlackBerry lacks. IDC, a research company, estimates that Apple shipped 32.5 million iPhones during the second quarter of this year while BlackBerry moved only 1.5 million handsets.
Mr. Chen said he was confident there were ways to find cost savings. For low-cost phones intended for developing nations, BlackBerry has partnered with Foxconn Technology Group, the Taiwanese contract manufacturer that also builds several Apple products. It has relieved BlackBerry of inventory costs related to those phones.
But to meet American and Canadian security requirements, the Passport is built in Mexico by another contract manufacturer. Still, Mr. Chen said, all is not lost.
By Mr. Chen's estimate, 70 percent of the parts inside the Passport are common to all smartphones from all companies, somewhat mitigating, he said, the higher costs that come from smaller production runs.
Dick James, a senior technology analyst with Chipworks, a company in Ottawa that reverse engineers hardware and software for patent lawyers and others, agrees that most of the parts inside many BlackBerry phones are commonly found in all other smartphones. But he said that the Passport's two most obviously unique pieces of hardware, the square screen and the touch sensitive keyboard, are also among its most expensive parts.
'They won't have scale, so their costs are going to be higher than the other leading-edge phones,' said Mr. James, who had yet to acquire a Passport for dismantling. 'This phone will be lucky if it hits a million total.'
Even more significant than the hardware costs, said Mr. Spencer of ABI Research, is maintaining and developing the niche BlackBerry 10 operating system. Mr. Chen has ambitious, if not fully formed, plans to extend the use of the BlackBerry 10 operating system into areas like automobiles and retailing, but such uses do not require most of the software features smartphone users demand.
Makers of Android phones, Mr. Spencer added, get much of their software free, significantly reducing their costs.
Mr. Chen and other BlackBerry executives contend otherwise, but Mr. Spencer said that he did not see the company's continued commitment to phones as a benefit to Mr. Chen's software and services plan.
'I'd thought by now John Chen would have come up with a bit more of a strategy,' Mr. Spencer said. 'I don't mean to be harsh, but it seems to me that they're still muddling along.'
Ramon T. Llamas, a smartphone analyst with IDC, has used a Passport for several weeks and found it a notable improvement over previous BlackBerry 10 phones. 'There's some added maturity to this one,' he said.
One crucial factor in determining the Passport's success or failure, Mr. Llamas said, will be BlackBerry finding a way to sell the phone directly to its target audience rather than relying on wireless carriers' sales forces - whose members tend to be far more familiar with Apple and Android phones.
Many longtime BlackBerry users in the industries that Mr. Chen is focusing on disliked the initial BlackBerry 10 phones so much that BlackBerry was forced to restart production of phones that used its aging BlackBerry 7 operating system. Mr. Llamas said he believed the Passport could win over many of those die-hards. It may also, he added, be enough of a success to keep BlackBerry's phone business alive, if not fully well.
'You can fault me for being an eternal optimist,' he said. 'But I don't think this is the last stand.'
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