Skip to main content
inside the market

‘I have no intention of selling off or abandoning this business any time soon … Our focus today is on finding a way to make this business profitable,’ says Blackberry CEO John Chen.MARK BLINCH/Reuters

Here in the la la land of the Toronto Maple Leafs, we are once again on the outside of the playoffs looking in. The team is adrift and blame is being thrust in all directions. But seriously folks, this is one of the most successful companies in the world. It is an organization that charges a super premium price for a decidedly low-grade product – almost half a century without a sniffle of Lord Stanley's Cup. Talk about defying probability! Virtually every other corporation with this track record would be bankrupt, buried, forgotten. What is the proposed solution? Hire a President with no managerial experience! Zilch. That is definitely thinking outside of the box. Like, outside of the arena.

At Contra, one criterion for us to invest in a company is good management. Or what we perceive as good management. Sometimes that does not work as our failures with Cygnal Technologies and Enablence Technologies indicate, but excellent leadership remains a crucial turnaround ingredient. Currently, a primary reason that we are holding our investment in Blackberry is our confidence in CEO John Chen, who arrived as the head honcho a mere six months ago. That was after a successful stint rejuvenating Sybase, which was scooped up at a significant premium by SAP AG.

Blackberry has fallen from being the leader in its field to a cellar dweller. This past quarter sales plummeted 64 per cent to $974-million USD from the previous year. That is a humongous plunge to be sure. The GAAP loss was $423-million, albeit there were a heap of one-time charges. Last year the bottom line was $94-million to the black. Fortunately there remains a cash hoard of about $2.5-billion. Some of that will be needed to pay down the debt, which is above $1.6-billion. A year ago, the balance sheet was pristine, absent of this obligation. That was a prettier picture.

The technology sector has recently seen takeovers galore. The most far-fetched was Facebook 's swallow of WhatsApp for $19-billion. What WhatsApp is lacking is a history of revenues and it is impossible for us to understand a valuation of this scale for a company that will need beyond spectacular growth to have a meaningful bottom line. Heck, Blackberry, an outfit that still has major operations and a heap of patents was scouting for a buyer last fall, Even if it had sold at $15 a share, the valuation would have been less than half that of WhatsApp.

A question that we are regularly asked is, "Where will the stock price be in one year?" That is a difficult question under normal circumstances, but in terms of Blackberry, a prediction is even trickier than with your regular enterprise. Righting a boat of this size takes time and the shrinking revenues make the short-term future cloudier. Longer term is also very misty. Unless one is a trader, who loves buying and selling on noise, those looking for major gains likely should be thinking far into the future to achieve a major payoff here.

Which takes us back to Mr. Chen. His vision, technological know-how and contacts will be critical both to the survival of BB and its future success. There have been other outfits in this field that have been resurrected by astute leaders. Arguably the most famous is Apple, which required the reinstatement of Steve Jobs to get the job done. Lou Gerstner moved from R. J. Nabisco to IBM to reinvigorate that fading behemoth. Sanjay Jha joined Motorola Mobility in 2008, when the bloom was off the rose and made the corporation attractive enough that Google swallowed it for significant donero.

Chen has been active since coming on board. The latest move is buying into IT firm NantHealth, with the plan to develop a smartphone for the health-care sector. The firm is owned by billionaire Patrick Soon-Shiong, who previously built and sold two other companies, both for mega-bucks. Teaming with other entrepreneurs who have had major success makes sense from this vantage point.

Though we believe that Mr. Chen's potential pay packet is too rich at $88-million or thereabouts, this is a jockey suited for this type of horse. Otherwise it is quite possible that we would have moved on to greener pastures.

One fact worth noting is that when a well-known name company turns around, it often attracts investors quickly, with the stock price jumping. It would not surprise at all if at some point Blackberry attracts this momentum wave.

Interact with The Globe