Will BlackBerry's Passport Phablet Derail its Turnaround?

BlackBerry  plans to release a phablet in September, the company quietly announced during its recent earnings call.

To call the idea odd would be an understatement. BlackBerry -- once the businessperson's phone of choice -- has shed users at an alarming pace. This led it to sensibly refocus its strategy away from phones and onto enterprise services by making its popular features work on Apple  and Google  operating systems.

BlackBerry has made huge strides in the past year in doing that and proving that it might still have a future. The release of the company's popular BlackBerry Messenger for IOS and Android resulted in 20 million new users joining the service in the first week it was available as an app.Focusing on growing that user base (while working on behind-the-scenes technology) seemed like a much less foolhardy path than attempting to win back market share from Andoid, iOS, and even Microsoft's  Windows Phone 8 OS. 

But now, the company has decided to continue partying like it's 2009 and devote some of its dwindling resources to an odd hybrid device.

What is the phablet?
The new device, dubbed the Passport, has not been formally unveiled. It has what could be described as an awkward form factor with a 4.5-inch display and a full QWERTY keyboard. It theoretically caters to the hardcore BlackBerry audience, which presumably still wants a keyboard. The problem is that audience has shrunk dramatically. A weird new in-between big phone/small tablet form factor is unlikely to help BlackBerry shift its business away from being a phone platform.

Is it really that bad?
BlackBerry still has its fans, but so do MySpace and Color Me Badd. In the device market the company has lost much of its once-loyal fan base and the numbers are expected to get worse. 

BlackBerry's global shipments are projected to fall almost 50% in 2014 to about 9.7 million smartphones, according research firm IDC. BlackBerry's worldwide market share will slide to .8% in 2014 and may slip to .3% by 2018, IDC said. The company's operating system accounted for 1.9% of the market in 2013.

"The question of whether BlackBerry can survive continues to surface," IDC said in a statement. "And with expectations that share will fall below 1% in 2014, the only way the company will be viable is likely through a niche approach based on its security assets."

CEO John Chen seemed to understand that ... he's said all the right things since he took over in November 2013. So it was profoundly disturbing for shareholders to see Chen proudly showing off the Passport in photos taken during the investors call.

It's not just a phablet
If BlackBerry were simply releasing a phablet as an attempt to serve a tiny piece of the market (people who want a phone that does not fit in their pocket with a full keyboard) you could justify this as a slight deviation from its adjusted strategy. But that is not the case -- it also just announced a deal where its phones (and presumably the Passport) have access to all the apps from the Amazon.com  app store.

"Making the Amazon Appstore available on BlackBerry 10 devices will help BlackBerry continue to meet two essential needs: greater app availability for our smartphone users and enhanced productivity solutions for enterprises," Chen said. "We've listened to our customers and have taken this important step to deliver on their needs, while executing on our strategy."

This move is the equivalent of buying new merchandise to sell during a liquidation sale. Having access to the 240,000 apps available in the Amazon app store will be popular with BlackBerry users, but those legacy customers are not where the future lies for the brand.

Stay on target
Under Chen, BlackBerry has made strides, and it even reported a surprise profit of $23 million in the first quarter of its fiscal 2015. The company also increased its cash and investments balance to $3.1 billion at the end of the first quarter, up from $2.7 billion in the prior quarter. That was achieved partly by cutting operating expenses by 57% year over year and 13% quarter over quarter. 

Most importantly Chen's BlackBerry has started to move away from being a business that's dependent on phone sales. Revenue for the quarter was 39% for hardware, 54% for services, and 7% for software. That's a huge shift from the same period a year ago when the breakdown was  71% for hardware, 26% for service, and 3% for software.

Chen is succeeding, but if he forgets that his company is no longer in the handset business, the gains he has made could disappear quickly. Making devices that people see and use is sexier than being a company that operates in the background. The lure of trying to remain a player in handsets is powerful, but it's one Chen has to ignore to remain focused on the task at hand.

Being a less-cool company seems more lucrative than playing the lottery with new devices for which there is no clear expressed consumer demand. I'm sure some at IBM still wish the company was making whatever the current successor to the PC Jr. would be. Most, however, are probably happier being a large, successful business than a historical footnote.

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The article Will BlackBerry's Passport Phablet Derail its Turnaround? originally appeared on Fool.com.

Daniel Kline is long Microsoft and Apple. He used to be a devoted BlackBerry customer. The Motley Fool recommends Amazon.com, Apple, and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (C shares), International Business Machines, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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