BlackBerry finally gets out of the Smartphone Hardware Business

When is a BlackBerry not a BlackBerry?

In what is arguably an overdue move, BlackBerry CEO John revealed today that the company is finally getting out of the smartphone hardware business, choosing instead to “outsource that function to partners.”

BlackBerry has completely outsourced smartphone design and production, a process that Chen had been doing bit by bit since taking over as CEO almost three years ago. BlackBerry’s device business, which it now calls “Mobility Solutions,” will focus on developing applications and a secure version of Google’s Android operating system that it can license to other companies.

Quitting manufacturing will allow the company to reduce capital requirements and enhance return on invested capital, said CEO John Chen today, reporting its Q2 fiscal 2017 results.

Chen confirmed on a call with analysts that BlackBerry will have little to do with future hardware efforts and will only collect a royalty fee on any phone sold by its partners.

Chen hinted at other interested companies looking to strike similar partnerships around the world, but didn’t provide any names. He also hinted that there would be high-end devices focused on security, presumably referencing the upcoming DTEK60.

BlackBerry plans to complete the shutdown of the internal hardware business by the end of this fiscal year, February 28 2017.

It’s unclear whether future phones from the partnership will make their way to mature markets, where the carriers have been lukewarm about carrying the devices. Due to carrier reluctance to sell BlackBerry smartphones, the company has relied more and more on selling their devices directly. However, outwith a small but dedicated base of users, the appeal of BlackBerry smartphones died long ago and Chen could not continue to cater for such a small target market forever.

What we do know is that the BlackBerry DTEK60 will still launch next month (October) and that the planned Android device with a physical keyboard will be launched early 2017. It is after that, that things will become interesting. How today’s news will affect those upcoming device sales remains to be seen.

There is no doubt that BlackBerry have had a hard time trying to sell their own smartphones and any company who decides to launch BlackBerry’s Android software, will still face the same problems BlackBerry did – unless of course they both market and price the devices better. What we might see is small companies producing low-end devices for niche markets but it’s all conjecture at the moment.

However, there will be great debate over the next few months, if these devices are considered BlackBerry’s at all, especially with their existing user base. Is another device manufactured by a third party with no input from BlackBerry, bar sticking their software on it, a true BlackBerry? When you consider that BlackBerry’s Android apps are already available for other Android smartphones, the the challenge will become even more difficult.

While today’s announcement will come great news for investors, it will be sad news for fans of the company’s previous hardware, who had convinced themselves that this day would never come.

Commenting on BlackBerry exiting internal hardware making, CCS Insight’s chief of research, Ben Wood, also questioned the longevity of even third-party made BlackBerry devices.

“BlackBerry has succumbed to the pressure so many other phonemakers have faced. It lacks the scale to be competitive in devices and can’ keep producing its own phones indefinitely just to serve a small subset of its clients addicted to its home-grown devices. Having a third party take over manufacturing is sensible however how long that lasts has to be a question mark,” he said in a statement.

“This does not come as a surprise at all” he added.

“BlackBerry had made no secret of the fact that it might shut down its own phone making business. Pushing it out to a third party is a sensible solution but any manufacturer making BlackBerry branded devices will ultimately face the same challenges if it can achieve sufficient scale.”

You can guarantee that BlackBerry will be putting as much positive spin on this change as possible but whatever happens, the days of BlackBery smartphones as we have known them have predictably and finally come to an end.

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