Recommendation for BlackBerry Limited

Recommendation for BlackBerry LimitedSenior ExecutivesRyan Wang Alex NgoWilliam Sung Regina Ip

Executive Summary_____________________________________________________________________________________________________________________________________________

• Short term: To increase the company’s profit margin• Long term: To gain independence and become a profit centerGoals

• Underutilization of facility resources• High employee turnover rate• Decrease in interline sales

Issues

Recommendations

• Reduce the production of hardware will increase overall profit margin

• Expand the IoT services will gain market share in the software industry

Impacts

To increase company profit

Decrease in hardware revenue

To expand into the software industry

To reduce hardware services To expand IoT services

2

Company Background_____________________________________________________________________________________________________________________________________________

• Previously called “Research in Motion”• A Canadian based company, headquartered in Waterloo• Provides wireless devices, software, and services for the telecommunications

market

ANALYSIS | Alternatives | Recommendations | Implementations | Risks 3

Software• Internet of Things (IoT)• BlackBerry Messaging (BBM)• BES12 Multi-OS MDM

Hardware • Smartphones

Highlights_____________________________________________________________________________________________________________________________________________

• Well-known security encryption featured • Preferred enterprise and government phone• QWERTY keyboard ease typing experiences• Positive cash flow of $1.2 billion • Strong relationship with 650 worldwide carriers


Core Competencies_____________________________________________________________________________________________________________________________________________

PatentsProduct

Differentiation

Quality Customer-centric


Issue:Decrease in Hardware Sales_____________________________________________________________________________________________________________________________________________


Change in customers’ preferences

Loss of a major customer

Increased competition

6ANALYSIS | Alternatives | Recommendations | Implementations | Risks

Cause 1: Change in Customers’ Preferences_____________________________________________________________________________________________________________________________________________


52.6%

42.7%

7.0% 2.8%

Top U.S. Smartphone Operating Systems for Market Share

Android OS Apple iOS BlackBerry Microsoft

Cause 1: Change in Customers’ Preferences _____________________________________________________________________________________________________________________________________________

Google Play Apple App Store Windows Phone Store

Amazon Appstore BlackBerry World0

250,000

500,000

750,000

1,000,000

1,250,000

1,500,0001,300,000

1,200,000

300,000 240,000130,000

Number of Available Apps Among the Apps Stores

Num

ber o

f App

s


• Developers have no incentive to create apps for BlackBerry

Cause 2: Loss of the US government _____________________________________________________________________________________________________________________________________________

9ANALYSIS | Alternatives | Recommendations | Implementations | Risks

REASONS

BlackBerry slowly reduce the OS10 device production

After-sales services might not be satisfied

IMPACTS

Loss of one of the major market share

Brand image got weaken

Cause 3: Increased Competitions_____________________________________________________________________________________________________________________________________________


2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20160

10

20

30

40

50

60

4.04 6.4113.78

26.01

36.71

52.3 49

28.1

13.77

3.2

Number of BlackBerry Smartphones Sold by Fiscal Year (in mil-lions)

Num

ber o

f Sm

artp

hone

s So

ld

Cause 3: Increased Competitions_____________________________________________________________________________________________________________________________________________

• Mobile phone manufacturing has a high fixed cost

• Requires to sell 10 million phones a year to make a profit


Year Gross Margin (USD)

2015 $0.4832014 $0.431

LowGross Margin+Low Sales=LowSales Revenue

Alternatives_____________________________________________________________________________________________________________________________________________

Analysis | ALTERNATIVES | Recommendations | Implementations | Risks 12

Increase company revenue

Partner with Software Company

Reduce Hardware Services

Improve Adoption of BBM

Decision Matrix_____________________________________________________________________________________________________________________________________________

Analysis | ALTERNATIVES | Recommendations | Implementations | Risks 13

Partner with Software Company

Reduce Hardware Services

Improve Adoption of BBM

Short-term Profit Generating Reduced Risk Cost Efficient

Customer Reach

Short-Term Recommendation:Reduce Hardware Services_____________________________________________________________________________________________________________________________________________

• Reduce the varieties of smartphones • Hardware business has been struggling for the past years • Hardware segment performance has not been improved• Slack resources are required to expand other profitable businesses

Analysis | Alternatives | RECOMMENDATIONS | Implementations | Risks 14


• Reduce the varieties of smartphones • Keep BlackBerry PRIV (consumer) and Passport (enterprise)


BlackBerry PRIV BlackBerry Passport

Operating System Android OS BlackBerry 10 OS

Advantages • Currently popular for the mainstream market

• Provide a secure platform for its clients

• Maintain a sustainable relationship with Google

• Reasonable pricing for enterprise

• Improve the varieties of apps • Target specifically to enterprise with premium features



2007 2008 2009 2010 2011 2012 2013 2014 2015 201602468

101214161820

7.078.99

11.0512.47

17.34

14.41

9.37

16.19

9.46 9.2

BlackBerry Inventory Turnover Ratio

2014 2015 2016Inventory Write-Down ($) 1,600 million 95 million 36 million

• Minimize the inventory cost

Long-Term Recommendation Expand on Internet of Things (IoT) Software

Long-Term Recommendation:Expand on Internet of Things (IoT) software_____________________________________________________________________________________________________________________________________________

• Internet of Things• Allow machines to communicate with each other• Provide the ability to transfer data over a network• Increased risk of information breach



• Software has a high gross margin (80%)• Potential growth of 225% (14.3 billion units) from 2016 to 2020• Requires high technology of security features


Creates a business opportunity for BlackBerry


• Transfer 30% of R&D funds from hardware to IoT software• Target manufacturing (factories) businesses


Work Sites

Outs ide

Retai l

Human

Cities

Factories

0.2

0.6

0.4

0.2

0.9

1.2

Generated Revenues using Internet of Things in 2025 (in tri l l ions)

Low Estimate High Estimate


• Gradually increase the R&D funds of IoT services to grow organically• Further target companies that require high quality control• Expand market potential with showrooms and exhibitions


Short-TermImplementation Plans_____________________________________________________________________________________________________________________________________________

Tasks Month(s) 1 2 3 4 5 6 7

Inform related suppliers and distributors of discontinued product lines

CFO initiates the reallocation of R&D funds

Discontinue the production of selected products

Restructure employees to related departments

Inform the public and amend the after-sales services

Analysis | Alternatives | Recommendations | IMPLEMENTATIONS | Risks 21

Long-TermImplementation Plans_____________________________________________________________________________________________________________________________________________

Tasks Year(s) 0.5 1 1.5 2 2.5 3 3.5

Further decide the target market in manufacturing industry

Hire expertise for IoT development

Customize the software for the target manufacturing industry

Participate in IoT related exhibitions and showrooms

If successful, expand IoT services to other industries

Analysis | Alternatives | Recommendations | IMPLEMENTATIONS | Risks 22

Risks and Mitigation_____________________________________________________________________________________________________________________________________________

Risk Likelihood Impact Mitigation

Customer dissatisfaction with amended after-sales services

Medium Low Offer discount for new products or services migration

Employee dissatisfaction of the workforce restructuring

High Medium Provide additional training and internal transfer to the suitable department

Might take too long to develop IoT Medium Medium Must regularly update the project status report

Unable to monetize new IoT software Low High Continue to strengthen relationship with hardware manufacturers to reduce implementation cost

Analysis | Alternatives | Recommendations | Implementations | Risks 23

Recap_____________________________________________________________________________________________________________________________________________

• Short term: To increase the company’s profit margin• Long term: To gain independence and become a profit centerGoals

• Underutilization of facility resources• High employee turnover rate• Decrease in interline sales

Issues

Recommendations

• Reduce the production of hardware will increase overall profit margin

• Expand the IoT services will gain market share in the software industry

Impacts

To increase company profit


To expand into the software industry

To reduce hardware services To expand IoT services

24

Overview_____________________________________________________________________________________________________________________________________________

Company BackgroundHighlightsCore CompetenciesIssues and CausesAlternatives

Short-Term RecommendationLong-Term RecommendationImplementation PlansRisk and Mitigations


Appendix_____________________________________________________________________________________________________________________________________________

Why chose IoT?Gross Margin of Hardware and SoftwareReasons for 30% R&D Funds AllocationRevenue Sources for Internet of Things (IoT)Active Users of BlackBerry Messaging (BBM) in 2015Potential Growth of IoT in Home BusinessPotential Growth of IoT Installed from 2016 to 2020Disadvantages of BlackBerry Classic & LeapBlackBerry’s Current Product

26

Decision Matrix_____________________________________________________________________________________________________________________________________________

27

Internet of Things (IoT)

BES12 Multi-OS MDM

BlackBerry Messaging

(BBM)

Potential Market Growth

Reduced Risk

Cost Efficient

Customer Reach

Gross Margin of Software and Hardware_____________________________________________________________________________________________________________________________________________

For the Three Months Ended May 31, 2016(in millions)

Software & Services Mobility Solutions

Revenue $ 166 $ 152

Cost of goods sold 32 140

Gross margin $ 134 $ 12

Gross margin ratio 80% 8%

28

Reasons for 30% R&D Funds Allocation_____________________________________________________________________________________________________________________________________________

• A reasonable portion based on 80/20 rule• Reduced risk due to the existing IoT software services on

automotive and asset tracking

29

Revenue Sources of Internet of Things (IoT)_____________________________________________________________________________________________________________________________________________

30

Offices

Homes

Vehicles

Work Sites

Outs ide

Retai l

Human

Cities

Factories

0.1

0.2

0.2

0.2

0.6

0.4

0.2

0.9

1.2

Generated Revenues using Internet of Things in 2025 (in tri l l ions) Low Estimate High Estimate

Active Users of BlackBerry Messaging (BBM)_____________________________________________________________________________________________________________________________________________

Kakao

BlackBerry

Line

KIK

Viber

Skype

Wechat

QQ Mobile

FB Messenger

Whatsapp

0 100 200 300 400 500 600 700 800

48

91

181

200

236

300

500

576

600

700

Active Users of Global Mobile Messenger App in 2015 (in millions)

31

Potential Growth of IoT in Home Business_____________________________________________________________________________________________________________________________________________

32

IoT Units Installed from 2016 to 2020 (in millions)_____________________________________________________________________________________________________________________________________________

Category 2014 2015 2016 2020

Consumer 2,277 3,023 4,024 13,509

Business: Cross –industry 632 815 1,092 4,408

Business: Vertical-specific 898 1,065 1,276 2,880

Grand Total 3,807 4,902 6,392 20,797


Reasons for Reduction of BlackBerry Classic & Leap_____________________________________________________________________________________________________________________________________________


BlackBerry Classic BlackBerry Leap

Operating System BlackBerry 10 OS BlackBerry 10 OS

Disadvantages • Long surpasses the average lifespan of a smartphone in the current market

• Sales did not increase since release

• Features might not as suitable as Passport to meet the clients’ needs

• Limited the varieties of apps, which decrease its attractiveness

BlackBerry’s Current Product_____________________________________________________________________________________________________________________________________________


BlackBerry Leap BlackBerry PRIV BlackBerry Passport BlackBerry Classic