WEBVTT - Bloomberg's Butler on Blackberry: Shrinking to Grow (Audio)

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<v Speaker 1>Global business news twenty four hours a day. If Bloomberg

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<v Speaker 1>I'm Charlie Pellant, the Donald, the SMP Nestack all advancing oil.

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<v Speaker 1>The big story. Today's crude oil surging four percent right

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<v Speaker 1>now talking about West Texas Intermediate. Let's said right over

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<v Speaker 1>to the first word Breaking news desk for today's afternoon call.

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<v Speaker 1>A lot going on all about oil. And here's Bill Maloney.

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<v Speaker 1>Good afternoon, Charlie. MANUUS averages jumped into day on news

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<v Speaker 1>of that OPAQ production cut. Dow is currently hired by

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<v Speaker 1>eighty two point, sesamees Game eight and AzaC is hired

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<v Speaker 1>by six. The small cap six D is up four

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<v Speaker 1>points send the US ten yield at one point five

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<v Speaker 1>seven percent. Seven out of eleven sub sectors are higher,

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<v Speaker 1>led by gains and energy, Materials, and the industrials Telecom, utilities,

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<v Speaker 1>healthcare and consumer staples fell down. Transports are up fifteen,

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<v Speaker 1>utilities are down three as a biotext fall, and the

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<v Speaker 1>Vicks drops three point seven percent. Leaders to the upside

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<v Speaker 1>in the down include Exon Mobile Caterpillar and Chevron, while Nike,

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<v Speaker 1>McDonald's and Coca Cola led to the downside. Another news

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<v Speaker 1>like California State Treasurer sanctioned Wells Fargo for twelve months

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<v Speaker 1>and Tempera Cilly plunged after cutting your sales forecast, while

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<v Speaker 1>Murphy Oil serves as much as eleven percent amid gains

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<v Speaker 1>and energy live from the first breaking news to ask

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<v Speaker 1>im Bill Maloney, l all right, thank you very much,

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<v Speaker 1>Bill Maloney, and again Crude Oil West Texas in the

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<v Speaker 1>media four percent to hear live breaking news over your

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<v Speaker 1>Bloomberg type squawk on your terminal squ a w K.

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<v Speaker 1>I'm Charlie Paullattat's a Bloomberg business flash. You're listening to

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<v Speaker 1>taking stock with Bim Box and Kathleen Hayes on Bloomberg Radio. BlackBerry,

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<v Speaker 1>maybe we should play a dirt for BlackBerry. Of course,

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<v Speaker 1>BlackBerry was synonymous at one time with mobile communications, famous

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<v Speaker 1>for their cell phones that have the physical peopoards. Well,

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<v Speaker 1>you have a nickname for it, good, that's good. Many

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<v Speaker 1>named Many named them crackberries. Right now. Today it announced

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<v Speaker 1>that they have decided to stop making their own devices

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<v Speaker 1>other companies, perhaps through licenses and some one will still

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<v Speaker 1>make some of those products with their BlackBerry name is

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<v Speaker 1>still imprinted. But imagine taking such a consumer brand like that,

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<v Speaker 1>and what's well, you know, here to tell us how

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<v Speaker 1>this all happened is John Butler. He is our senior

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<v Speaker 1>telecoms analyst for Bloomberg Intelligence, and he knows that I

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<v Speaker 1>stopped him almost every day to bother him about BlackBerry.

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<v Speaker 1>So go ahead, tell us all about BlackBerry. Another one

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<v Speaker 1>bites the dust. And it's a it's a tough market.

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<v Speaker 1>It's it's really in many ways a ruthless market. If

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<v Speaker 1>you begin to lose that momentum in the consumer marketplace,

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<v Speaker 1>it really can spell disaster. Look at Nokia, look at

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<v Speaker 1>it to rolla now BlackBerry, but CEO John Chen I

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<v Speaker 1>think is making the right move to restore the company

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<v Speaker 1>to profitability. If you look under the hood here, you know,

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<v Speaker 1>devices were over thirty one of revenue and only twelve

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<v Speaker 1>percent of gross margin. Software is forty one percent of

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<v Speaker 1>revenue in the latest quarter and fifty seven percent of profits.

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<v Speaker 1>So that's just like that, that's where the I mean

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<v Speaker 1>the stock is today right the stock right now is

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<v Speaker 1>up more than five and a quarter percent, where eight dollars. Yeah,

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<v Speaker 1>So it's it's all about that transition to software and

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<v Speaker 1>security for them. So then give us a sense like

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<v Speaker 1>if it's a pie okay Blackbreys of pie the business

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<v Speaker 1>and one big piece of the pie has just gone away.

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<v Speaker 1>It's it's like in Indonesia, now license to make that

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<v Speaker 1>they put their name on that kind of device. What's

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<v Speaker 1>left and how much is it worth? How big is

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<v Speaker 1>this company now or this pie apple? Well, the river

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<v Speaker 1>the revenue Pie is smaller by thirty percent, but the

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<v Speaker 1>profit pie is smaller by only about twelve percent. And

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<v Speaker 1>that's really the key here at Kathleen is they're shrinking

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<v Speaker 1>to grow, if you want to think of it that way.

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<v Speaker 1>That's the strategy, shrink to grow and transition over to

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<v Speaker 1>that security and software business enhance. That's they're still going

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<v Speaker 1>to license the name. Uh, they're going to monitor quality

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<v Speaker 1>control and specs obviously because their name is going there. Um.

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<v Speaker 1>But they're really out of the business of designing and

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<v Speaker 1>manufacturing in house. They got a lot of competition in

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<v Speaker 1>the new areas that they want to grow in and

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<v Speaker 1>nobody is standing still. No one is staying still. So

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<v Speaker 1>what are they doing? What are they doing that's working

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<v Speaker 1>for them, and where do they need to get, you know,

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<v Speaker 1>a little bit more action. BlackBerry always hangs their hat

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<v Speaker 1>on security. They really have done quite well there and

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<v Speaker 1>they have a lot of patents in that portfolio continues

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<v Speaker 1>to rows. So in software, the model is to to

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<v Speaker 1>move to a recurring revenue model as opposed to what's

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<v Speaker 1>called perpetual license that one time pay. So they're looking

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<v Speaker 1>for that annualized revenue stream and they're selling proposition is

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<v Speaker 1>we have the best security in the business, particularly at

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<v Speaker 1>the device level. So I think they're gonna do. That's

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<v Speaker 1>why they hung on in the device business. They hung

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<v Speaker 1>on to the software and security piece and they're just

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<v Speaker 1>moving the design and the manufacturing of the hardware outside

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<v Speaker 1>of that. How do they make money at that point?

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<v Speaker 1>Like if you're just licensing and that all comes like

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<v Speaker 1>either you running the Snapdragon ship from fall Calm or

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<v Speaker 1>that that all built into that prices that it is.

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<v Speaker 1>In fact, what's interesting, what's good about the deal for

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<v Speaker 1>BlackBerry is no matter who's selling the device or at

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<v Speaker 1>what price, BlackBerry makes a pre negotiated or a set

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<v Speaker 1>price on that royalty on a per device base. Okay,

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<v Speaker 1>is there any cautionary tale in what happened to BlackBerry

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<v Speaker 1>totally the leader at one time, Apple comes up boom,

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<v Speaker 1>and you know, Samsung and Android. For any other you know,

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<v Speaker 1>mobile makers out there, I think the key is, more

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<v Speaker 1>than almost any other tech market, you really have to

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<v Speaker 1>keep your finger on the pulse of what people want

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<v Speaker 1>and where the technology is headed. So with BlackBerry, I

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<v Speaker 1>think they lost sight of the importance of apps as

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<v Speaker 1>they were beginning to gain traction. After the iPhone was introduced.

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<v Speaker 1>That really was the beginning of the end for them.

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<v Speaker 1>To them, they looked at it and said, we're all

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<v Speaker 1>about security and we're all about push email. That's the

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<v Speaker 1>only app that people really need or are really gonna want.

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<v Speaker 1>And they were wrong on that, and they weren't paying

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<v Speaker 1>attention to that growing momentum behind the iPhone and why

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<v Speaker 1>that momentum was growing. It was all about apps. So

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<v Speaker 1>neither Samsung or Apple is going to make that mistake.

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<v Speaker 1>I hope not. We'll see you know again, I mentioned

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<v Speaker 1>those names at the beginning of the segment. Think of it.

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<v Speaker 1>Nokia used to be a giant in the field, so

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<v Speaker 1>is Motorola. They're both gone now. So how about Jamni

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<v Speaker 1>is an up and comer. They've lost a little bit

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<v Speaker 1>of momentum lately. They're trying to find that next what

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<v Speaker 1>they call hero device, the one that really resonates. Well,

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<v Speaker 1>so we'll see jump, but they're always a hero. When

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<v Speaker 1>you join us on taking Stock, he senior Telecom Services

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<v Speaker 1>and Equipment analyst for Bloomberg Intelligence. I'm Kathleen Hayes. Along

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<v Speaker 1>with pim Fox. We're broadcasting live today from the Bloomberg

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<v Speaker 1>Markets Most Influential Summit at our Bloomberg World headquarters. This

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<v Speaker 1>is taking Stock, This is Bloomberg. Bloomberg. Taking Stock is

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