Jan 21, 2014 · 5 minutes

Is it over for BlackBerry yet?

For so long the consensus has been yes that you half expect to hear funereal organ music on the company's earnings calls. Which makes it somewhat surreal to hear more contrarian voices arguing that, here in BlackBerry's darkest hour, the company is finally lining up the pieces to turn things around.

The case for being bearish on BlackBerry is widely known. It hasn't changed much through the past few years and three CEOs. There is only room for two, maybe three mobile platforms -- Apple's iOS and Google's Android are dominating the mobile industry, with Microsoft's Windows Mobile a distant third. BlackBerry blew its chances for a place at the table by waiting too long to embrace multitouch screens like the iPhone, which appealed to developers and consumers alike.

Through various efforts, BlackBerry attempted to claw its way back into mobile devices, even as business users defected to iPhones and Android phones. It developed a decent mobile OS, BlackBerry 10, but only after prolonged delays. It rolled out new phones, like the Z10 and the Q10, that were also good phones but failed to find a market. The market had already moved on. And everyone began to predict the demise of BlackBerry.

The BlackBerry-is-finished meme began to poison the company's brand and the company slipped into a slow death spiral. Poor sales led to losses, burning through cash, and this pushed the stock lower, generating yet more press about how Blackberry is finished, leading to even fewer sales because no one wants a phone from a dying company, and so on.

The negative image spread to BlackBerry's other businesses, such as its mobile-device management software, secure messaging platform, and patent portfolio. The consensus was that nobody would want these either, because BlackBerry's efforts to shop itself or raise funds by taking itself private last year had come to naught.

That's a pretty dire scenario. So what makes the contrarians think that anything has changed?

It's mostly in the new leadership under John Chen, the CEO appointed in November. Chen is known for saving data-management software maker Sybase, taking its stock from $5 a share to $65-a-share when SAP bought the company. But BlackBerry's stock continued to slump for weeks after Chen's hire, reaching $5 in December. In 2009, it traded at $88 a share.

So far, Chen is following the playbook he used at Sybase, hiring smart talent he's worked with before, moving out of poorly performing core businesses and into less-visible areas that promise growth. Right before Christmas, Chen announced two bold moves, interpreted at the time as more bad news: He signed a deal with Foxconn to make BlackBerry devices, many of which would be aimed at the low end of the market. And he wrote down $1.6 billion in inventory and another $2.7 billion in “impairment of long-lived assets” (basically, damage related to the stock turmoil of the previous three months).

In short, Chen realigned the company's focus from a seller of largely unpopular mobile devices to a maker of enterprise software for the mobile industry. The doomed mobile-phone business would be handled by Foxcomm -- perhaps presaging an eventual sale of the business -- and the huge charges refreshed Blackberry's balance sheet to reflect its new status as an enterprise software company.

Chen has spoken clearly about his plan, but few people have viewed Blackberry as an enterprise company. And that is the crux of the contrarian argument. Chen's plan has removed inventory risk, offloaded the costs of manufacturing phones, and focused the businesses that haven't been visible to the consumer market: BES, BlackBerry's mobile-device management software; its secure messaging platform; and its QNX embedded software.

At first, Wall Street took little notice, but that has been changing recently. In early January, RBC Markets estimated BlackBerry's cash, a key concern among bears, would stabilize this year and that Chen's recent moves would improve cash flows in the future. Then John Sculley talked about the hidden value in BlackBerry's non-device businesses, mentioning in passing his regret on not being able to buy the company.

On Friday, a table-pounding defense of BlackBerry came from an unlikely source: Citron Research, a newsletter better known for sniffing out stocks ripe for short selling (Citron's recent takedown of 3D-printer company voxeljet is an amusing example). Citron agrees that the company will never compete with Apple or Samsung in selling smarpthones, but it believes investor focus should lie elsewhere:

While investors are bombarded on a daily basis with media articles about the struggling handset maker as if the Company was going to fall apart any day, the reality is it has a healthy balance sheet, with ample liquidity to execute its turnaround strategy and make the necessary investments for growth... For the first time, the future of BlackBerry is not going to be tied to the BlackBerry devices people were once familiar with; rather, it is going to be an enterprise software company with focus on mobile device management solutions and other potential mobile enterprise software opportunities. The BlackBerry today is a fundamentally different company from the old BlackBerry that investors were familiar with just a short few months ago before John Chen stepped in.
In particular, Citron argued, BES10 has the lead in the market for mobile-device management, with 80,000 enterprise customers and relationships with 675 carriers around the world. BlackBerry Messenger may lag WhatsApp and other texting apps, but added to BES it could offer companies and governments a secure enterprise messaging service. And QNX, designed to integrate mobile devices with car software, could position BlackBerry as a player in the automotive software market.

Of course, BlackBerry faces competition in each of these markets, but the new management Chen is bringing in from SAP and the $3 billion in cash it still has on hand could position it to succeed in mobile-enterprise software. BlackBerry will never again be the company it was five or six years ago, it will be as sexy as enterprise software always is (which is to say unsexy), but it may surprise in how successful it is as BlackBerry 2.0.

Since Citron issued the report, BlackBerry's stock has risen 16 percent. Also helping is news that a new network at the Defense Department would rely on BlackBerry's technology, easing some concerns that federal agencies would migrate to iOS and Android. Chen still has an uphill battle in turning BlackBerry around, but for the first time in several years it's possible to see the company coming back from the brink, even if it looks different from the old BlackBerry.

[Image via Thinkstock]