John Chen's simple plan to save BlackBerry

[mcliu]

Globe and Mail had a recent interview with John Chen.

 

http://www.theglobeandmail.com/report-on-business/rob-magazine/john-chens-simple-plan-to-save-blackberry/article17065516/

[nwoodman]

Globe and Mail had a recent interview with John Chen.

 

http://www.theglobeandmail.com/report-on-business/rob-magazine/john-chens-simple-plan-to-save-blackberry/article17065516/

 

Great article and really enforces the fact that Heins was way out of his league.  The fact that Prem backed Heins in the first place is still a mystery to me.  The little I have read about Chen certainly gives me hope and hasn't left me squirming the way Heins used to 

 

http://thenextweb.com/insider/2013/11/04/5-funniest-things-ex-blackberry-ceo-thorsten-heins-said/

 

The older I get the more I have come to realise the importance of good management in the overall puzzle.  Hopefully Prem's quote comes true and Chen's reputation only grows

 

Watsa, who has the most riding on Chen’s ability to deliver, clearly believes the probabilities are on his side. “When John has accomplished the mission he has set out on, it will be one of the greatest turnaround stories, not only in the tech world, but in all business.”

[cwericb]

Like Blackberry, a few years ago The Brick was seen to be in its death throes and many thought the company was down for the count. Fairfax stepped in with financing, appointed Bill Gregson as CEO, made some major changes and had The Brick back on its feet within a couple of years.

 

I have every confidence, despite what many here may think, that John Chen is a key step in the rescue and reformation of Blackberry.

 

 

[StubbleJumper]

Like Blackberry, a few years ago The Brick was seen to be in its death throes and many thought the company was down for the count. Fairfax stepped in with financing, appointed Bill Gregson as CEO, made some major changes and had The Brick back on its feet within a couple of years.

 

I have every confidence, despite what many here may think, that John Chen is a key step in the rescue and reformation of Blackberry.

 

 

I hope you are ultimately right and RIM turns things around, but I would suggest that the Brick and RIM ran into drastically different problems.

 

In the case of the Brick, their business model is to sell crappy furniture to middle and lower income Canadians who are financially strapped and mathematically challenged.  During the period that I followed the Brick, they basically broke even on the furniture, but they made decent profit from financing and extended warrantees.  The Brick ran into trouble due to the financial crisis.  Their market was sound, and their business model was sound (even if it is slightly off-putting), but they hit an air-pocket for a couple of years when we were slammed by the Great Recession.

 

Blackberry is a different beast.  At an industry level, people are buying as many smartphones as they ever have.  However, consumers have collectively decided that they hate Blackberry's products and have switched to devices of other flavours.  This is not just a temporary market disruption caused by the financial crisis.  This is a broad-based  consumer rejection of Blackberry's products.  In my opinion, fixing Blackberry's problems will be much more difficult than the Brick, because Chen cannot simply sit tight and wait until the economy turns around and people once again start buying crappy furniture on credit.  No, if Chen fixes Blackberry, it's because he'll have reoriented the products in a way that consumers appreciate.

 

 

SJ

[cwericb]

I probably should have made myself clearer. I agree that there is little to compare between Blackberry's situation and the situation at The Brick other than the fact that both companies found themselves in serious trouble.

 

My point was that I believe that among Fairfax's many talents is an expertise for selecting the right people to go into a troubled company and make some bold moves and turn the company around.

 

The Brick was nearly in a state of collapse when Fairfax put Gregson in. He successfully made a lot of sweeping internal changes at The Brick and it was definitely not just a situation where the economy came around and thus business improved. The Brick was failing long before the financial crisis hit. Between 2007 and 2008 share price fell from about $10 to $2-3 as they cut monthly distributions. (Unfortunately I know this the hard way).

 

So far Chen seems to be making the right moves and the market seems to approve of what he is doing. Time will tell.

[valueinvesting101]

http://www.sec.gov/Archives/edgar/data/915191/000110465914013634/a14-6855_1sc13da.htm

 

Does this mean Fairfax is selling Blackberry? What re-balancing does this document refers to?

[Grenville]

http://www.sec.gov/Archives/edgar/data/915191/000110465914013634/a14-6855_1sc13da.htm

 

Does this mean Fairfax is selling Blackberry? What re-balancing does this document refers to?

 

Great to see them pulling some of their capital out!

    Between January 29, 2014 and February 24, 2014, Northbridge Commercial Insurance Corporation sold 250,000 Shares on the open market at an average price of $10.03 per share, Northbridge General Insurance Corporation sold 1,250,000 Shares on the open market at an average price of $10.03 per share, United States Fire Insurance Company sold 500,000 Shares on the open market at an average price of $10.03 per share, Advent Underwriting Limited sold 700,000 Shares on the open market at an average price of $10.03 per share, Odyssey Reinsurance Company sold 1,500,000 Shares on the open market at an average price of $10.03 per share, TIG Insurance Company sold 500,000 Shares on the open market at an average price of $10.03 per share and Zenith Insurance Company sold 500,000 Shares on the open market at an average price of $10.03 per share.”

[Guest wellmont]

shifting exposure from equity to debt.

[Liberty]

http://www.bloomberg.com/news/2014-03-06/blackberry-ceo-briefs-white-house-to-cultivate-vip-obama.html

[investmd]

Am optimistic about the positive changes since John Chen has come on board and am a fan of Watsa's intellect, insight and deep value approach. However, am troubled by Watsa's opinions on management for this company. When he first bought in, he made a point of stating how good Lazardis and Balsille were and strong management was a major reason for him to buy in.  When that fell apart, he was confident that Thorsten Heins was the man and spoke highly of him. Now similar words about Chen with no explanations as to why his previous choices did not work out.

A certain lack of clarity in the process.

[ourkid8]

Mr. Watsa also praised Tom Ward of Sandridge.  In regards to ethics and operational execution, he was an absolute disaster.  Even during the proxy battles, Fairfax openly supported TW which was a huge mistake (he destroyed billions of dollars in shareholder value) considering how strong the current management is in comparison and the amount of work that was required to turn around this company.  IMO, Mr. Watsa lacks good judgment in character and he will continue to support and have full faith in the jockey until the end.  This is totally different from Mr. Buffet who expects high quality management with good judgment or he would typically avoid the investment.

 

Tks,

S

 

Am optimistic about the positive changes since John Chen has come on board and am a fan of Watsa's intellect, insight and deep value approach. However, am troubled by Watsa's opinions on management for this company. When he first bought in, he made a point of stating how good Lazardis and Balsille were and strong management was a major reason for him to buy in.  When that fell apart, he was confident that Thorsten Heins was the man and spoke highly of him. Now similar words about Chen with no explanations as to why his previous choices did not work out.

A certain lack of clarity in the process.

[Guest longinvestor]

Mr. Watsa also praised Tom Ward of Sandridge.  In regards to ethics and operational execution, he was an absolute disaster.  Even during the proxy battles, Fairfax openly supported TW which was a huge mistake (he destroyed billions of dollars in shareholder value) considering how strong the current management is in comparison and the amount of work that was required to turn around this company.  IMO, Mr. Watsa lacks good judgment in character and he will continue to support and have full faith in the jockey until the end.  This is totally different from Mr. Buffet who expects high quality management with good judgment or he would typically avoid the investment.

 

Tks,

S

 

Am optimistic about the positive changes since John Chen has come on board and am a fan of Watsa's intellect, insight and deep value approach. However, am troubled by Watsa's opinions on management for this company. When he first bought in, he made a point of stating how good Lazardis and Balsille were and strong management was a major reason for him to buy in.  When that fell apart, he was confident that Thorsten Heins was the man and spoke highly of him. Now similar words about Chen with no explanations as to why his previous choices did not work out.

A certain lack of clarity in the process.

+1

With FFH wanting to go the BRK way of owning operating companies, taking on more and more turnarounds is a sure recipe for disaster. WEB avoids 10 foot hurdles, like the plague. PW finds himself facing multiple such hurdles. This has to do with businesses coming to BRK to get bought. WEB has the right to say no and most of the time he does. FFH's foray into wholly owned businesses is rather unimpressive and leaves one scratching heads.

[Morgan]

Mr. Watsa also praised Tom Ward of Sandridge.  In regards to ethics and operational execution, he was an absolute disaster.  Even during the proxy battles, Fairfax openly supported TW which was a huge mistake (he destroyed billions of dollars in shareholder value) considering how strong the current management is in comparison and the amount of work that was required to turn around this company.  IMO, Mr. Watsa lacks good judgment in character and he will continue to support and have full faith in the jockey until the end.  This is totally different from Mr. Buffet who expects high quality management with good judgment or he would typically avoid the investment.

 

Tks,

S

With FFH wanting to go the BRK way of owning operating companies, taking on more and more turnarounds is a sure recipe for disaster. WEB avoids 10 foot hurdles, like the plague. PW finds himself facing multiple such hurdles. This has to do with businesses coming to BRK to get bought. WEB has the right to say no and most of the time he does. FFH's foray into wholly owned businesses is rather unimpressive and leaves one scratching heads.

This is an excellent point. There is a small, but drastic difference in building a collection of companies that have come from turn arounds compared to Buffetts way of getting excellent companies to begin with. In the end both investors have a group of compnies, but Buffetts are more profitable and for longer. Sometimes sitting on your hands and doing nothing really is best. 

[ourkid8]

@Long investor: in general I do agree with your statement but the team seems to have started to correct themselves.  Prime restaurants IMO was a poor acquisition especially owning 100% of a tier 2 restaurant business in Canada.  The team corrected their mistake and merged it with CARA while taking a 49% stake in the combined entity.  They also have brought in strong management to help run the company, great move!!! The synergies from merging these two companies is huge and will payoff in the years to come.

 

The keg, william Ashley and thomas cook;  I love these acquisitions.  I know they were not cheap as they have a huge runway of growth ahead of them and each have strong competitive advantages.

 

However, I do question the others such as ridley, sporting life and kitchen stuff plus which do not have a strong competitive advantage...

 

Thanks,

S

 

"FFH's foray into wholly owned businesses is rather unimpressive and leaves one scratching heads."

[moody202]

Like Blackberry, a few years ago The Brick was seen to be in its death throes and many thought the company was down for the count. Fairfax stepped in with financing, appointed Bill Gregson as CEO, made some major changes and had The Brick back on its feet within a couple of years.

 

I have every confidence, despite what many here may think, that John Chen is a key step in the rescue and reformation of Blackberry.

 

 

I hope you are ultimately right and RIM turns things around, but I would suggest that the Brick and RIM ran into drastically different problems.

 

In the case of the Brick, their business model is to sell crappy furniture to middle and lower income Canadians who are financially strapped and mathematically challenged.  During the period that I followed the Brick, they basically broke even on the furniture, but they made decent profit from financing and extended warrantees.  The Brick ran into trouble due to the financial crisis.  Their market was sound, and their business model was sound (even if it is slightly off-putting), but they hit an air-pocket for a couple of years when we were slammed by the Great Recession.

 

Blackberry is a different beast.  At an industry level, people are buying as many smartphones as they ever have.  However, consumers have collectively decided that they hate Blackberry's products and have switched to devices of other flavours.  This is not just a temporary market disruption caused by the financial crisis.  This is a broad-based  consumer rejection of Blackberry's products.  In my opinion, fixing Blackberry's problems will be much more difficult than the Brick, because Chen cannot simply sit tight and wait until the economy turns around and people once again start buying crappy furniture on credit.  No, if Chen fixes Blackberry, it's because he'll have reoriented the products in a way that consumers appreciate.

 

 

SJ

 

Great points SJ. However, if you hear and read John Chen, he is not banking on a turnaround in consumer business. His focus seems to be on making BBM the secure messenger of choice for enterprises, making the Blackberry platform a viable mobile device management platform in enterprises (compete against Airwatch and few others) and making QMX a viable platform for connected cars and in-car entertainment. The sense I got was Chen's believes they have already lost the consumer market and no point continuing to throw good money after bad in this segment!