BlackBerry ends smartphone development

The end

BlackBerry used to be an incredibly successful smartphone maker, but the iPhone and Android changed that. Now, the company formerly known as RIM cannot even manage to sell a measly one million units in a quarter, let alone compete against players like Apple and Samsung.

So, with a market share hovering around the 0.1 percent mark, BlackBerry has decided to take a big step back, announcing that it will stop developing its own smartphones. Instead, BlackBerry will focus on a more lucrative market -- enterprise software services.

"The company plans to end all internal hardware development and will outsource that function to partners. This allows us to reduce capital requirements and enhance return on invested capital", says BlackBerry CEO John Chen. The company broke the news in its Q2 FY2017 earnings report.

BlackBerry has tried to turn things around for its smartphone division using Android. It launched Priv, its first device running the open-source operating system, in Q4 2015. A premium handset, it was too expensive to give its market share a significant boost. In fact, sales have been low for its entire lineup.

The second Android smartphone is more relevant to BlackBerry's mobile strategy, because it wasn't developed in-house by the Canadian company. Called DTEK50, it is actually a rebranded Alcatel Idol 4. This is a more affordable smartphone, though it still looks a bit out of place in today's consumer market by looking at its specs sheet.

The DKTEK50 is actually the type of smartphone that we will continue to see BlackBerry's branding on. It is developed by a hardware partner, and is more restrained in the level of customization. There are BlackBerry software and services on it though, and those will likely continue to be offered on upcoming devices.

Taking what Chen says into account, I suspect BlackBerry will give a certain direction for its hardware partners to follow in developing new devices, at least on a software level, and leave them to do the heavy lifting integrating its software into Android.

BlackBerry's new strategy of focusing on software seems to be working out so far. "In Q2, we more than doubled our software revenue year over year and delivered the highest gross margin in the company’s history", says Chen. What's more, BlackBerry is also pushing its messaging service forward, announcing that it has "signed a strategic licensing agreement to drive global growth in our BBM consumer business".

It will be interesting to see how this affects BlackBerry's reach in the smartphone market and whether it will actually help it perform better from a financial standpoint. Smartphone making is expensive and, for many companies, not all that profitable. Software, on the other hand, may cost less to make, is easier to sell, and, as a result, much more lucrative for BlackBerry.

BlackBerry's announcement will no doubt lead many to wonder whether other companies should follow suit. Microsoft is a perfect example, as it has also been struggling a great deal to attract consumers with its Windows smartphones, but there are also others, like HTC, that are in a similar position.

Profitability, as I mentioned earlier, is a key issue in today's smartphone market. Most profits are made by Apple and Samsung, while many players either make very little money or post losses. And, if they are not in a position of strength from a sales perspective, it would make sense to considering calling it quits.

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