Chris Lau, Kapitall: We've asked this before: are BlackBerry shares ripe for picking? Look to some Canadian tech stocks for ideas.

BlackBerry ( BBRY ) shares are still in free fall. No one may guess when the decline will stop, since the company lacks many positive catalysts in the foreseeable future that would reverse the negative momentum.

Read more on this topic from Kapitall: Are Blackberry Shares Ripe for the Picking

Some reasons for the decline include:
  • Weak sales for BB10 in the current quarter is almost certain.
  • Delays by corporations installing BlackBerry Server software.
  • And negative sales momentum for new products.

Click on the interactive chart to see BlackBerry stock price over time.

Yet there are some positive developments that give existing shareholders hope, like the success of BBM and the hiring of John Chen. But what should investors really look for before being convinced that a turnaround is in place? And which other companies could BlackBerry emulate?

Bears and bulls

Bears are once again benefiting from the drop in BlackBerry shares. Short volume rose at the end of October to nearly 149 million shares.

Meanwhile Prem Watsa’s failure to buy BlackBerry was not a complete loss for investors. Shareholders may benefit from his involvement because he remains committed to seeing the company turnaround. He too owns shares in the company – roughly 10%.

More importantly, Watsa injected $1 billion into BlackBerry, to allay fears from customers that the company will burn through all of its existing cash. With the release of the Z30 and a lower-priced Z10, BlackBerry has room to better focus its marketing efforts. While attention was centered on the $2,250 BlackBerry device, developments of a Q30 and Z30 should not be ignored.

And by the time corporations evaluate and implement BlackBerry Enterprise Server (BES), they will have the option of issuing Q30/Z30 devices, or managing Apple (AAPL) or Android (GOOG) devices instead. Chen has stated that the company will embrace a multi-platform management platform.

Click on the interactive chart to see quarterly sales for Apple, Google and BlackBerry over time.

BBM growing

BlackBerry’s unexpected success with BBM gives the company the seeds for growing a Facebook-like ( FB ) social network outside of the BlackBerry user base. BBM Channels, which is still in beta, also has some similarities to sites like Google+ or Twitter (TWTR). Even without Channels available on the other platforms, user engagement on BBM in the United States was 40 minutes. In Europe, where messaging is more ubiquitous, engagement was 59 minutes.

BlackBerry could monetize its BBM asset, if it figures out a pricing model for a premium option of BBM that successfully converts acquired users. It may implement a “freemium” model by advertising BlackBerry products on BBM (iOS/Android) and adding sponsored content on Channels.

Anatomy of a turnaround

If Blackberry can find the right mix of cost-cutting and sales, shares may be positioned to move up again. Other Canadian companies that turned their operations around had two things in common.

First was cost cutting. Celestica ( CLS ) is an electronics manufacturing services (EMS) company that once made devices for BlackBerry. When that contract ended, the company drastically cut costs and found other sources of revenue.

The second was the sale of non-core businesses. Sierra Wireless ( SWIR ) sold its wireless modem unit to focus on cloud solutions. Flush with cash from the sale, the company is now a mobile to mobile pure play. As a leader in this sector, Sierra now grows revenue and generates solid margins.

And Mitel ( MITL ) was a $2.56 stock (at its yearly low) that traded recently at $8.40. The company repaid $20 million against its existing credit facility, and merged with its smaller rival, Aastra. The merger doubles revenue, with more than 54% of it coming from Europe, Middle East and Africa.

Click on the interactive chart to see stock prices over time. 

BlackBerry does not have a smaller rival to acquire, but it could acquire mobile management companies, or spin off or have a joint-venture for its devices unit to become a more nimble company.

Investors might expect BlackBerry to sell-off sharply again when the company reports on December 19. But then, this has been an uncertain quarter. BlackBerry’s ownership and future was uncertain, and sales were limited to unpopular Z10 and Q10 devices.

Now that the company has new leaders firmly committed to selling secure phones and mobile management solutions for enterprise, will the decline end?


(Written by Chris Lau, a Kapitall Contributor. Quarterly sales and stock price data sourced from Zacks Investment Research.)