BlackBerry’s future in handset manufacturing may hinge on the Passport

BackBerry shares inched upward after the company announced the formation of a new business unit that includes some of the company’s most attractive assets. BlackBerry Technology Solutions (BTS), as the division was subbed, will oversee the QNX platform, the IoT-targeted Project Ion, the Paratek antenna-tuning kit, Certicom cryptography applications and the company’s substantial patent portfolio. The new unit will be led by new hire Sandeep Chennakeshu, a former CTO at Sony-Ericsson.

BlackBerry hopes to build on the momentum it demonstrated during its most recent fiscal quarter, when it soundly beat Wall Street’s expectations by shipping more smartphones than it did during the same period a year prior and actually managed a small profit of $23 million including non-cash and one-time items. It’s apparent that John Chen’s dramatic cost-cutting moves are already paying dividends; with this week’s announcement Chen is carrying out his strategy of reshaping the company to sharpen its focus on enterprise offerings such as mobile data security and device management.

BlackBerry isn’t done with manufacturing… yet

BlackBerry’s presence in the smartphone market is more dismal than ever. The one-time king of the mobile enterprise saw its worldwide market share plummet to a mere .5 percent in the second quarter, according to data released by IDC last week, down dramatically from 2.8 percent during the same period in 2013. Shipments of BlackBerry handsets were a down a staggering 78 percent over the last year.

The Canadian company will aim to claw its way back into the hardware game with the release of the BlackBerry Classic and the BlackBerry Passport, both of which will run BB 10 and are slated for release later this year. The Classic, as Seeking Alpha documents here, is very much an evolutionary device aimed at appealing to the ever-winnowing base of BlackBerry users. It has been described as the spiritual success of the Q10, with its full QWERTY keyboard but with significantly improved specs (but with the trackball and dedicated function keys the Q10 lacked). Which might all sound somewhat inspiring if sales of the Q10 hadn’t been such a disappointment.

More intriguing, though, is the Passport, which is expected to come to market in September and is being positioned as a device for specific industries as well as key executives. Unlike the Classic, the Passport offers a distinctive – some might even say strange – design including a 4.5-inch square screen and unusually pointed corners. The square screen provides an aspect ratio of 1:1, which can display 60 characters across as opposed to the 40 that traditional touchscreens can support. While that probably won’t make for a great way to watch video, it should be an excellent display for reading documents and analyzing spreadsheets – you know, the kind of things that traditional BlackBerry users are likely to do regularly. A major challenge, of course, will be enticing developers to tweak their enterprise and productivity apps to take full advantage of that screen.

The device biz: Little upside, lots of downside

The Passport’s unique design makes it more likely to win back former BlackBerry users than the Classic, which is likely to appeal more to the hardcore business users who still use the operating system every day. Chen has said that his company only needs to sell 10 million units a year for the handset business to be profitable, which is a reasonable goal even for BlackBerry. But smartphone manufacturing is a brutal business where profits are very hard to come by for any player not named Apple or Samsung, and where margins continue to thin. Chen has clearly – and wisely – decided to focus more on developing enterprise-class software and services than churning out smartphones and tablets. The Passport is undeniably a long shot, and if it doesn’t fare well I think we’ll see BlackBerry spin off its manufacturing business in 2015.