Maria Bartiromo

USATODAY

Privacy has become the luxury of the day, in a world ripe with hacking, NSA spying, and information overload. But it is a place BlackBerry sees as its biggest opportunity. The firm, which has lost 90% of its value, and half of its staff, is fighting to stay alive, with what it calls the most secure technology in the industry. The company hired industry veteran and former Sybase CEO John Chen last November to turn things around. And even though consumers have left in droves for Apple and Android smartphones, Chen is counting on business and governments to capitalize on the one thing everyone wants: privacy. And don't call him a smartphone maker, because he says BlackBerry's secure technology is a lot more than handsets. Don't count BlackBerry out just yet. I caught up with Chen to talk turnaround. Our interview follows, edited for clarity and length.

Q: You have been leading a recovery at BlackBerry. How is it going?

A: It is a six- to eight-quarter journey. The first thing I have to do is to get into profitability, as well as cash flow breaking even. So, we have made two very specific milestones, One, by the end of this fiscal year, I expect us to be cash-flow positive from operations. And then, within the next fiscal year, I expect to start being profitable. So, those are the two milestones.

Q: People love their BlackBerrys. You have a whole host of people who really want you to succeed because they love the product. How important is this loyalty?

A: I very much appreciate of that. It's a big part of where we're going to go. When you look at our loyal customer base, it's very much concentrated in the government space, in enterprises like banks, insurance companies and various extremely productive oriented industries that need to be very secure. They need to have high security and trusting of the products, both in the handset as well as the software. That's a big part of my "road map" and strategy.

I'll give you a couple of examples: We're going to return the familiar user experience in the handsets business. There's a new product called the BlackBerry Classic that's coming out. It's an updated and enhanced version of one of our most popular and successful products called the Bold. It will include a keyboard and a good touch-screen, very fast Internet, Web-browsing capability and multimedia capability. But also it will be very productive and very secure. So, all the familiar things that people love, with some new technology updated. That will come out in November along with the server that helps companies manage devices. Not only the BlackBerry device, but every device, the iPhone and androids and Windows and everything else.

So, the new products will have a lot to do with the architecture . And we made some announcements of those at the Mobile World Congress.

Q: Why has it been so difficult to make money in the handset business?

A: It's a volume-driven business. And the handset business for the entire industry does not carry very high margin. So, when the volume is up, you can make some money. When the volumes are down, it's going to be difficult to make money. And then, there was also the way we designed some of our products in the past. It's not as efficient as it should be. I have done a little bit more on the supply chain to make it state of the art and very efficient. So, everything adds up. It's big volume, small margin. But that's true for everybody in the industry.

Q: You have said you're going to look at this business over six to eight quarters to see if you can make money in it and then decide whether to sell it. Is there a buyer out there?

A: Well, I don't expect to sell the business at all, the handset business. I actually do expect to make money out of it. Making money in the handset business starts with your material costs and the supply chain. The design is very important, the targeted market's very important; the distribution efficiency is very important. Where the product is being represented us the pricing of that. All of this comes into consideration. I personally believe that I can make a go of the business and be comfortable.

Q: Talk to us about the other parts of the business, the government business, the security, and some of the gems of the business, the B.B.M. messaging. What is the value of these businesses?

A: There's an overarching architecture that I'd like the company to be known for in three to five years, which is in a whole market which is called a machine-to-machine. Some people like to describe this as the Internet of Things or All Things Internet. Internet or of things or all things or all things internet. The device doesn't necessarily have to be a handset. But the devices could be anything out there. It could be your car, things in your house, and so forth. Everything gets connected. And we like to become a major hub of that.

So, if you look at that vision, you can see where we're going to be a number of years down the road, and there is a device side of business, as well. The handset is the major driver of that. Security is a major driver of that. And then, there is this whole server and network operating system behind it. We are the most secure and the most reliable messaging systems, both e-mail and B.B.M., which is the BlackBerry Messenger. So, those are another part of the anchor of the Internet — All Things Internet.

And then, we have the most successful and quite dominant in the connected world, the operating system. It's called a QNX. So you could see the components, both the handset components, the network operating system components, the server component, the BlackBerry Messenger component, and the embedded operating system in QNX. If you look at all of the components to build a basic architecture from what we want to be, All Things Internet. Each and every one of these components could grow. But it will grow a lot better together.

Q: When you're talking about machine to machine, how does that work? I'm trying to understand the strength of BlackBerry away from the handset business.

A: It's the guts of everything that's connected through the Internet. The overall security future. You will have the analytics of all the messaging that is going on. And then, we'll have more and more intelligence. And, so, that's how I think about it. I always say that the best thing that BlackBerry has to offer is its security, productivity and communications. And then, going forward, when we connect everything and manage the traffic between everything, then I could add the analytics and intelligence onto it.

Q: Are you saying that the security at BlackBerry is better than security at other companies?

A: Oh, no doubt. First of all, we have a lot of technology that was built up over time. We have acquired a lot of different companies in the past that have created a really great security company. There's a lot of encryption technology. We have a lot of certificates, that governments around the world truly trust it. So, it's really both on experience and technology. We have no doubts, we are the No. 1 security technology provider, especially when in mobile and the wireless world.

Q: This is at a time that so many people are worried about their security, worried that their information is getting into the wrong people's hands.

A: Yes, government's already there, and enterprise just started to worry about security on data, and security on identity, which we do a lot of work on. There's going to be a new product coming out that works with our server, the best server. It's called the BlackBerry Enterprise Server. It will have identity-management software. And that identity management, data security and voice security are all part of our value-added. And if you think about that for enterprises, whether it's in commerce, or in managing the risk, they will need our technology. In the past, have not been able to put it all together, that kind of value proposition. We have a lot of that technology. Some of it we're building. But certainly we have good voice-security technology. We have great data-security technology, which we're known for. But by putting everything together, it will create an environment that is the most secure for all the enterprises. This is where I get a lot of excitement, and why I believe BlackBerry could do very well in the market.

Q: And you do get a good response from government? Tell me about the government business and what you're expecting there.

A: Yes. We work with the most developed countries' governments. The U.S., U.K., Canada, Germany, France, Australia, New Zealand and now, India. A lot of governments are using our technology, as they do business with each other, inside of government and outside of government. It's a big part of our installed base.

Q: We've seen a fair amount of M&A in the messenger area, with Facebook buying WhatsApp and IBM for Fiberlink, VMware with AirWatch. Are there opportunities to better monetize BlackBerry Messenger?

A: Yes, in the sense that we are using this technology to generate future revenue. I focus on it a little bit differently because of the security of our messenger units. We are focused on the enterprise side using it as a secure portal for their own internal messaging, whether it's governments, banks or in a health care world, where messages between doctors have to be secure. BlackBerry Messenger for some countries out there, is a very dominant player, like Indonesia for example.

Q: BlackBerry has lost a lot of market share. How will you get that back? The smartphone market share dropped 3.5 to 2.9 percentage points in just the last quarter of last year. And we're seeing further deterioration. How are you going to stop this falling knife?

A: Well, I don't know if these numbers are actually correct. But let's not just debate the source. It is true that our share is dropping. I just don't know whether it's dropping as much as you point out. On the other hand, I am going to focus very much on the enterprise space. If you look at the enterprise users of smartphone, we have a much bigger share. That's not to say I gave up on the consumer market, but at this point in the recovery, we're going to focus on the enterprise side of the handset business, make that profitable, and then we're going to grow from there. Then go into other parts of the market, including the consumer side of the equation.

Q: You've seen this industry evolve for years, having led and grown Sybase. What is your opinion of valuations today? WhatsApp being acquired for $19 billion, you see things like Twitter and Tesla trading where they are. Are we in another period of a bubble-like mania the way we were in the 1990s?

A: I worry a little bit about the valuation of the market also. A lot of people are starting to worry about that. Its good news that there's a lot of excitement about the future. And there's excitement about technology. There will be winners. If you go back to the early 2000s, when the Internet craze and e-commerce were all people talked about, there were also high, big valuations for a company that went public through an IPO, and high valuations for acquisitions. And then the market broke down. But the good news is 10 years later, there are a number of really strong players out there, like the Amazons of the world, that came through that period and became one of the leaders in the technology world. So, we might see a bubble or correction, but I wouldn't give up the market dynamics, the excitement of the future. This is going to be sorting itself out — the strong vs. the weaker players. And some are going to be more fortunate than others.

Q: Will BlackBerry be in that set?

A: I'm planning to be.

Maria Bartiromo is anchor and Global Markets Editor at Fox Business Network and can be seen every day on Opening Bell at 9 a.m. ET on FBN and every Sunday at 10 a.m. ET, on Sunday Morning Futures on The Fox News Channel.