RE:Chen is OUT John Chen to exit BlackBerry Friday, 10 years after leading turnaround that remains unfinished
John Chen is departing as chief executive of BlackBerry Ltd. this Friday, 10 years to the day after he signed on to turn around the smartphone pioneer, a job that remains unfinished.
The 68-year-old technology veteran’s fate with the Waterloo, Ont. company has been a source of speculation for months as a five-year extension to his original employment contract was due to run out at the end of this week. Mr. Chen addressed the uncertainty at an investor briefing two weeks ago, saying he didn’t know if he would remain and that the decision about his future had been left until after the board decided earlier that month to split itself in two. There was also a question of what role Mr. Chen would occupy after Blackberry announced plans earlier this month to spin off its profitable, fast-growing connected car, or internet of things (IOT), business into a separate public company, from its slower growing, unprofitable cybersecurity business.
“It’s now time for me and the board to sit together and say what value I add, or had I ever added any value, or what value I add going forward,” Mr. Chen said at the time.
The decision has been made and Mr. Chen, who is paid US$1-million in salary plus a fixed US$2-million cash bonus per year, will be gone by this weekend, said a source familiar with the matter. The Globe and Mail is not identifying the source as they are not authorized to discuss the matter. The company is expected to announce an interim or full-time replacement when it discloses news as early as today.
Mr. Chen was appointed to lead Blackberry a decade ago to replace Thorsten Heins, who had taken over in early 2012 from long-time co-CEOs Jim Balsillie and Mike Lazaridis. The Hong Kong-born, California-based Mr. Chen, an electrical engineer by training, had previously led a successful turnaround of money-losing database and business services company Sybase Inc. before its sale to SAP AG for US$5.8-billion in 2010.
He faced another daunting challenge at Blackberry, which created the smartphone category and demand for hand-held mobile data communicators starting in 1999 when it was called Research in Motion. But the company stumbled badly in its attempts to respond to the arrival of the Apple iPhone in 2007 and subsequent rapid adoption of Android-powered smartphones, which eschewed the mini-physical keyboard popularized by the Blackberry in favour of touchscreen mini-computer devices.
It took Blackberry six years to launch a proper competitive response in 2013. But it was too late; hand-held sales continued to plummet. The company had also previously abandoned an alternative plan championed by Mr. Balsillie to bet on software and services instead of hardware, centred on its once-popular BBM mobile instant messaging service.
Mr. Chen oversaw one last, unsuccessful attempt to revive handset sales before exiting Blackberry from the smartphone manufacturing business it had once dominated and slashing costs and staff. He said on a recent podcast “the emotion of having the hardware – the phone business – die on my watch was the hardest” decision of his career. Today Blackberry no longer supports its former device operating system.
Mr. Chen’s protracted turnaround attempt was aided by billions of dollars in legacy high-margin service-fee revenue negotiated by his predecessors with carriers when Blackberry devices were in hot demand, and which poured in for years as customers continued to use its aging machines. The company on his watch also embarked on a lucrative business of extracting payments from other companies for alleged use of its smartphone-era intellectual property but sold most of those legacy patents earlier this year.
The company’s one-time saviour has otherwise delivered little payoff, leading to growing discontent among its stakeholders. Under Mr. Chen, Blackberry had become a hodgepodge of different businesses, mostly picked up through acquisitions before and after he joined. It provides in-car software to connect vehicles to the internet. It also sells cybersecurity software and provides device management software used by corporations to manage the fleets of devices used by their employees, the last holdover from its days as a smartphone powerhouse.
The cybersecurity business has been a disappointment, delivering far less growth than expected. BlackBerry’s jewel is its connected-car business, managed out of its QNX division in Ottawa, which was picked up in a 2010 acquisition. It is expected to deliver 20-per-cent annual growth for years, far more than the cybersecurity business. But the company recently announced disappointing revenues for both divisions and cut its revenue forecast for the connected-car division for the year, mainly because of delays in project implementation and reorganizations at some car makers.
Meanwhile, BlackBerry’s shares have languished for years – except for a brief spike when it became a “meme stock” in 2021 and Mr. Chen promptly sold US$24.8-million worth of performance-based shares which had only vested because of the craze-fueled surge. The stock has since fallen back and now trades at roughly the same level it was 24 years ago when its wireless e-mail device was the world’s hottest tech gadget, and 41 per cent lower than its last closing price before Mr. Chen joined.
Outrage over BlackBerry’s rich executive pay – including the meme-stock-triggered bounty for Mr. Chen - resulted in two major proxy advisers, Institutional Shareholder Services Inc. and Glass Lewis & Co., recommending a “no” vote on the company’s non-binding “say on pay” resolution at its June 2022 annual meeting. Lead independent director Prem Watsa was barely re-elected, garnering just 50.7 per cent support, after Glass Lewis suggested shareholders voting against him and the other two board members on the compensation committee.
Then, British hedge fund Fifthdelta Ltd. accumulated nearly 10 per cent of Blackberry stock to become its largest shareholders. Given it has made other investments in the internet-of-things space, it appeared to be interested in BlackBerry’s connected car business. Some observers have speculated Fifthdelta’s arrival was the catalyst for a strategic review announced in May weeks before this year’s annual meeting that led to the spinout plan.
Mr. Chen is also not popular among employees, with an approval rating of just 35 per cent on Glassdoor, a site that tracks worker sentiment about their employers.
Under the company’s spinout plan, Mr. Chen said this month that Blackberry would likely sell 20 per cent to 30 per cent of the QNX business in an initial public offering, with a target of next June.
Mr. Chen remained intent during his last public comments on proving convergence of the two soon-to-be-separated business units could create value in the market but acknowledged that hadn’t happened yet, acknowledging the cybersecurity business needed to prove it could succeed on its own without requiring subsidization from other parts of the company.