WASHINGTON - The snail’s pace of change in Washington has hurt the popularity of political leaders. But for BlackBerry, the federal government’s tendency to move slowly may provide some hope.
That’s because the federal government is the troubled smartphone company’s biggest customer, and even as the rest of the world dumps BlackBerry smartphones for Samsung Galaxys and iPhones, the app-deprived BlackBerry remains a Washington stalwart.
Yes, the federal government in recent years has significantly reduced spending on BlackBerry contracts. Butit has cast off the device at a much slower pace than consumers and businesses, analysts say.
Agencies tend to sign long-term handset contracts - sometimes for three or more years - and many government offices have renewed their commitments to BlackBerry this year. That means federal agencies such as the State Department and Drug Enforcement Administration will be handing out BlackBerry devices for years, analysts say.
“BlackBerry’s days of dominating the government market peaked in 2011, but they are still the king of U.S. federal smartphones,” said Geoff Celhar, an analyst at government contracting research firm Govini. The firm published a report Thursday on BlackBerry’s federal contracts. “The government business market could be an opportunity and asset during its survival or breakup strategy.”
The State Department increased its spending on BlackBerrys this year. The DEA has not changed its budget for BlackBerrys much in recent years, according to Govini, which analyzed public records of government contracts.
Even at the Defense Department, which has opened up its technology policy to include iPhones and Android phones, 470,000 of 600,000 smartphones are BlackBerrys, Govini said. The tide may be turning, though; the Army has cut its BlackBerry spending by two-thirds since 2011.
“The U.S. Department of State’s unique worldwide challenges require its employees to have 24 hour access to communications for operational effectiveness,” State Department spokesman Steve Aguzin said in a statement. “Availability to secure communications is essential for U.S. missions abroad and the BlackBerry device is currently the only approved mobile solution meeting the U.S. Department of State’s security restrictions.”
Overall, the federal government spent more than $40 million on BlackBerry devices in 2013, according to Govini, a 57 percent decline from 2011, when orders for the smartphone were at their highest.
In the broader consumer market, the Waterloo, Ontario-based firm has quickly gone from industry vanguard to afterthought, with just 3 percent of the smartphone market in the second quarter, according to research by the firm IDC.
On Sept. 20, the f irm said it would take $1 billion in losses in its most recent quarter, due mostly to a write-off of the BlackBerry 10, which it hasn’t been able to sell.
It also plans to lay off 4,500 employees, or 40 percent of its global workforce.
On Friday, the smartphone company reported a loss of $965 million and revenue of $1.6 billion, according to The Associated Press.
A year ago, it lost $235 million on revenue of $2.9 billion.
The adjusted loss was $248 million, or 47 cents per share, in the latest quarter.
Analysts surveyed by FactSet had expected an adjusted loss of 16 cents per share.
On Sept. 23, BlackBerry said that it accepted a $4.7billion acquisition offer by private equity firm Fairfax Financial.
The head of Fairfax Financial Holdings, Prem Watsa, said he has every intention of completing the acquisition of BlackBerry, despite doubts that the deal will go through.
Fairfax signed a letter of intent that “contemplates” buying BlackBerry for $9 a share.
Watsa said Fairfax won’t be contributing more to the bid than the 10 percent it already owns.
The deal is subject to six weeks of due diligence and there is no breakup fee for BlackBerry should Fairfax walk away.
The stock has been trading around a dollar less than the $9 bid on fears the deal won’t happen.
Despite the losses reported Friday, Blackberry also has $2.6 billion in cash and no debt.
Some analysts say its strong financial position will help with research and development of new products focused on security.
The new investors plan to refocus BlackBerry on enterprise customers and recapture its image for providing secure email and software services.
“We believe this transaction will open an exciting new private chapter for BlackBerry,” Watsa said in announcing the deal.”We can deliver immediate value to shareholders, while we continue the execution of a long-term strategy in a private company with a focus on delivering superior and secure enterprise solutions to BlackBerry customers around the world.”
To some degree, the perception that BlackBerry is more secure than other devices has helped it win federal contracts, analysts say.
Its previous software platforms were closed to outside developers, and the company has long touted its encrypted email service.
Some analysts have poked holes at the marketing of BlackBerry as a more secure phone, saying hackers have been able to breach its systems.
Still, some federal agencies have been slow to hand out alternative smartphones to staff members as they test Apple’s iPhone and devices using Google’s Android operating system.
But analysts say that agencies are loosening their policies for phones and that BlackBerry has not been able to prove how it will win back lost customers.
The State Department and DEA said they may consider alternatives to the Black-Berry.
“Normally, companies are taken private in order to give a long-term strategy time to pay off without the hassles of short-term investor scrutiny,” said Jan Dawson, a senior analyst at Ovum. “But BlackBerry’s key problem for the last couple of years has been the lack of such a longterm strategy.”
Business, Pages 23 on 09/30/2013