Samsung Snags Army Contract, Weakens BlackBerry Ltd’s ‘Security’ Thesis

Samsung has won a major order for smartphones from the US Army, and looks like it will get another one from the National Security Agency, undercutting what is supposed to be BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s main competitive advantage – telecom security. Samsung already had a contract with the US Army, a chest-mounted smartphone called the Note II, but this significantly expands the program and it would mark the first time Samsung sold smartphones to the NSA’s Fishbowl Project, reports Will Connors for The Wall Street Journal.

NSA, Army contracts shows that Samsung can handle security

Losing a few thousand sales isn’t going to stop BlackBerry’s turnaround in its tracks, but it tells other security conscious industries that if Samsung is good enough for the NSA it’s probably good enough for them as well. BlackBerry CEO John Chen compared his company to Porsche just a few days ago, not in the sense of being a luxury brand, but in the sense of targeting a high end portion of the market with more challenging needs than the average consumer. If they can’t stay on top of government contracts and regulated industries, the comparison doesn’t hold any water.

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“We have sharpened our enterprise focus to government, regulated industries and other large organizations,” said BlackBerry president of Enterprise John Sims, echoing Chen’s sentiment. “[We] have developed a broad vision of how we will serve these companies.”

Most BlackBerry enterprise clients on old platform

But Connors reports that of the company’s 80,000 enterprise customers, 50,000 are legacy customers who are still on the old network. When they decide that it’s time to upgrade they will have to decide whether it makes sense to lock themselves in to BlackBerry’s. Even if BlackBerry security is better than Samsung’s, basing corporate communications on a company that could go bankrupt before the year is out entails its own serious risks, and no doubt many companies will opt for a more stable alternative. Of the 30,000 customers who are using the new platform, many are simply trying it out and have not yet committed to BlackBerry’s new software.

Chen needs to act fast to shore up Enterprise clients, because the more contracts he loses the more doubt other companies will have about BlackBerry’s survival, potentially cascading into lower and lower market share.