BlackBerry used to be a hardware-focused company a few years ago, but now it is actively making a transition into being a new software-led concern. Cormark analyst Richard Tse believes it is a very difficult process and that the Canadian firm must ditch hardware altogether in order to expedite the process.

BlackBerry Ltd Success Chances Rise To 50% Without Hardware: Analyst

BlackBerry to shut hardware segment soon?

Tse, who had a meeting with BlackBerry management late last week, said the company’s turnaround has been a real battle for some time, but now making a shift towards enterprise is more lucrative since the rewards on the stock now outweigh the risks. BlackBerry’s transition away from its hardware roots into enterprise software is a “Herculean” task, he said, and presently, the company is in the midst of it, the analyst believes.

“In our opinion, the positive takeaway continues to be that the company’s restructuring prowess has given it a financial footing to execute on that transition,” Tse said.

If BlackBerry shuts down its hardware business altogether, then there could be even more financial and operating flexibility – “something we’d give more than 50% odds to over the next 12-18 months,” Tse says. The analyst believes the Canadian firm may shut its hardware business within the next year to year-and-a-half.

BlackBerry’s hardware business has a razor-thin margin and has become a financial drag on its balance sheet. Of the total expenditures the company makes on research and development, two-thirds are hardware-related. Thus, if the Canadian firm shuts it down, then 60 to 80 cents of EPS could be immediately driven to its bottom line.

Chen identifying errors and making corrections

Tse believes that under CEO John Chen, the company has been able to identify areas of weakness and made corrections. It has been making efforts to improve its financial outlook, including through share buybacks, which it increased from 12 million shares to 27 million shares recently.

It seems Chen is increasingly non-committal about the company’s hardware business and is focusing more on areas in which it has more runway and less pricing pressure. Such areas include Mobile Device Management/Enterprise Mobility Management (MDM/EMM) and the Internet of Things (IoT).

On Monday, BlackBerry shares closed down 0.7% at $7.07. Year to date, the stock is down by almost 24%, while in the last year, it is down by over 30%.