BlackBerry lovers left could be in for some bad news.

The device that was so addictive that it was dubbed the “CrackBerry” might not have much of a future: Its new chairman and interim chief executive says he wants to emphasize software and services — not devices. That could mean the company might ultimately get out of the business of selling smartphones.

The possible change in strategy comes as Fairfax Financial, BlackBerry’s largest shareholder with a 10 percent stake, said Monday it won’t buy the struggling smartphone company and take it private. It said that instead Fairfax and other investors will inject $1 billion as part of a revised investment proposal.

CEO Thorsten Heins is stepping down and John Chen was appointed chairman of BlackBerry’s board of directors and interim CEO. Chen, the former CEO of software data company Sybase, told The Associated Press on Monday that BlackBerry employees need to start thinking differently about the company and accept that “we’re really not in phones but we’re in phones for software, for services.”

Meanwhile, the company’s cash reserves to engineer such a turnaround are in limited supply. While the plan to plan to raise $1 billion in convertible debt gives a cash infusion to BlackBerry, the move raised speculation by analysts and investors that its money is disappearing quickly.

BlackBerry’s cash shrank by almost $500 million last quarter — a burn rate that would use up most of its $2.6 billion cash and investments by the end of next year. The company also has about $2.9 billion in purchase commitments due within 12 months, according to filings. The dwindling funds will put a heavy burden on BlackBerry’s comeback attempt, said John Stephenson, who helps manage about $2.69 billion at First Asset Investment Management Inc. in Toronto.

“It’s going to be very difficult to turn this around,” said Stephenson, whose firm owns some BlackBerry stock as part of exchange-traded funds. “They’ve lost so much ground.”

Seeking Stability

Chen plans to overhaul the company so it can survive in the long run – rather than preparing it for a fire sale. Fairfax CEO Prem Watsa, who is rejoining BlackBerry’s board after spending three months trying to orchestrate a deal, expects the turnaround plan to bear fruit within a year and a half.

“We went with the idea that the next three or four or six quarters are going to be tough,” Watsa said in an interview with Bloomberg News. “We expect the cash to stabilize somewhere there and then pick up – and finance it with enough cash to give us a long runway.”

Chen successfully turned around Sybase, which he sold to SAP AG for $5.8 billion in 2010. Still, investors remain skeptical he can work the same magic with BlackBerry. After Monday’s stock tumble, the company’s value has fallen to $3.4 billion. Following years of BlackBerry losing ground to Apple Inc. and Samsung Electronics Co., the shares are trading more than 95 percent below their 2008 peak.

Chen said he wants to find a CEO with a strong software and services background. He noted that BlackBerry Messenger, BlackBerry’s popular messaging application, has been downloaded by more than 20 million users since it became available on Google’s Android and Apple’s iOS platforms in the last 10 days. BlackBerry Messenger, or BBM, works like text messaging but doesn’t incur extra fees.

BBM had long been one of the most popular features on BlackBerry devices and only became available on rival smartphones last month. While there are fewer users of the actual BlackBerry smartphone, BBM remains popular. Chen said there are now about 80 million active users of BBM.

“I’d like to find somebody to help me monetize that,” Chen said.

Colin Gillis, an industry analyst at BGC Financial, questioned whether that’s possible.

“It’s like Apple saying we’re going to stop making phones and we’re going to become an iMessage company,” Gillis said.

Subscriber losses

BlackBerry no longer provides the number of actual device subscribers and a company spokeswoman said that number would not be “an accurate reflection of our business today.”

In June, it said the total BlackBerry subscriber base was about 72 million. Mike Walkley, an analyst with Canaccord Genuity, estimates that there were about around 65 million BlackBerry device subscribers globally at the end of August, down from a peak of around 80 million at end of August 2012. He said he expects the rate of decline to accelerate.

By comparison, smartphone market leader Samsung Electronics Co. shipped 81 million units in the July-September quarter alone, according to research group IDC.

Gillis said BlackBerry might indeed stop selling phones but noted BlackBerry is already obsolete. He doesn’t think current BlackBerry users have to worry though.

“They are not just going to shut the lights off,” Gillis said.

The $1 billion debt sale will help keep the company afloat, though it’s hard to say for how long, said Alexander Peterc, an analyst with Exane BNP Paribas in London.

“Whatever they do will cost them more cash than they actually have in the bank today,” Peterc said. “They’re basically extending their lifeline by a couple of quarters with this billion. Otherwise, they would have run out of cash probably in a year’s time.”

Poor sales of phones and related services – along with rising inventory costs and large purchase commitments – have made it difficult for BlackBerry to find a buyer, said Michael Walkley, an analyst with Canaccord Genuity Inc. in Minneapolis. That’s why the company was forced to adopt the debt sale and management change as a Plan B, he said.

Chen, 58, said he sees a lot of assets inside BlackBerry – its enterprise software, network, patent portfolio and instant-messaging application – that could be better exploited.

“The question is: Could we actually pool these pieces together and differentiate ourselves in the market?” Chen said.

‘The Palm Pilot of Canada’

One way to stem BlackBerry’s cash burn would be to shut the unprofitable phone-manufacturing business and focus on selling software for managing devices, said Anil K. Doradla, an analyst at William Blair & Co. in Chicago.

“It’s a recurring business model, and more importantly, it’s a higher-margin business because they don’t build hardware platforms,” Doradla said.

Asked if he might close the handset business, Chen said he isn’t ruling anything out.

“I’m more focused on making sure our businesses are healthy and growing,” he said.

When Chen joined Sybase in 1998, the Dublin, California- based software maker was in the midst of a restructuring, had announced plans to cut 10 percent of its workforce and was trading near a record low. When he sold it to SAP, the price was more than six times higher.

BlackBerry’s odds of a fairy-tale ending look tougher, First Asset Management’s Stephenson said. He sees the company heading down the same path as Palm Inc. That company failed to turn itself around and was sold in 2010 to Hewlett-Packard Co., which discontinued Palm’s products.

“This is becoming a Palm Pilot of Canada,” he said.
 

(The Associated Press and Bloomberg News contributed to this report).