How The Cellphone Market Is Transforming | CNBC Marathon

The world of consumer electronics was never really here. That's why it's not about bringing him back. It's a matter of starting it here. In light of supply chain issues highlighted by the Covid-19 pandemic, the push to bring manufacturing to the United States returned. BlackBerry shares peaked at nearly $150 in 2008. They are now around $5. January 2022 marked the end of an era. 85% of Americans have a smartphone and that percentage has increased every year since its inception. But some think the dumb phone industry will grow, too. I will never go back to a smartphone. Made in China. It is a common phrase that we see in everything.

From clothing to electronics, China controls the

market

. And while that is the current reality, it has not always been this way. The United States used to be a world leader in manufacturing, but in 2010, China surpassed the United States in manufacturing production and has since seen massive growth, going from 3.5% in 1990 to 30.5% in 2021. Now the United States It is located behind China. It represents 16.8% of world manufacturing production. However, in light of supply chain issues highlighted by the Covid 19 pandemic, the push to bring manufacturing to the United States returned. "Made in America" ​​stamping products. Made in America. Made in the USA.

The revitalization of American manufacturing. While some industries, such as the semiconductor and battery

market

s, are scrambling to build new factories across the United States, the tech giants are not making the same effort to do so. CNBC wanted to find out why tech giants don't make smartphones in the United States. We visited a company that is making a phone in the US to explore what it would take to get more phones made in the United States. The history of manufacturing technology in the United States goes back decades, long before smartphones existed. The whole concept of manufacturing in the United States was very strong.

Around the mid-'60s, we fundamentally gave away manufacturing in the '60s and '70s, and in that period Japan expanded, China expanded, and many other Asian countries expanded. Today, the supply chain for smartphone manufacturing is located outside the United States and big tech companies are heavily involved. Apple and Alphabet hire and send thousands of employees overseas to oversee manufacturing. Before Covid, it was very common to send engineers like me, maybe 10, 20, 40 engineers at a time to the factory to help with prototyping, to learn, to find and solve problems and to be in the right place at the time . correct time.

In fact, in 2019, Apple was United Airlines' largest customer, purchasing 50 business class seats from San Francisco to Shanghai daily, representing $150 million in annual revenue for United. This is one of the reasons why Anna-Katrina Shedletsky founded Instrumental. The startup aims to reduce waste in the manufacturing process by making it easier to monitor production remotely. I started instrumentally with my co-founder Sam because we felt that data provided an opportunity to leverage it to solve these problems much faster. And maybe I wouldn't have to, as an engineer, go to China every few weeks for many weeks in a row to find these problems and try to be in the right place at the right time.

As new technologies like Instrumental emerge to facilitate manufacturing overseas, there isn't much incentive for companies to move factories to the United States. Apple has moved some iPhone production to India amid Covid lockdowns in China and rising tensions between Washington and Beijing. One estimate predicts that one in four iPhones will be made in India by 2025. So why not move some production to the United States as well? In 2012, Apple CEO Tim Cook made this point. The world of consumer electronics was never really here. That's why it's not about bringing him back. It's a matter of starting it here.

Then in 2017, he went on to tell Fortune that it's an issue of highly skilled labor. There is a confusion about China and at least let me give you my opinion. The popular conception is that companies come to China because of the low cost of labor. I'm not sure which part of China they go to, but the truth is that China stopped being the low labor cost country many years ago, and that is not the reason to come to China from a supply point of view. The reason is because of the skill and the amount of skill in a place and the type of skill it is.

With a population of 1.4 billion, China has the largest number of university students earning science and engineering degrees in the world, but there is still actually a difference in the cost of labor. The United States federal minimum wage is $7.25. And although China has no established national minimum wage and in the city of Zhengzhou, where Foxconn's largest iPhone plant is located, the minimum hourly wage is 19.6 yuan or less than $3. We don't know exactly how much the factory workers earn, but at first they had a much better salary than what they earned in the fields. Now, as demand for their products and talent has increased, because they have gained more experience, their salaries have increased even more.

And many of the workers who are in the factories are moving towards what we would call their version of what we would now call middle class. Foxconn did not respond to a request for comment and Apple also did not comment on iPhone worker salaries. I would say that there is still a concern about the cost of construction labor here in the United States, but I agree with what Tim Cook says, that there is also an experience that makes China very attractive. There is a lot of skill and a lot of local supply chain on where all the parts come from to build such a complex product, which makes it a very attractive place to build.

Apple said in a statement to CNBC that "All of our products are designed and manufactured here, and all include American-made components. For example, the glass in the iPhone is made in Kentucky and the lasers that enable Face ID are also built in the United States. USA." It also said, "Just last year we announced $430 billion in new investments across the country, including our work with more than 9,000 providers in all 50 states." In 2012, Google bought Motorola for $12.5 billion. A year later, it opened America's only smartphone manufacturing plant in Fort Worth, Texas, with plans to make the Moto X. The factory was part of Motorola's plan to build a low-cost, American-made smartphone. .

But about a year after opening, the plant closed, citing high internal operating costs and low consumer demand. Google sold Motorola to Lenovo at a multi-million dollar loss. Some experts say that Motorola's failure in the United States shows that the cost of labor and the lack of skills in the United States are the reason why manufacturing in the country is not profitable. Alan Yeung, a former Foxconn executive and author of the book Flying Eagle, raised this point during a visit to the White House in 2017 with then-Foxconn Chairman Terry Gou. Foxconn is Apple's largest supplier and the largest electronics manufacturer in the world.

Chairman Gou Terry made it very clear. The basic skills and capabilities for manufacturing phones and electronics have moved to Asia. And returning to the United States would be difficult, although not impossible, but it would take a while. It will not be easy. Thats the reality. However, Purism is an American company that has been able to do what many call impossible. So this is where we are going to do the manufacturing of the Librem 5 U.S.A. We are going to do the printed circuit board to printed circuit board assembly. We started the company in 2014 manufacturing in the United States of America.

Purism is a hardware and software manufacturer. So we make laptops, mini PCs and also a phone that runs the same operating system that we create. Purism offers a range of consumer electronics, including the Librem 5 U.S.A phone, which costs $2,000. It is the only smartphone in the world with the Made in U.S.A seal. The FTC actually has a very strict definition of what is Made in the USA or Assembled in the USA. The Librem 5 U.S.A. It is manufactured in the United States of America. In fact, we have a label and sticker that we put on Made in U.S.A Electronics to show that we are qualified according to the FTC definition of Made in U.S.A. for a complete phone.

The phone is assembled here and at its Carlsbad, California factory. Purism sources all components of the Librem 5 U.S.A. phone. nationwide, with the exception of the chassis and the Wi-Fi card. In general, what we are seeing is that all the electronics are manufactured in our facilities, the chassis and the specific components are called integrated circuits. These can come from outside the country. As an example, our NXP CPU is manufactured in South Korea and then we import that specific chip and then use it on our board and do all the manufacturing. But the company also sells the Librem 5 phone, which is mass produced in China.

At $1,300, it's $700 cheaper than the American-made model. Weaver says he hopes to expand the line of products the company manufactures in the U.S. For us, obviously the U.S. is the country we're expanding in the most and it will even extend to manufacturing other products in as well. the United States, like our laptops and mini PCs and potentially even servers. There is also a possibility that we may even get into chip manufacturing. Weaver said the company is profitable, but we asked how this is possible with the higher labor cost of the American-made model. The real costs of physical labor are clearly higher than in China.

We can sell at a price where we don't have to reduce our costs as much. That allows us to pay people very well, take care of employees and have a secure supply chain and everything else. Purism initially began through a crowdfunding initiative. Now the company says it has sold tens of thousands of phones. Overall, we are a multi-billion dollar company. We have seen triple-digit growth year over year since we started. Our margins are healthy, which allows us to continue paying people very well and also allows us to expand the business. Purism said nearly a third of its revenue comes from the Librem 5 U.S.A. model.

American made. But Weaver said labor has not been an issue for the company. The key piece you're seeing is that there's actually not a lot of physical work required to produce a phone. It's more mechanical work, the real machines. So, machine versus machine, it's the same whether we manufacture on the same machine in the US as it does on a machine in China. So in the end, we're looking at a number of jobs in the US that may be the ultimate fulfillment of the assembly line operator, but machine versus machine, it's still the same. But do Americans want these jobs?

Every time we post a job, we receive 100 applicants. So from line operators to assembly workers, right? We're talking more than $10 above minimum wage for many of those positions. However, not everyone agrees that this business model will be successful in the United States. Baizhu Chen, a professor at the USC Marshall School of Business, says these jobs won't be coming back. I don't see that in the United States there are rows and rows of workers sitting at desks assembling small phones. I don't see that happening. These types of jobs will not return to the United States. I'm talking about labor-intensive manufacturing work.

There are actually many manufacturing jobs being created here in the US, but they are not assembly jobs. They are data analysis jobs, engineering jobs. I definitely think there are compelling cases where very complex products can be created, here in the US, typically at much lower volumes. It's not a million a day. Smaller companies often decide to build locally. So what will it take to bring phone manufacturing to the United States? Not only will you need to rebuild the human infrastructure, but you will also need the components to be manufactured nearby. Somewhere in the ecosystem it has to be there.

The United States doesn't have this ecosystem here because we haven't made phones for years, so the supply chain doesn't exist here in the US. They are in Asia, China, Vietnam and other countries. So rebuilding those things will take time and cost. Very expensive. It does not make any sense. But in light of recent US government support to transform the American manufacturing ecosystem, the United States is taking steps to restore somemanufacturing jobs. In August 2022, President Biden signed the CHIPS and Science Act. The bipartisan bill includes $52 billion for U.S.-based companies to produce semiconductors, with $39 billion in manufacturing incentives.

The United States is finally formulating policies at the federal, state, and local levels to level the playing field. Before it was just difficult because there were a lot of regulations and bureaucratic procedures. The taxes were high and the cost is very high. I would say it would be very challenging to build a complex electronic device like a phone here in the U.S. It can absolutely be profitable to build products here in the U.S., but it has to be the right product and have the right technology support. product. In 2017, the White House announced Foxconn's plan to open a massive LCD manufacturing facility in Wisconsin.

I led the Flying Eagle project, which was expected to invest up to $10 billion and create 13,000 jobs in the state of Wisconsin. But Foxconn has greatly reduced that promise. In 2021, the company anticipated creating fewer than 1,500 of the initial 13,000 promised jobs and cut its investments to $672 million. Foxconn bit off more than it could chew at that particular stage in its history, dealing with everything from the regulatory aspect, the environmental aspect, the actual construction of the facilities and even possibly getting the right kind of people needed to do it. That simply was not the reality, in the short term that they promised.

Two key elements that really affected the project were market conditions and also the investment climate. In our case, for LCD manufacturing, prices dropped and were halved. And if you ask manufacturers, would they still build the project or build a factory if the final product is now selling at a 50% discount, I think they have to pause and really take a hard look strategically to achieve this. But if the world's largest electronics maker couldn't succeed in Wisconsin with LCD displays, and if Motorola failed to make phones in the country after just a year, it seems highly unlikely that we'll see any other attempts to make smartphones in the United States.

Joined. whenever. I can't comment on whether Apple asked Foxconn to manufacture the iPhone in the United States, but I'm sure that when Foxconn's customers ask the company to consider manufacturing a particular product in the United States, the company will be ready. As for why phones need to be manufactured in the US, Purism president Kyle Rankin says it's largely due to security and data protection concerns. At Purism, we believe data is uranium, so we treat it like a radioactive substance of which we collect as little as humanly possible. Making things in the US avoids risks of being tampered with by some other government or foreigner.

Every additional link you add to the supply chain is an additional opportunity for someone to get involved in that supply chain and disrupt things. If China continues to be a security threat, more and more American and international companies will move manufacturing out of China, and we are already seeing that happen. But Professor Chen says it's not really necessary. We eat strawberries, we eat tomatoes, but we don't grow tomatoes, we don't grow strawberries. Is the same. We can consume iPhone or any smartphone without manufacturing the smartphone. These phones can be manufactured in Vietnam, China and other countries.

Regardless of where it happens, the need to make phones will only grow. Other companies continue to resort to "It's too hard to do it in the United States," almost as a talking point rather than actually investigating how it could be done. It is clear that it can be done, and there is a huge market opportunity and it is simply cheaper for those companies to relocate those jobs and continue importing from other countries. There is a reason why those companies make products in China. Combining labor cost and supply chain and productivity, China remains the most efficient place to produce.

Whether a phone, TV or computer should be made in the United States will be up to the companies, that is, the supply chain, including Foxconn and customers, to decide. But ultimately it is the end users who will decide. And the customer is going to decide when to go to the store or go online and make the purchase and make the decision with their credit cards. So while you can find an original foldable phone, some of the relics on eBay, we're seeing companies developing new models for... Foldable phones are all the rage right now. Flip phone! While it might seem like dumb phones are a product of the past, they are actually still prevalent around the world and still make up about a quarter of actively used phones.

And yes, this is largely due to its affordability in developing countries, but it is also becoming a movement among younger generations. So it's been an official week for this guy. The stupid fucking phone. And I will never use a smartphone again. Let's talk about my stupid phone. Today we are going to talk about the Light Phone II. It's been three years since I had this device. I had been thinking about buying a dumb phone or a flip phone for a while, but then I unintentionally adopted one. My iPhone broke and I loved it so much I decided to keep it.

Despite this, smartphones are still king. Even in developing countries where foldable phones are still widely used, smartphone use is increasing. Developing countries are definitely some of the places where Nokia has a very, very strong presence, not only as a brand, but also with its feature phones and also with its smartphones. Globally, the feature phone market is expected to decline by around 10% over the next five years, which is largely attributed to developing countries adopting smartphones. And older generations that refuse to use smartphones could be gradually disappearing, as there is a 48% increase in smartphone ownership among people 65 and older between 2012 and 2021.

But the number of dumb phones that used by young people in Western countries is growing. CNBC wanted to explore what the dumb phone trend is all about and see if it can compete with the huge smartphone industry. Within the silly phone market, there are essentially two paths that most consumers take. One of them is a classic flip or slider phone, similar to what was commonly used in the early and mid-2000s, such as a Motorola or Nokia. Two are a modern, minimalist phone from brands like Light or Punkt. whose phones are in some ways deliberately stupid.

And these brands are also labeling their phones as feature phones, which is like a flip phone with a few additions, like a hotspot or GPS. What do you think of the term dumb phone? Well, what we're trying to do with the Light Phone is not to create a dumb phone, but to create a more intentional phone, a premium, minimal phone, which, you know, is not inherently anti-technology, but is about consciously choosing how and when to use which aspects of technology increase my quality of life instead of tempting myself with all kinds of smartphone vulnerabilities. In Europe, for example, you have a culture.

Here in Switzerland and Germany they don't call it a dumb phone or a minimalist digital phone, they call it a weekend phone. One of the main reasons some members of Generation Z are turning to a dumb or minimalist phone is concern about the effects of smartphones on mental health. We all know that what people transmit through social networks, they only transmit the best of their lives, which makes others falsely believe that they live a worse life in social comparison, which in turn negatively affects their self-esteem and well-being. . The US Surgeon General even recently declared that 13 is too young to be on social media, so some are taking the initiative and switching to a dumb or basic phone incapable of using the browser and social media.

It's definitely a trend we've noticed: people have been very busy with digital social media for a while, and many people want to take a step back and distance themselves from that part of their life a little more. I carry my smartphone with me absolutely everywhere. So I decided to jump on the dumb phone bandwagon and try a couple different devices. This is the Punkt. Telephone NP02. It's my first dumb phone, shipped from Switzerland in this mystery box. It has a T9 design which I have never used for typing before. So we'll see how that goes. One study found that Americans in their 20s spend on their phones about 29 hours a week, which is about four hours a day.

That was in 2021. Just for reference, my own screen time tends to be two and a half to three hours, which is a little less than average. The vast majority of my time is spent on messages. Now I'm going to change the SIM of my iPhone to the Punkt. phone. The Punkt. The phone sells for around $380 or $400 if you want it in light blue. You can call, you can send SMS. You can call and send messages through Signal and can use it as a hotspot for connectivity. There are other deliberately dumb phones, like the Light Phone, which allows a little more freedom, I guess, in what you can do.

Retailing for around $300, the lightweight phone has a few more tools built in. We sort of set these guidelines to create things that have a real useful purpose. So something like an alarm, instructions, a calculator or even, you know, a notes and voice memos tool. These things have a really clear use case. There is nothing about Punkt. That goes against technology. This is intentional technology. Right now I'm waiting for a call from someone I've been dating for about a month and we've never called before, but we're trying to set up our plans for tomorrow, and texting is very ineffective. on a phone like this, so let's go the old fashioned way, making a little call.

Hello. Hello. So far, I haven't run into too many problems. In fact, it's nice to be able to just sit with the uncertainty of things instead of searching for them. And I can still text a little poorly. I'm relying a little more on calls, but I'm about to have about an hour and a half drive to our office in Englewood Cliffs because I live in Brooklyn, so I won't be able to use music. or podcasts, which I tend to do all the time. Instead, I'll have to read a little, but maybe that's for the best, you know?

Sit with my thoughts a little longer. One kind of strange problem I run into is addresses. The phone doesn't have any kind of map or directional indicator, so I have to look up directions before going to certain places. It's no problem to get to work just because I have it memorized. But in places I'm not used to going, I have to check before I leave and then try to remember everything, which can be a challenge. Well, I had to cheat briefly. I was trying to meet my friend at a coffee shop and couldn't find him. I got a little lost so I changed my SIM just to open the map.

Now I have the light phone in my hands, so I'll change my SIM and see how it goes. So the Light Phone has a real keyboard, which makes it a little easier for me to use, but it's all a little laggy due to the type of screen it is. So I'm still struggling a lot. One of the tools they added to the Light Phone II, which I think is really good, is speech to text conversion and it works quite well. You have to go a little slow, but overall, very convenient. This is the home screen and you actually need to go on your computer to the online panel to add additional tools beyond the alarm.

So I went in and added addresses, hotspots, music, notes, and podcasts. The directional tool actually works very well. I was expecting to have to enter the actual address, but you can actually just type the name of something or most of something and it will figure out the rest from there. The Light Phone music tool only allows you to basically upload MP3s. You're using it as an MP3 player, so you have to download music, you can't actually stream it. So I'm buying an album for the first time and I mean in 10 years. So I mean, it's working.

It's not the best listening experience, but I'm listening to music, so it counts for something. While I don't use my phone much to begin with, compared to most people my age, I've decided that a dumb phone really isn't for me. And honestly, one of the biggest negatives for me was not being able to hearmusic and get around very easily using something like Google Maps. On average, more than half of children in the US received their first smartphone by age 11, and that percentage has continued to grow, making Generation Z the first generation to fully grow up with social media and smart phones.

And about half of U.S. teens said they feel addicted to their mobile devices, which can have adverse effects on mental health. That's why parents should encourage healthy device habits. It's not about prohibiting or outright banning the use of devices, perhaps encouraging your children to take some regular breaks. A recent study found that decreasing smartphone-based social media use by 50% among adolescents improves emotional distress problems. But I think you can see it in certain Gen Z populations. They're tired of screens. They don't know what's going on with mental health and they're trying to make cuts. And from 2019 to 2022, more than 1 billion feature phones were sold worldwide.

I think this trend, which started in the United States, could very easily translate, I would say first, to Western Europe and Australia, and then to places like Eastern Europe and even places like China. This trend is largely due to mental health issues and partly due to companies like Light and Punkt. said its devices are popular with younger audiences, despite having simple and intuitive designs. A study connecting mental health and the rise of social media from 2008 to 2018 found that 18- to 23-year-olds reporting experiencing a depressive episode increased by 83%. So I wanted to change my lifestyle, you know, kind of adopt a slower lifestyle instead of the fast pace of the Internet.

We hypothesized that taking a break from smartphones and the internet in general every now and then would produce a really refreshing and positive experience for users. And brands like Light and Punkt. that are aimed at younger audiences have been successful and increased device sales. From 2021, for example, to the final year of 2022, we grew 50% year over year. You know, we've quintupled compared to 2018. As for this way, but you know, we're not millions, we're hundreds of thousands. But I think this Light Phone, Punkt. And I think new brands could have a much bigger impact, particularly in the Western world, because it's not an excuse for not being a smartphone.

In 2021, only 61% of Americans age 65 and older used smartphones, while 29% used a dumb or basic phone. The biggest question I wanted to resolve is: will they age or move on to something different? And as with most technology, previous generations were slow to adopt smartphones. In 2012, when smartphones had taken off, only 13% of people aged 65 and older owned a smartphone, compared to 66% of people aged 18 to 29. The assumption is that older generations still use basic phones because that's what they're used to and they don't need updated technology. And only 45% of them said they ever use social media. I think we'll see greater adoption of dumb phones even as people like me get older.

If nothing else, the dexterity it takes to touch a smartphone screen when you get older is difficult. Your eyes go and you directly cannot operate a smartphone without having reasonable eyesight. Older generations stick with Nokia phones and continue to do so. But I think that's also where we really try to take that innovation to the top. So they can still function in a modern society. Older generations are clearly moving away from dumb phones. And despite the growing movement among younger generations, 85% of Americans own a smartphone. And that percentage has grown every year since its inception. But some think the dumb phone industry will grow, too.

In North America, the dumb phone market has virtually stagnated over the past four or five years, but could see it rise by as much as 5% over the next five years, at least, based on the increased public health concerns that exist. They are out there. The problem is that humanity is not yet ready for this rapidly evolving software. Children are not yet ready because they are going through a very important age of development, so they are not yet prepared to face all the challenges that are currently available on the Internet, video games or even social media platforms.

I think in the next five years we will have major warnings from the CDC about the dangers of smartphones and collectively that the smartphone industry couldn't handle on its own, and I could see there will be some restrictions. And I think that alone will mean that in the future likely parents will not give their children smartphones, but more dumb phones. There's a reason there are 15,000 subredditors on the dumb phone subreddit. That's not small, I mean, it's small when you compare it to an Android, Google or iPhone subreddit, but it's a trend that's catching on and I'm sure a lot of people are really interested in it.

This is actually one of the best things I've done for my mental health because I've decreased the stimulation, I've created more space to feel my own ideas and connect with my emotions and just feel like. What is happening to me without all the noise? The smartphone market in emerging or developing countries has been growing rapidly. The global smartphone market was valued at about $485 billion in 2022 and is expected to reach nearly $800 billion in 2029. And the Middle East, Africa and India accounted for about 80% of feature phone sales in 2022. But These countries are also becoming concerned about the mental health impacts of increasing smartphone use.

A survey conducted in 11 developing countries found that 63% of adults were concerned that mobile phones had a bad influence on children. But despite this, mental health is not really the reason why people in developing countries opt for dumb phones: price is. That has very little to do with ability and with parents monitoring their children. It has a lot to do with price and reliability. In that same survey across 11 countries, 70% of respondents said that mobile phones have generally been good for society. Many people in areas like India run their entire business from a smartphone. And hence, I see the numbers increasing in a country like India.

And phone makers Nokia said they still sell millions of feature phones around the world each month. However, the United States is one of the few markets where they saw growth in feature phone sales last year. While feature phones make up the majority of mobile phones actively used in India, sales of new phones heavily favor smartphones. Of the approximately 200 million mobile phones shipped to India in 2022, only about 57 million were feature phones. And while feature phones are declining in developing countries, the industry has a steady following elsewhere in certain niche markets and could see some growth as mental health concerns associated with social media and smartphones rise. .

While my experience wasn't terrible and I don't use my phone much to begin with, it's definitely something I've decided isn't for me, and it remains to be seen if it will be more than just a trend in the US for much of In the mid-to-late 2000s, Research in Motion's BlackBerry was the most popular smartphone brand in the US, and it wasn't even close, accounting for around 43% of smartphone users at its peak. Even after touchscreen phones from Apple and Google became widespread, BlackBerry maintained a strong user base for several years. RIM is now worth about $66 billion. That's with a B.

Some couldn't imagine using a phone without a keypad. Others wanted the advanced cybersecurity that BlackBerry phones offered. Something BlackBerry is known for is not being hacked and having security and privacy, something that is very present in our DNA. And the company's shares peaked at nearly $150 in 2008. Now they're around $5. January 2022 marked the end of an era. A moment of silence for the dearly departed BlackBerry. Starting today, the classic BlackBerry device once used by millions of people, including then-President Barack Obama, will no longer work. After more than two decades of serving mobile communication devices, it established software and cybersecurity as its sole business.

Because they are trying to stage what would be a tremendous change for a company that once made smartphones. So they are acting cautiously, but doing so, on the other hand, is also limiting their growth potential. But the margin is increasing and one of these days the switch will flip. So we are hiring, growing and spending. Overall, it was a difficult transition and I am proud of the way we are changing. So what made this iconic brand have such a meteoric rise and catastrophic fall and what is it up to now? BlackBerry was founded in 1984 as RIM, short for Research in Motion.

Its first product was Budgie, which allowed information to be displayed on a screen wirelessly. While Budgie had some initial success and was even used by General Motors, it didn't last. It manufactured several other products, including DigiSync, a device used in film post-production, which won an Academy Award for its technical achievements. But it wasn't until it developed the RIM 900, one of the first wireless devices that could send and receive data, that Research in Motion really began to gain momentum, using one of the first wireless data networks to send and receive messages, and establishing the foundation for what would eventually become a BlackBerry.

The first version of the BlackBerry phones that we all know started in 2002 with a 5810. It could send and receive messages and also allowed the use of a simplified browser. It was really interesting to go from small volumes of these interactive pagers to large volumes of smartphones. BlackBerry's popularity peaked in the late aughts. At the time, the brand and its products were simply a cultural phenomenon, which many coined CrackBerry. Telephones were seen as addictive. One of the first glimpses of how smartphones would eventually take over our lives. It was a really exciting moment. I mean, we as a company had a really solid product.

That's Sarah Tatsis, who joined BlackBerry when it was still known as Research in Motion in 2001. President Obama was the first high-tech president and was adamant about keeping BlackBerry his as long as he was in office. But I still hold on to my BlackBerry. They're going to rip it out of my hands. In 2007, it was Canada's most valuable company, surpassing Royal Bank, which held that spot for about two years. In 2010 it acquired an operating system called QNX. While BlackBerry was still primarily focused on smartphones at the time, this move has since proven to be a hugely important acquisition for the company.

I was very excited to be part of the charter to help BlackBerry in the next generation initiative and also because QNX was now on a global scale platform. Charles Eagan joined BlackBerry in 2011, largely due to the acquisition of his former office, QNX. BlackBerry's fiscal peak was in 2011, when it made nearly $20 billion in revenue, more than 80% of which came from hardware. Even Kim Kardashian was an unofficial brand ambassador and used the phones until 2016, when her last BlackBerry died devastatingly. Blackberry. It's my heart and soul how I love him. I'll never get rid of it. And she wasn't alone in her devotion to the brand.

Long after its heyday, many people refrained from switching to a full-touchscreen smartphone, considering keyboardless phones undesirable. But in 2007 everything changed. And we call it iPhone. Today, today, Apple is going to reinvent the phone. BlackBerry began making efforts to change its technology in 2008. Its first all-touch screen phone was the Storm, which had major hardware problems. It quickly returned to its former button-filled glory before revisiting a touchscreen device called the Z10 in 2013. See, at this point it was desperately trying to keep up with touchscreen smartphones like the iPhone, which werebecoming increasingly popular. But device sales were plummeting. In 2011 it sold 50 million phones.

But just two years later, after the launch of the Z10, that number fell to less than 30 million phones. And in the years that followed, sales continued to decline rapidly and its stock took a meteoric decline. I think we saw as we got closer to the launch of our BlackBerry 10 and we saw the progress that Apple and Android were making in this space, so I would say that's when I think the company realized that, yes, we would need to make some significant changes. BlackBerry desperately tried to stay afloat by flooding the market with products. In the same period it took Apple to launch four iPhones, BlackBerry launched more than 30 unique devices.

It made an effort to keep up with the competition by switching to a QNX operating system, which it acquired the previous year, but to no avail. In 2012, co-CEO and founder Mike Lazaridis, along with co-CEO Jim Balsillie, parted ways with BlackBerry. In 2013, 4,500 jobs were cut and John Chen took over as CEO with a desire to change the trajectory of BlackBerry. When I arrived, we were losing market share, we were canceling a lot of things, and we were losing money like crazy. We're talking billions of dollars every quarter. And that's why I have to put an end to it.

And that was pretty much the state of things, actually more of a survival state at that time. You know, the fact that John Chen recognized the shift toward software early. I remember the day he showed up in Ottawa and spoke and I thought, okay, here's a leader with a plan. John Chen brings strong credentials to BlackBerry, as someone who has historically successfully made changes. Initially, Chen hoped to keep the iconic phones and turn them into a stable source of income. But after a few years, we realized we would never turn up the volume; It's a volume game.

The moment had come and gone, so to speak. And then we made that fundamental shift to a software-only company and focused on security, cyber, things like that. You see, this fundamental change that Chen refers to was largely dependent on some key acquisitions that BlackBerry had made, one of which was QNX in 2010. The operating system that was later integrated into BlackBerry devices. And this was seen as one of the silver bullets BlackBerry needed to move its portfolio forward. One thing we did was take out the security software, which used to be designed for the operating system or new phones, and put it back in the car.

The others are the acquisition of Cylance, an antivirus software company, for $1.4 billion, and the acquisition of Good Technology, a device management software company, for $425 million. These moves helped BlackBerry more quickly shift its focus from hardware to software. Previously, QNX was quite well established as a software company dedicated to the automotive industry. And the fact that we stood behind our devices for many years after we announced that we would stop manufacturing and designing our own smartphones. And now, over the last few years, we've completely transitioned into the enterprise and core IoT software space. So once BlackBerry decided phones weren't the company's future in 2016, these acquisitions quickly became central to its business model.

BlackBerry currently has two main business units: a cybersecurity business unit and an IoT business unit. These are two rapidly growing markets. I'd like to think of BlackBerry as a company that can really grow if it plays its cards right. The primary focus within the IoT business unit is automotive, and the BlackBerry IoT business unit features the QNX operating system, which is iconic and the de facto standard in automotive. So the QNX technology that we have in this vehicle, even before we equip it with any of our additional sensors, runs a Ford Sync. Therefore, infotainment is used in the vehicle and this is common in quite a few Ford vehicles.

We now have most software built into most cars. So this is really a consequence of the result of the change in strategy in 2016, which is where we went from telephone to non-phone. BlackBerry software is now installed in 215 million cars. It could be powering your car's infotainment system or securing its connected and driver-assist features. So what we have here is the MKZ concept vehicle. We use this for autonomous driving demonstrations. We have integrated a wide variety of hardware, equipment and sensors from various manufacturers. Many of these built-in boards would be the size of a deck of cards.

They would be very discreet in the vehicle. BlackBerry works with numerous automotive companies and all but one manufacturer. We work with all major automotive OEMs, Audi, BMW, Ford, GM, Toyota, Volkswagen, Volvo, just to name a few you may recognize. In the automotive IoT industry, BlackBerry says its QNX software is the market leader. In reality, demand for these advanced security and infotainment solutions is strong for several reasons. Now, for example, there is an increasing demand for advanced controller systems and for advanced camera systems and also for advanced security features. Looking at the industry opportunity itself, we expect the automotive software industry to roughly triple in size between 2020 and 2030.

And its cybersecurity unit is securing the back end of things like mobile banking apps and patient portals. So there's a pretty rich cyber portfolio inside BlackBerry, and that protects banks, governments, large organizations and small and medium-sized businesses. While the cybersecurity industry is lucrative with a market size of over $200 billion, it is also competitive. It's taking on tech giants like Microsoft, Snowflake, and CrowdStrike. And in 2021, BlackBerry was only able to take a small slice of that pie. A value of just under 500 million dollars. Competition is very intense and companies like Microsoft spend billions of dollars a year on product innovation.

And BlackBerry has so far failed to generate any competitive advantage due to one important reason: they primarily serve regulated industries such as government entities, financial services companies, and the healthcare sector. But in my opinion, if BlackBerry were to become a well-known and fast-growing cybersecurity company, it would have to focus more on its go-to-market strategy to break out of these regulated industries and capture market share in the broader market. the mass market opportunity. BlackBerry has recently received more revenue from the cybersecurity side of its business, but analysts are more confident in the growth potential of the automotive IoT sector.

I think the company can probably reach a lower peak than we've seen in the past, but also a more sustainable growth trajectory and a potentially more profitable future. The basis of the margin percentage. While it was a major shift to move from mobile phone manufacturing to cybersecurity and software, it was also a shift that made sense for BlackBerry. Even when they used to be a smartphone manufacturer, BlackBerry always had a good name, good recognition among consumers for a company that prioritized security features. Therefore, BlackBerry is not new to offering high-quality security features. His reputation for safety was easily transferable to part of his new venture in the automotive industry.

Keeping the Internet of Things and cars safe from cyber attacks is increasingly important as cars become more autonomous. Security researchers hacked into vehicles and demonstrated that they could take control of the vehicle. And I think there is a possibility of payment systems being compromised or personal information being stolen. And when you think about a car, it's more about ten computers or more than just one computer. I don't necessarily think we'll see returns like BlackBerry enjoyed in its heyday, when it was a smartphone maker, at least over the next decade. But then again, if BlackBerry plays its cards right, they could become profitable.

So while there's a chance that BlackBerry hasn't been on anyone's mind for almost a decade, chances are you interact with something it helped develop almost every day.