The consumer electronics
world was really never here. And so it's not a matter of
bringing it back. It's a matter of starting
it here. In light of supply chain
issues highlighted by the Covid-19 pandemic, a push
to bring manufacturing home to America returned. BlackBerry stock peaked at
nearly $150 in 2008. Now it's sitting pretty at
around five bucks. January 2022 marked the end
of an era. 85% of Americans have a
smart phone, and that percentage has grown every
year since their inception. But some think the dumb
phone industry will grow as well. I'm never going back to a
smart phone. Made in China. It's a common phrase we see
on everything. From clothes to electronics,
China controls the market. And while that's today's
reality, it has not always been the case. The United
States used to be a global leader in manufacturing,
but in 2010, China passed the U.S. in manufacturing
output and has seen massive growth ever since, going
from 3.5% in 1990 to 30.5% in 2021. With the U.S. now ranking
behind China at 16.8% of global manufacturing
output. However, in light of supply
chain issues highlighted by the Covid 19 pandemic, a
push to bring manufacturing home to America returned. Stamping products "Made in
America." Made in America. Made in the U.S.A. The
revitalization of American manufacturing. While some industries like
the semiconductor industry and the battery market are
scrambling to build new factories across the U.S.,
tech giants are not making the same effort to do that. CNBC wanted to find out why
tech giants aren't making smart phones in America. We visited one company,
which is manufacturing a phone in the U.S. to explore what it would
take for more phones to be made in the States. The history of
manufacturing technology in the U.S. dates back
decades, way before smart phones even existed. The whole concept of
manufacturing in the U.S. was very strong. Through
about the mid 1960s, we fundamentally gave
manufacturing away in the '60s and '70s, and in that
timeframe Japan expanded, China expanded, a lot of
the other Asian countries expanded. Today, the supply chain for
smart phone manufacturing lives outside of the U.S. and big tech companies are
heavily involved. Apple and Alphabet hire and
send thousands of employees abroad to oversee
manufacturing. Prior to Covid, it was very
common to send engineers like myself, maybe 10, 20,
40 engineers at a time to the factory to support
prototyping builds, to do that learning and finding
and fixing of issues and be in the right place at the
right time. In fact, in 2019, Apple was
United Airlines' biggest customer, buying 50
business class seats from San Francisco to Shanghai
daily, accounting for $150 million in annual revenue
for United. This is one reason
Anna-Katrina Shedletsky founded Instrumental. The startup aims to reduce
waste in the manufacturing process by making it easier
to oversee production remotely. I started instrumental with
my co-founder Sam because we felt like data provided an
opportunity to be leveraged to solve these problems
much faster. And maybe I wouldn't have
to, as an engineer, go to China every several weeks
for many weeks at a time to find these issues and try
to be in the right place at the right time. As new technologies like
Instrumental emerge to make it easier to manufacture
abroad, there isn't much incentive for companies to
move factories to America. Apple has moved some iPhone
production to India amidst Covid lockdowns in China
and rising tensions between Washington and Beijing. One estimate predicts one
out of four iPhones will be made in India by 2025. So why not move some
production to the U.S. as well? Back in 2012,
Apple CEO Tim Cook made this point. The consumer electronics
world was really never here. And so it's not a matter of
bringing it back. It's a matter of starting
it here. Then in 2017, he followed up
telling Fortune it's an issue of highly skilled
labor. There's a confusion about
China that, and let me at least give you my opinion. The popular conception is
that companies come to China because of low labor cost. I'm not sure what part of
China they go to, but the truth is 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 quantity of skill in one location
and the type of skill it is. With a population of 1.4
billion, China does have the most undergrads getting
science and engineering degrees globally, but in
reality there is still a difference in the cost of
labor. The U.S. federal minimum wage is
$7.25. And while China has no set
national minimum wage and the city of Zhengzhou,
where Foxconn's largest iPhone plant is located,
the hourly minimum wage is 19.6 Yuan or less than $3. We don't know exactly how
much the factory workers are making, but in the early
days, they had a wage that was much better than they
were making out in the fields. Now, as the demand
for their products and their talent has, because they've
gotten more experience, their wages have gone up
even more. And many of the workers who
are in the factories are moving into what we would
call their version of what we would call middle class
now. Foxconn did not respond to a
request for a comment, and Apple did not provide a
comment on iPhone worker wages either. I would say that there is
still a cost of labor concern for building here
in the U.S. But I do agree with what
Tim Cook is saying, that there is also an expertise
that makes China very attractive. There is a lot
of skill and a lot of local supply chain for where all
the parts are going to come from, to build such a
complex product, that makes it a very appealing place
to build. Apple said in a statement to
CNBC that "All of our products are designed and
engineered here, and they all include components
manufactured in America. For example, iPhone glass
is made in Kentucky, and lasers that enable Face ID
are built in the U.S. too." It also said, "Just
last year we announced $430 billion in new investments
across the country, including our work with
more than 9,000 suppliers across all 50 states." In
2012, Google purchased Motorola for
$12.5 billion. A year later, it opened the
U.S.'s only smart phone manufacturing plant in Fort
Worth, Texas, with plans to make the Moto X. The factory was part of
Motorola's plan to build an American-made low cost
smart phone. But about a year after it
opened, the plant shut down, citing high domestic
operating costs and low consumer demand. Google sold Motorola to
Lenovo for a multibillion-dollar loss. Some experts say, Motorola's
U.S. failure shows that the cost
of labor and the lack of skill in the U.S. is why manufacturing in the
country is not cost-effective. Alan Yeung,
a former Foxconn executive and author of the book,
Flying Eagle, brought up this point during a visit
to the White House in 2017 with then chairman of
Foxconn, Terry Gou. Foxconn is Apple's largest
supplier and the world's largest electronic
manufacturer. Chairman Gou, Terry made it
very clear. The core skills and the
capabilities of making phones, manufacturing
electronics have moved to Asia. And for it to come
back to U.S, it would be difficult, though not
impossible, but it would take a while. It won't be
easy. That's the reality. However, Purism is one
American company that has been able to do what many
are calling the impossible. So this is actually where
we're going to do a manufacturing for the
Librem 5 U.S.A. We're going to do the
printed circuit board to printed circuit board
assembly. We started the company in 2014 doing
manufacturing in the United States of America. Purism
is hardware manufacturer as well as software. So we do laptops, mini PCs
and also a phone that run the same operating system
that we authored. Purism offers a range of
consumer electronics, including the Librem 5
U.S.A phone, which costs $2,000. It's the only
smart phone in the world with the Made in U.S.A
stamp. The FTC actually has a very
strict definition of what Made in U.S.A is or
Assembled in the U.S.A. The Librem 5 U.S.A. is manufactured in the
United States of America. We actually have a label
and a sticker we put on there Made in U.S.A
Electronics so that we're actually showcasing that we
are indeed qualified by the FTC definition of Made in
U.S.A. for a full phone. The phone is assembled here
and its Carlsbad, California factory. Purism sources all
components of the Librem 5 U.S.A. phone domestically,
with the exception of the chassis and the Wi-Fi card. Overall, what we're looking
at is all the electronics are manufactured at our
facility, the chassis, the specific components are
called integrated circuits. Those can come from outside
of the country. As one example, our NXP CPU
is manufactured in South Korea and then we import
that specific chip and then we use it on our board that
we do all the manufacturing. But the company also sells
the Librem 5 phone, which is mass produced in China. For $1,300, it's $700
cheaper than the American-made model. Weaver says he hopes to
expand the line of products the company makes in the
U.S. For us, obviously the U.S. is the one we're expanding
most and it's going to even spill over to doing other
products in the United States as well, like our
laptop and mini PCs and potentially even servers. There is also a potential
for us to even get into chip manufacturing. Weaver said the company is
profitable, but we asked how this is possible with the
higher labor cost for the U.S. made model. Actual physical labor costs
are clearly more than in China. We're able to sell
at a price point where we don't have to cram our
costs so far down. So that allows us to pay
people really well and take care of the employees and
have secure supply chain and everything else. Purism initially started
through a crowdfunding initiative. Now the company
says it's sold tens of thousands of phones. Overall, we're a
multimillion-dollar company. We've seen growth, triple
digits year over year since we started. Our margins are
healthy, which allows us to continue to pay people
really well and also allows us to scale up the
business. Purism said almost one third
of its revenue comes from the American made Librem 5
U.S.A model. But Weaver said labor
hasn't been an issue for the company. The key piece that you're
looking at is there's actually not a lot of
physical labor that goes into producing a phone. It's more mechanical labor,
the actual machines. And so machine versus
machine, it's equal to do us manufacturing on the same
machine in the U.S. versus a machine in China. So in the end, you're
looking at a number of U.S. jobs that can be that
assembly line operator final fulfillment, but machine
versus machine, it's still equal. But do Americans want these
jobs? Any time we post a job at
all, we get 100 applicants. So from line operators to
assembly workers, right? We're talking well over $10
over minimum wage for a lot of those positions. However, not everyone agrees
this business model will be successful in the States. Baizhu Chen, a professor at
the USC Marshall School of Business, says these jobs
are not coming back. I don't see in the U.S. there's rows and rows of
workers sitting in front of the desk, assemble the
small phones. I don't see that happening. These type of jobs are not
coming back to the U.S. I'm talking about the
labor-intensive manufacturing job. There's actually lots of
manufacturing jobs that are being made here in the
U.S., they're just not assembly jobs. They are
data analysis jobs, engineering jobs. I definitely think there
are compelling cases where you can build highly
complex products, here in the U.S., it's usually at
much lower volumes. It's not a million a day. Smaller companies are often
deciding to build locally. So what will it take to
bring phone manufacturing to the U.S.? Not only you will need to
rebuild the human infrastructure, you also
need the components to be made nearby. Somewhere in the ecosystem,
needs to be there. America doesn't have this
ecosystem here because we have not been manufacturing
phones for years, and so the supply chain doesn't exist
here in the U.S. They are in Asia, in China,
in Vietnam and other countries. So to rebuild
those things will take time and take cost. Very expensive. It doesn't make any sense. But in light of recent
support from the U.S. government to transform the
American manufacturing ecosystem, the U.S. is taking steps to restore
some manufacturing jobs. In August 2022, President
Biden signed the CHIPS and Science Act. The bipartisan
bill includes $52 billion to U.S. based companies to
produce semiconductors, with $39 billion in
manufacturing incentives. America finally is making
policy at the federal, state and local level to level
the playing field. Beforehand, it was just
difficult because regulations and red tape
were plenty. Taxes were high and 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 absolutely can be
profitable to build products here in the U.S., but it's
got to be the right product and have the right
technology support around that product. In 2017, the White House
announced Foxconn's plan to open a massive LCD screen
manufacturing facility in Wisconsin. I led the project Flying
Eagle, which was slated to invest up to $10 billion
and creating 13,000 jobs in the state of Wisconsin. But Foxconn has massively
scaled back on that promise. In 2021, the
company anticipated creating less than 1,500 of the
initial 13,000 jobs promised and cut its investments to
$672 million. Foxconn bit off more than it
could chew at that particular stage of their
history dealing with everything from the
regulatory side, the environmental side, the
actual building of the facilities, and then even
possibly getting the right kind of people needed to do
it. That was just not reality,
in the short time frame they promised. Two key elements that
actually affect the project were the market condition
and also the investment climate. In our case, for
LCD manufacturing, the prices drop and got cut by
half. And if you ask
manufacturers, would they still build the project or
build a factory if the end product now sold 50% off,
I think they have to pause and really take a long,
hard look strategically to do that. But if the world's largest
electronic manufacturer couldn't succeed in
Wisconsin with LCD screens, and if Motorola failed at
making phones in the country after only a year, it seems
highly unlikely that we will see any other attempts to
make smart phones in the U.S. any time soon. I can't comment on whether
Apple asked Foxconn to manufacture iPhone in the
United States, but I'm sure when the clients of Foxconn
ask the company to consider manufacturing a particular
product in the United States, the company will be
ready. As to why it's necessary to
build phones in the U.S., Purism's president Kyle
Rankin says it's largely due to security concerns and
data protection. At Purism, we think data is
uranium, so we treat it like a radioactive substance
where we collect as little of it as humanly possible. Manufacturing things in the
U.S.A. avoids risks from some other
government or overseas or something tampering with
it. Every extra link you add to the supply chain is an
extra opportunity for someone to inject
themselves in that supply chain and tamper with
things. If China continues to be a
security threat, more and more of the U.S. companies and the
international companies are going to move manufacturing
outside of China and we're already seeing that happen. But Professor Chen says it's
really not necessary. We eat strawberry, we eat
tomatoes, but we don't grow tomatoes, we don't grow
strawberry. It's the same thing. We can consume iPhone or
any smart phone without manufacturing the smart
phone. These phones can be
manufactured in Vietnam, in China, in different other
countries. Regardless of where it
happens, the need for manufacturing phones is
only going to grow. Other companies, they
continue to fall back on, "It's just too hard to do in
the United States," as almost a talking point as
opposed to actually looking into how it would be able
to get done. It can clearly get done,
and there's a huge market opportunity and it's just
cheaper for those companies to offshore those jobs and
continue to import from other countries. There is a reason why those
companies manufacturing product in China. By combining the labor cost
and the supply chain and productivity, China is
still the most efficient place to produce. Whether a phone or TV or
computer should be made in the U.S., it's going to be
up to the companies, meaning the supply chain, including
Foxconn and the clients, to decide. But ultimately it's
the end user customers who is going to decide. And the customer is going to
decide when go to the shop or go online and make the
purchase and make the decision with their credit
cards. So while yes, you can find
an OG flip phone, some of the relics on eBay, we're
seeing companies develop new models to— Flip phones are hot right
now. Flip phone! While it might seem like
dumb phones are a product of the past, they've actually
remained prevalent around the world and still make up
about a quarter of phones actively being used. And yes, this is in large
part due to their affordability in developing
countries, but it's also becoming a movement among
younger generations. So it's been an official
week on this guy. The crappy dumb phone. And I'm never going back to
a smart phone. We're going to be talking
about my dumb phone. Today, we're going to talk
about the Light Phone II. It's been three years since
I've had this device. I had been thinking about
getting a dumb phone or a flip phone for a while, but
then I kind of involuntarily adopted one. My iPhone
broke and I loved it so much, I just, I decided to
keep it. Despite this, smart phones
are still king. Even in developing nations
where flip phones are still widely used, smart phone
usage is growing. Developing countries are
definitely some of the places where Nokia has not
just as a brand but also with both feature phones
and also smart phones, has a very, very strong presence. Worldwide, the feature phone
market is expected to decrease by about 10% over
the next five or so years, largely attributed to
developing countries making the switch to smart
phones. And older generations refusing to use
smart phones could be phasing out as there is a
48% increase in smart phone ownership among those 65
and up from 2012 to 2021. But the amount of dumb
phones being 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 massive smart phone industry. Within the dumb phone
market, there are essentially two avenues
most consumers take. One being a classic flip or
slide phone, similar to what was commonly used in the
early and mid-aughts, like a Motorola or Nokia. Two being a modern
minimalist phone from brands like Light or Punkt. whose phones are in a way
purposefully dumb. And these brands are also
labeling their phones as feature phones, which is
like a flip phone with some additions, like a hotspot
or a GPS. How do you feel about the
term dumb phone? Well, we're trying to do
with the Light Phone isn't to create a dumb phone, but
to create a more intentional phone, a premium, minimal
phone, which, you know, isn't inherently
anti-technology, but it's about consciously choosing
how and when to use which aspects of technology add
to my quality of life versus tempting me with all sorts
of vulnerabilities of the smart phone. In Europe, for instance, you
have a culture. Here in Switzerland and
Germany, they don't call it a dumb phone or a digital
minimalist phone, they call it the weekend phone. One of the biggest reasons
some Gen Zers are reverting to a dumb or minimalist
phone is the concern with smart phones effects on
mental health. We all know that what people
convey through social media, they only convey the best
of their life, which makes others falsely believe they
live a lesser life by social comparison, which in turn
negatively affects their self esteem and well-being. The U.S. Surgeon General
even recently stated that 13 is too young to be on
social media, so some are taking the initiative and
switching to a dumb or feature phone incapable of
browser and social media use. It's definitely a trend that
we've noticed that people have been very occupied
with digital social media for a while, and a lot of
people want to take a step back and get a bit more
detached from that part of their life. I take my smart phone with
me absolutely everywhere. So I decided to jump on the
dumb phone bandwagon and test out a couple different
devices. This is the Punkt. NP02 phone. It's my first
dumb phone ever, sent over from Switzerland in this
mysterious box. It has a T9 layout which
I've never actually used before for typing. So we'll
see how that goes. A study found that
Americans in their 20s are on their phones for about
29 hours a week, equaling about four hours a day. That was in 2021. Just for reference, my own
screen time trends about at two and a half to three
hours, which is a little bit less than average. The vast majority of my
time is spent on messages. Now I'm going to swap out
the SIM from my iPhone to the Punkt. phone. The Punkt
. phone retails for about $380
or $400 if you want it in light blue. You can call, you can SMS. You can call and message
through signal and you can make it use as a hotspot
for connectivity. There are other purposefully
dumb phones, like the Light Phone, which allows for a
little bit more leeway, I guess, on what you can do. Retailing for about $300,
the light phone has a few more built in tools. We kind of set these
guidelines of let's create things that have a real
utility purpose. So something like an alarm
or directions or a calculator or even, you
know, a voice memo and notes tool. These things have
like a really clear use case. There's nothing about Punkt
. that is against technology. It's about intentional
technology. Right now I'm actually
waiting on a call from somebody who I've been
dating for about a month and we've never actually called
before, but we're trying to set up our plans for
tomorrow, and texting is just so inefficient on a
phone like this, so we're going the old fashioned
way, doing a little call. Hello. Hi. So far, I actually haven't
run into too many issues. It's actually kind of nice
to be able to just sit with the uncertainty of things
instead of looking them up. And I'm still able to text
just, like, kind of poorly. I'm a little bit more
reliant on calling, but I'm about to have about an hour
and a half commute up to our office in Englewood Cliffs
because I live in Brooklyn, so I'm not going to be able
to use music or podcasts, which I usually do the
entire time. Instead, I'll have to,
doing some reading, but maybe that's for the best,
you know? Sit with my thoughts a
little bit more. One sort of weird issue
that I'm running into is directions. The phone does
not have any sort of map or directional indicator on
it, so I'm having to look up directions before I go for
certain places. It's no problem, like,
getting to work just because I have that memorized. But
for places that I'm not as used to going, I have to
check before I leave and then just try to remember
everything, which can be a little bit of a challenge. Okay, so I did have to
briefly cheat. I was trying to meet my
friend at a coffee shop and couldn't find it. Got a
little lost, so I just swapped my SIM just to pull
up the map. Now I've got my hands on
the light phone, so I'm going to swap my SIM and
see how this one goes. So the Light Phone has an
actual keyboard on it, which makes it a little bit
easier to use for me, but everything on it is a
little bit delayed because of the type of screen it
is. So I'm still struggling a lot. One of the tools
that they added to the Light Phone II, which I
think is actually really nice, is voice-to-text and
it works pretty well. You have to go a little
slow for it, but overall, very convenient. This is the home screen and
you actually have to go on your computer to their
online dashboard to add any additional tools past the
alarm. So I went in and added
directions, hotspot, music, notes, podcasting. The directional tool
actually works really well. I expected to have to put in
the actual address, but you can actually just type in
the name of something or most of something and it'll
figure out the rest from there. The Light Phone
music tool only allows you to upload basically MP3's. You're using it as an MP3
player, so you have to download music, you can't
actually stream it. So I'm actually going to
buy an album for the first time and I want to say like
10 years. So I mean, it is working. It's not like the best
listening experience, but I am listening to music, so
it counts for something. While I don't really use my
phone that much to begin with, compared to most
people my age, I decided that a dumb phone really
isn't for me. And honestly, one of the
biggest negatives for me was not being able to listen to
music and get around super easily using something like
Google Maps. On average, over half of
kids in the U.S. received their first smart
phone by age 11, and that percentage has continued to
grow, making Gen Z the first generation to entirely grow
up with social media and smart phones. And about
half of teens in the U.S. said they feel addicted to
their mobile devices, which can have adverse effects on
mental health. This is why parents should
be encouraging healthy device habits. It's not about prohibiting
or banning totally devices from being used, maybe like
encouraging their children to take some regular
breaks. A recent study found that
decreasing teen smart phone-based social media use
by 50% improves issues with emotional distress. But I think you can see it
with certain Gen Z populations. They're tired
of the screens. They don't know what is
going on with mental health and they're trying to make
cutbacks. And from 2019 to 2022, over
a billion feature phones were sold globally. I think this trend, starting
in the United States, could very easily move, I would
say first, to Western Europe and Australia, and then
after that, places like Eastern Europe and even
places like China. This trend is largely a
result of mental health concerns and in part why
companies like Light and Punkt. said its devices are
popular among 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 who reported
experiencing a depressive episode increased by 83%. So I wanted to change my
lifestyle, you know, kind of like get into a slower
lifestyle instead of like the fast pace of the
internet. We kind of had this
hypothesis that taking a break from smart phones and
the internet at large from time to time would yield a
really refreshing and positive experience for
users. And brands like Light and
Punkt. that are geared toward
younger audiences have found success and increasing
device sales. From 2021, for example, to
the last year of 2022, we did grow 50% year over
year. You know, we have five fold
compared to 2018. As for this way, so, but
you know, we are not in the millions, we are in the
hundreds thousands. But I think this Light
Phone, Punkt. and brands that are new, I
think could make a much bigger impact, particularly
in the Western world, because it's not
apologizing for being not a smart phone. In 2021, just 61% of
Americans 65 and up were using smart phones, while
29% were using a dumb or feature phone. The biggest question that I
wanted to figure out is will they age out or will they
move to something different? And as with most technology,
older generations were slow to adopt smart phones. In 2012, when smart phones
had picked up some serious steam, only 13% of those 65
and up had a smart phone, compared to 66% of 18 to 29
year olds. What's assumed is that
older generations are still using feature phones
because it's what they're used to and have no need
for the updated tech. And just 45% of them said
they ever use social media. I do believe we'll see
higher adoption of dumb phones even when folks like
I age out. If nothing else, the
dexterity that it takes to touch the screen of a
smart phone when you get older is tough. Your eyes go and directly
you cannot operate a smart phone without having some
reasonable eyesight. Older generations are
sticking with Nokia phones and still doing that. But I think that's also
where we really try to bring on top of that innovation. So they can still function
in a modern society. Older generations are
clearly shifting away from dumb phones. And despite
the growing movement among younger generations, 85% of
Americans have a smart phone. And that percentage
has grown every year since their inception. But some
think the dumb phone industry will grow as well. In North America, the market
for dumb phones has pretty much flatlined over the
past four or five years, but I could see it getting up
to 5% increase in the next five years, if nothing
else, based on the more public health concerns
that are out there. The problem is that humanity
is not yet ready for this fast evolving software. Children are not yet ready
because they are going through a very important
developmental age, so they are not yet prepared to
face all the challenges that are currently available on
the internet, video games or even the social media
platforms. I think in the next five
years we will have major CDC warnings about the dangers
of smart phones and collectively that the
smart phone industry wasn't able to manage on its own,
and I could see there being some restrictions. And that alone, I think,
will bring out likely parents not giving kids
smart phones, but more dumb phones into the future. There's a reason why there
is 15,000 subredditors on the dumb phone subreddit. Like, that's not a small, I
mean it's small when you compare it to like Android
subreddit or Google or iPhone, but it's a trend
that is catching on and a lot of people are really
interested in for sure. This is actually one of the
best things I've ever done for my mental health
because I've decreased the stimulation, I've created
more space to feel my own ideas and to touch in with
my emotions and just to kind of feel like what's going
on with me without all of the noise. The smart phone market in
emerging or developing countries has grown
rapidly. The global smart phone market was valued at
about $485 billion in 2022 and is expected to reach
nearly 800 billion by 2029. And the Middle East, Africa
and India made up about 80% of feature phone sales in
2022. But these countries are
also becoming concerned about the mental health
impacts of increasing smart phone usage. A survey
conducted in 11 developing countries found that 63% of
adults were concerned that mobile phones were having a
bad influence on children. But despite this, mental
health isn't really the reason people in developing
countries are opting for dumb phones — price is. That has very little to do
with capability and parents watching their kids. It has everything to do
with the the price point and the reliability. In that same 11-country
survey, 70% of respondents said that mobile phones
have been overall good for society. A lot of folks in areas like
India, they'll run their entire business on a smart
phone. And therefore, I do see the
numbers going up for a country like India. And the makers of Nokia
phones said they're still selling millions of feature
phones globally every month. However, the U.S. is one of
few markets where they noticed growth in feature
phone sales last year. While feature phones do
make up most of the cellphones actively being
used in India, new phone sales are heavily in favor
of smart phones. Of the roughly 200 million
mobile phones shipped in India in 2022, only about
57 million were feature phones. And while feature
phones are decreasing in developing nations, the
industry does have a steady following elsewhere in
certain niche markets and could see some growth as
mental health concerns associated with social
media and smart phones rise. While my experience wasn't
terrible and I really don't use my phone that much to
begin with, it's definitely something that I decided
isn't really for me, and it remains to be seen whether
it'll be more than just a trend in the U.S. For much of the mid to
late-2000s, Research in Motion's BlackBerry was the
most popular smart phone brand in the U.S., and it
wasn't close, making up about 43% of smart phone
users at its peak. Even after touchscreen
phones from Apple and Google became mainstream,
BlackBerry still 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 keyboard. Others wanted the advanced
cybersecurity that BlackBerry phones offered. Something that BlackBerry is
known for is not getting hacked and having security
and privacy, something that is near and dear to our
DNA. And the company's stock
peaked at nearly $150 in 2008. Now it's sitting
pretty at around five bucks. January 2022 marked the end
of an era. A moment of silence for dear
departed BlackBerry. Starting today, the
BlackBerry classic device once a go-to for millions,
including then-President Barack Obama, will no
longer work. After over two decades of
servicing mobile communication devices, it
established software and cybersecurity as its sole
business. Because they are trying to
stage what would be a tremendous turnaround for a
company that once used to make smart phones. So they
are playing it cautious, but playing it cautious, on the
other hand, is limiting their growth potential as
well. But the margin is going up
and one of these days the switch will flip. So we are
hiring and growing and spending. Overall, it was a tough
transition and I'm proud of the way we're pivoting. 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 did have some
initial success and was even used by General Motors, it
didn't last. It made several other
products, including DigiSync, a device used in
film post-production, which won an Academy Award for
technical achievement. But it wasn't until it
developed the RIM 900, one of the first wireless
devices that could send and receive data, when Research
in Motion really started to pick up steam, it used an
early wireless data network to send and receive
messages, and it set the groundwork for what would
eventually become a BlackBerry. The earliest
iteration of the BlackBerry phones we all know began in
2002 with a 5810. It could send and receive
messages and also allowed for use of a simplified
browser. It was really interesting to
go from small volumes of these interactive pagers to
huge volumes of smart phone handsets. BlackBerry's popularity
peaked in the late-aughts. At the time, the brand and
its products were quite simply a cultural
phenomenon, coined the CrackBerry by many. The phones were seen as
addictive. One of the first glimpses of how smart
phones would eventually take over our lives. It was a really exciting
time. I mean, we as a company had
a really strong 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 his BlackBerry while in office. But I'm still clinging to my
BlackBerry. They're going to pry it out
of my hands. In 2007, it was the most
valuable company in Canada, surpassing Royal Bank,
which held that spot for about two years. In 2010, it acquired an
operating system called QNX. While BlackBerry was
still largely focused on smart phones at the time,
this move has since proven to be a massively 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 as QNX was now on a
world scale platform. Charles Eagan joined
BlackBerry in 2011, largely because of its acquisition
of his former workplace, QNX. BlackBerry's fiscal
peak was in 2011 when it did nearly $20 billion in
revenue, with over 80% of that being from hardware. Even Kim Kardashian was an
unofficial brand ambassador, using the phones until 2016
when her last BlackBerry devastatingly died. BlackBerry. It's my heart
and soul like I love it. I'll never get rid of it. And she wasn't alone with
her devotion to the brand. Well past its prime era,
many people held out from switching over to a
completely touchscreen smart phone, seeing
keyboardless phones as undesirable. But in 2007,
everything changed. And we are calling it
iPhone. Today, today, Apple is going
to reinvent the phone. BlackBerry began making
efforts to change up its tech in 2008. Its first fully touchscreen
phone was the Storm, which had major hardware issues. It quickly returned to its
former button-filled glory before again trying out a
touchscreen device called the Z10 in 2013. See, at this point it was
trying desperately to keep up with touchscreen smart
phones like the iPhone that were becoming more and more
popular. But device sales were
plummeting. In 2011, it sold 50 million
phones. But just two years later,
after the release of the Z10, that number plunged to
fewer than 30 million phones. And in the years
following, sales continued to fall rapidly and its
stock had a meteoric descent. I think we saw as we were
getting closer to our BlackBerry 10 launch and
seeing the headway that Apple and Android were
making in this space, so I would say around that
timeframe is when I think the the company realized
that, yeah, we would need to make some significant
changes. BlackBerry desperately tried
to stay afloat by flooding the market with products. In the same time period it
took Apple to release four iPhones, BlackBerry
released over 30 unique devices. It made an effort
to keep up with competition by switching to a QNX
operating system, which it acquired the year prior,
but to no avail. In 2012. Longtime co-CEO and founder
Mike Lazaridis, along with co-CEO Jim Balsillie,
parted ways with BlackBerry. By 2013, 4,500 jobs were
cut and John Chen took over a CEO with a desire to turn
BlackBerry's trajectory around. When I came in we're losing
market share, we're writing off a lot of stuff, and we
were losing money like crazy. We're talking
billions of dollars every quarter. And so I have to
put a stop to that. And that was kind of the
state of it, just really more of a survival state at
that time. You know, the fact that John
Chen recognized early the pivot to software. I remember the day he
appeared 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 already
successfully done turnarounds historically. Initially, Chen hoped to
keep the iconic phones, turning them into a stable
source of revenue. But after a few years, we
realized that we would never get the volume up; it's a
volume game. The moment had came and
gone, so to speak. And so we made that pivotal
shift to a software only company and focused on
security and cyber and things of that sort. See, this pivotal shift Chen
is referencing was largely dependent on a few key
acquisitions that BlackBerry had made, one of which
being QNX in 2010. The operating system that
was later integrated into BlackBerry devices. And this was viewed as one
of the silver bullets that BlackBerry needed for its
portfolio moving forward. One thing we did was we took
out security software, which used to be designed for the
operating system or the new phones and moved that back
into the auto. The others being the $1.4
billion acquisition of Cylance, an antivirus
software firm and the $425 million acquisition of good
technology, a device management software
company. These moves helped BlackBerry more swiftly
alter its focus from hardware to software. QNX had previously been
fairly well established as a software company dedicated
to the automotive industry. And the fact we supported
our devices for many years after we announced the exit
of us manufacturing and designing our own smart
phones. And now over the last
number of years have fully transitioned into the
enterprise and the foundational IoT software
space. So once BlackBerry decided
phones were not the future of the company in 2016,
these acquisitions quickly became central to its
business model. Currently, BlackBerry has
two main business units: a cybersecurity business unit
and an IoT business unit. These are two fast growing
markets. I would like to think of
BlackBerry as a company that can actually grow if they
play their cards right. The main 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 before we even outfit it
with any of our additional sensors, this is running a
Ford Sync. So the infotainment is
being used in the vehicle and this is prevalent in
quite a few of the Ford vehicles. We now have the lion's share
of embedded software in most of the cars. So this is
really, is an offshoot of the result of the strategy
shift in 2016, which is where we went from phone to
non-phone. Now BlackBerry software is
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
drive demonstrations. We have integrated a lot of
varying hardware and equipment and sensors from
various manufacturers. A lot of these embedded
boards would be the size of a deck of cards. They'd be
very inconspicuous in the vehicle. BlackBerry works with
numerous automotive companies and all but one
manufacturer. We work with all major
automotive automotive OEM's, Audi, BMW, Ford, GM,
Toyota, Volkswagen, Volvo, just to name a few that you
may recognize. In the automotive IoT
industry, BlackBerry says its QNX software is the
market leader. The demand is actually
strong for these advanced security and infotainment
solutions because of a few reasons. Now, for example,
there is an increasing demand for advanced driver
systems and for advanced camera systems and also for
advanced safety features. If we look at the industry
opportunity itself, it's our expectation that the auto
software industry is going to roughly triple in size
from 2020 through 2030. And its cybersecurity unit
is securing the back end of things like mobile banking
apps and patient portals. So there's quite a rich
cyber portfolio within BlackBerry, and that's
securing banks and governments and large
organizations and small and medium businesses. While the cybersecurity
industry is lucrative with a market size of over $200
billion, it's also competitive. It's taking on
tech giants like Microsoft, Snowflake and CrowdStrike. And in 2021, BlackBerry was
only able to get a thin slice of that pie. Just under $500 million
worth. The competition is very
intense with the likes of Microsoft spending billions
of dollars a year for product innovation. And BlackBerry so far has
not been able to build any competitive advantages
because of one major reason: they primarily
cater to regulated industries such as
government entities, financial services
companies and the health care sector. But in my
opinion, if BlackBerry were to become a
well-recognized, fast-growing cybersecurity
company, they have to focus more on their go-to market
approach to come out of these regulated industries
and to capture market share in the broad 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 that the company can
reach a likely a lower peak than we've seen in the
past, but a more sustainable growth trajectory and
potentially more profitable future as well. The margin percentage
basis. While it was a major shift
to go from manufacturing cellphones to cybersecurity
and software, it was also a shift that made sense for
BlackBerry. Even when they used to be a
smart phone manufacturer, they always, the BlackBerry
had a good name, a good recognition among consumers
for a company that prioritized security
features. So BlackBerry is not new to
offering high grade, high quality security features. Its reputation for being
secure was easily transferable to part of its
new enterprise 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 have
hacked into vehicles and proven that they could take
over control of the vehicle. And I do think that there's
the potential for payment systems to be compromised
or personal information to be taken. And when you
think of a car, it's more like ten plus computers
than one computer. I do not necessarily think
that you're going to see the likes of returns that
BlackBerry enjoyed at their peak, when they were a
smart phone manufacturer, at least for the next decade. But then again, if
BlackBerry plays their cards right, they might be able
to turn profitable. So while there's a chance
BlackBerry hasn't been on anyone's mind in nearly a
decade, it's possible that you interact with something
it helped develop almost every day.
