BBRY Blackberry Limited

By Ben Dummett 

BlackBerry Ltd., struggling to revive its moribund smartphone business, is betting its expertise in mobile security will help distinguish the company's first Android device from a crowded field.

BlackBerry expects to start shipping its new Priv later this month, marking a strategic shift for the fallen tech star. The company relied on its own operating system and qwerty keyboard to once dominate the smartphone market by offering secure devices that made typing and emailing easier for bankers, lawyers and other professionals.

But as consumers moved on to the sleeker designs and greater number of apps offered by alternative devices, BlackBerry's market share has plummeted to a level that is pushing the Waterloo, Ontario, company to adopt the most widely used smartphone operating system to attract new customers.

The Priv is meant to stand out among rival Android phones by incorporating BlackBerry's encryption technology that is still considered the gold standard for mobile security by many governments and industries, and its productivity tools such as the company's unified inbox that brings together a user's email, text and other messages in one place. Applying this technology to Android is significant because BlackBerry had previously indicated that its own operating system was the best platform for offering those advantages and a move to Android could undermine that.

The challenge for the Canadian company is convincing consumers and business to buy a premium-priced phone when today's dominant smartphone makers Apple Inc. and Samsung Electronics Co. are adding more security to their latest handsets, and more employers allow workers to use their personal smartphones on the job, some analysts and industry executives say.

"The percentage of [Apple] devices under management continues to increase," among corporations that Mobi Wireless Management Inc. works with, the company's president, Mitch Black, said. Based in Indianapolis, Ind., Mobi Wireless offers software that allows companies to control all components of their corporate networks from a central point.

BlackBerry has a lot riding on Priv's success. The company has released three new devices powered by its own operating system since September 2014, part of an effort to regain business from its traditional enterprise customers after a move the prior year into the consumer market fell flat. While BlackBerry has touted the productivity and security features of these smartphones, the company's device business remains under pressure. For the quarter ended Aug. 29, hardware revenue dropped almost 24% from the prior quarter.

BlackBerry is largely counting on sales of higher margin mobile security software and services for enterprise customers to reignite growth. But a profitable handset business would give this strategy more time to gain traction.

Smartphone markers rely heavily on carriers to sell devices through the mobile phone companies' retail stores to reach the broadest audience possible. As BlackBerrys fell out of favor with consumers, the company lost a lot of this support, further hurting device sales. BlackBerry says it is regaining carrier confidence. AT&T Inc. is among BlackBerry's distributors for the Passport device that was launched in September 2014. And AT&T as well as Verizon Communications Inc. are among the carriers that offer the company's Classic smartphone, also introduced last year.

AT&T will sell Priv, but not Verizon, Sprint Corp. and U.S. Cellular Corp., limiting the potential size of customers for the device. By comparison, Samsung had support of AT&T, Verizon and U.S. Cellular among others when it launched its Galaxy S6 Edge device earlier this year.

Marty Beard, BlackBerry's chief operating officer, declined to comment on whether any of these carriers would ultimately offer the phone but said the company plans to announce new distributions agreements in the near future.

In September, John Chen, BlackBerry's chief executive, said the lack of social media and entertainment apps many consumers covet had hindered sales of the company's latest of handsets. BlackBerry's small share of the global smartphone market--which stands at less than 1%--deters developers from making applications that run on BlackBerry's operating system because they can't make much money from the effort. The Priv won't suffer from that disadvantage. By using Alphabet Inc.'s Android operating system, the device comes loaded with the Google Play store, giving users access to about three times more apps than available on BlackBerry's current crop of phones.

The device, which offers a 5.4-inch dual-curved screen, also gives users the option of using a touch screen or slide-out keyboard for typing.

"Priv will be the answer for former BlackBerry users who miss the physical keyboard but want more apps," Mr. Chen said in a post on BlackBerry's official blog.

The Priv, though, faces a crowded field of competitors, with about 83% of all smartphones powered by Android. To distinguish itself among this group, BlackBerry has loaded the inside of the device with new encryption technology to better protect data stored on the device and guard against tampering of the operating system by hackers. It also includes an alert system to tell users when social media apps are tracking their locations.

BlackBerry rivals Samsung, the world's largest seller of Android devices, and Apple, have also tried to beef up security of their devices. Apple has made it harder to crack its pass codes by lengthening the number of digits required to access its phones and added a security layer to protect a user's documents, photos and other data. Meanwhile, Samsung's new handsets come with the South Korean tech giant's Knox security platform that is used to separate personal and work data to ensure corporate security and employee privacy.

At $699, the Priv is in some cases more than $100 cheaper than prices for Samsung's Galaxy S6 Edge and Galaxy S6 Edge + devices, while it falls between the $649 price for Apple iPhone 6s and $749 for iPhone 6s Plus.

"Why would you swap," when the importance of security for users has become less clear as more employees use their personal phones for work, said David McQueen, an analyst at ABI Research.

Write to Ben Dummett at ben.dummett@wsj.com

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(END) Dow Jones Newswires

November 02, 2015 11:14 ET (16:14 GMT)

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