Bartiromo: BlackBerry's Chen on privacy and security

Mobility is the biggest innovation my generation has seen in years. That's why the competition for your smartphone dollars is raging. But the more than 7 billion mobile phones on the planet combined with a data explosion — from your financial information to your healthcare — means securing that data is as big a business opportunity as your cellphone. BlackBerry may be known as a smartphone maker, but the real opportunity for the company is capitalizing on that need for security and privacy — and many government leaders and CEOs tell me that BlackBerry has better technology in securing that data than others. John Chen was brought in 18 months ago as a turnaround specialist and quickly realized his edge: It wasn't just about the device, but more so about protecting what's inside that device. I caught up with Chen to find out how his strategy is working. Our interview follows, edited for clarity and length.

Q: You've been running Blackberry now for 18 months. How are things progressing?

A: I've been doing a bunch of things, investing in the future. And my No. 1 priority is to make money and generate cash, and then invest that cash. Over the last 18 months there's a lot of proof of that. The last two quarters in a row, we made money and generated cash. The trend is in the right direction. We acquired three companies, all aligned with the strategy of us being the leader in security and privacy, and focusing on enterprise computing and the power users — the people in the professional world and governments.

We also made a minority investment in a small company that provides software for medical usage — clinical trial usages. So we're pretty much aligned to what I set out to do. The journey is about halfway through. We're going to stay focused on executing; the strategy has not changed. The vision that I set out to do is to get ourselves very focused on enterprise, on professional users, and on security and privacy protections. The medical verticals, governments, financial, regulated industries such as gas and energy, the legal industry.

Q: You're not just competing with the Apples of the world, but also security companies.

A: This is the basic building block on everything we do. And this is the major differentiation of the company. It's starting in the software and the server that manages all these devices — not only our device, but also iPhone and Android and Windows. We also made our device more secure than everybody else's. A lot of people ask me why I'm in the device business. First, it's a good business to be in if you can make money. Second, it's our first entry point of security. If we can secure the device, it makes securing the software and the data management and the collaboration and file sharing and content and pictures and videos and everything that much more easier. So this is why all the governments in the major developed countries are using our devices. You can see the heads of state using our devices.

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Q: If you look at the business over the next 10 years, how much will be security and privacy, and how much making smartphones?

A: I don't think you can separate the two, and 10 years seems to be an awful long time. I would say the difference between the hardware and software business is probably more like 80/20 right now. In the next year or two I'd like to get to 50/50 or 60/40 so that we build a pretty robust software business. And the other software business is based on security almost entirely. The differentiation is it will come from security, and the area we talk about (with that) is the medical field. The hardware also will contribute to the security part of the equation. But the handset business is going to be very much focused on professionals using the device.

Q: Where is the big opportunity in terms of the smartphone market?

A: The smartphone business is going to be bigger overseas than in the North America market.

Q: And is that people getting their first phones or upgrading to a smartphone?

A: People graduate from college and step into their professional careers. We have a new product that focuses a lot on that. So it depends on what country and what market we're talking about. We're strong in Indonesia and Africa, and some of the Latin America countries. And a lot of those young people are entering into the workforce. This is our basic audience. In the developed world, we're focusing on people like heads of governments, lawyers, doctors, engineers and people in the business world, where security is important to you, file collaboration is important to you, where your privacy is important.

Q: What will be the most important metrics for you to say that "yes, we moved the needle"?

A: There are two things happening to our company. We've gotten it into a very stable environment financially. We have more than $3 billion of cash. We're investing, we have a strategy, we're a good set of people.

Q: What will it take for you to sustain earnings growth?

A: First, cut costs in the hardware business. I believe we can do that with some level of collaboration or partnership. Not doing everything myself is important. So we'll be able to focus on really great design and security and privacy. We won't try to do everything and we will focus on priorities. We have a good set of plans and designs to do it. We have a couple of very exciting devices that are going to come out towards the end of this calendar year. So things are clicking there.

The one big area we were sliding was in the service area. In the old BlackBerry devices, every user gives us through their phone bill a few dollars every month — something of a service-activation fee. My biggest challenge is that number's now going down. Whether somebody took the old phone and replaced it with a new BlackBerry phone, or somebody takes an old BlackBerry phone and moves to one of my competitor's phone, that number is continuing to decline. Unfortunately, it's the highest margin business of ours.

So while I'm shifting that business, the question becomes, "How do I cover that?" The way to cover it is to really focus on growing our software business and our messaging business, because they carry the same margin profile. And of course, the software business is also the easiest for us to amplify our advantage in security and privacy. . It's very important to our business case. Those two in combination will allow us to not only get the margins and therefore earnings to improve, but also we'll get closer to the overall strategy to generate more cash, and invest our cash in a thoughtful way.

Maria Bartiromo is the anchor of Mornings with Maria on The Fox Business network, which debuts June 1st from 6-9am ET. Talk to her on twitter- @mariabartiromo