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CNBC Exclusive: CNBC Transcript: Interim Blackberry CEO John Chen Speaks with CNBC's Jon Fortt Today on CNBC's "Squawk on the Street"

Friday, 20 Dec 2013 | 12:54 PM ET

WHEN: Today, Friday, December 20th

WHERE: CNBC's "Squawk on the Street"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with interim Blackberry CEO John Chen with CNBC's Jon Fortt today. Following are links to the interview on CNBC.com: http://video.cnbc.com/gallery/?video=3000229974 and http://video.cnbc.com/gallery/?video=3000230008.

All references must be sourced to CNBC.

JON FORTT: CEO JOHN CHEN OF BLACKBERRY, SITTING DOWN FOR AN EXCLUSIVE INTERVIEW AFTER AN EARNINGS REPORT THAT HAD SOME ISSUES, BUT INVESTORS SEEMED TO HAVE BEEN LISTENING PRETTY CLOSELY TO WHAT YOU WERE SAYING ON THE CALL. OPTIMISTIC THAT YOU CAN MAKE THIS TURN AROUND HAPPEN, THE STOCK IS STILL UP ABOVE $7 A SHARE. TELL ME, I THINK YOU SAID IN ABOUT FIVE QUARTERS, YOU THINK YOU CAN HAVE THE LOSSES STENCHED. YOU THINK YOU'LL BE GROWING AFTER THAT? HOW LONG WILL IT TAKE FOR YOU TO GET ON A PACE WHERE YOU THINK THIS COMPANY IS SEEN AS A REAL GROWTH ENGINE AGAIN?

JOHN CHEN: WELL, I -- AGAIN, I THINK IT'S IMPORTANT TO UNDERSTAND THAT, YOU KNOW, WHAT I HAVE KIND OF GUIDED IS AN EXPECTATION TO GO CASH FLOW NEUTRAL FROM OPERATIONS TO THE END OF FISCAL YEAR '15, SO ABOUT 4 OR 5 QUARTERS FROM NOW. AND THEN AFTER THAT THE ENTIRE YEAR IN THE FY '16, I EXPECT IT TO BE PROFITABLE. SO, YOU KNOW, YOU NEED TO SEE THE GROWTH IN FY '16 IN ORDER TO DO THAT. SO IT CANNOT BE JUST FROM COSTS AND CONTAINMENT AND SO FORTH, ALTHOUGH WE SEEM TO BE DOING PRETTY GOOD THERE.

FORTT: YEAH. TELL ME, WHAT IS BLACKBERRY GOING TO BE IN YOUR VISION? THE TALK HAD BEEN OVER THE PAST COUPLE OF YEARS WE'RE GOING TO GO UP AGAINST APPLE, WE'RE GOING TO GO UP AGAINST SAMSUNG, WE'RE GOING TO BEAT THEM IN THE PLATFORM, WE'RE GOING TO BEAT THEM IN DEVICES. YOU SEEM TO BE TALKING MORE ABOUT THE ENTERPRISE NOW. WHAT IS THE CORE OF BLACKBERRY GOING FORWARD?

CHEN: EXCELLENT QUESTION. SO I THINK WHERE WE ARE – WHAT KIND OF REPUTATION THAT BLACKBERRY HAS, OUT IN THE FIELD, OUT IN THE MARKET. WE ARE BEING VIEWED AS SECURE. WE ARE BEING VIEWED AS VERY HIGH-QUALITY DEVICES. AND WE'RE BEING USED BY MOSTLY ENTERPRISES. SO WHEN I LOOK AT THE SITUATION, I THINK WE'RE GOING TO OFFER END-TO-END, THE BEST WAY TO DO IT IS TO OFFER END-TO-END SECURITY SOLUTION IN COMMUNICATION, PRODUCTIVITY THAT IS MOBILE-BASED. AND THAT'S WHERE WE'RE GOING TO BE, AT LEAST FOR THE FORESEEABLE FUTURE, IN THE NEXT COUPLE OF YEARS. I THINK WE HAD SOME ISSUES OF THE HANDSET BUSINESS, IN TERMS OF THE CONSUMER WORLD. BUT THE ENTERPRISE STILL LOVES US. THAT'S WHERE I'M GOING TO FOCUS IN ON.

FORTT: IN YOUR MESSAGING OVER THE PAST FEW WEEKS, I'VE SEEN YOU TALKING ABOUT THAT, TALKING ABOUT BLACKBERRY ENTERPRISE SEVER, REMINDING PEOPLE IT'S NOT JUST ABOUT MANAGING BLACKBERRY DEVICES. NOW YOU MANAGE iOS AND ANDROID, AS WELL. IS THAT THE BULK OF YOUR MESSAGE GOING FORWARD? THAT YOU WANT TO BE SOFTWARE AND SERVICES ON THE BACK END PRIMARILY AND NOT MAKE EVERYBODY THINK THAT THIS IS ALL ABOUT THE HANDSETS? IS THAT WHAT YOU'RE PUSHING?

CHEN: YEAH, IN A WAY. I'M REALLY -- I CAN REALLY THINK ABOUT US AS AN END-TO-END SECURE SOLUTION SENSE, SO THAT WOULD INCLUDE HANDSET. BUT YOU COULD PICK YOUR HANDSET, OKAY, AND I'LL GET BACK TO THAT A LITTLE LATER. BUT YOU PICK THE HANDSET. WE OF COURSE, WILL -- IF YOU USE THE BLACKBERRY HANDSET, IT'S THE MOST SECURE. OKAY. THEN YOU HAVE THE BEST – THE MOBILE DEVICE MANAGEMENT LAYER, DRIVEN BY OUR SERVER. BUT IT'S MORE THAN THAT. IT'S ALWAYS THE IDENTITY MANAGEMENT. THERE ARE TRANSSECTION MANAGEMENT. THERE ARE PRODUCTIVITY MANAGEMENT, A SECURE -- I MEAN, THIS IS A LOT MORE THAN JUST BEING A MANAGING MOBILE DEVICE ITSELF.

FORTT: RIGHT.

CHEN: SO THAT'S ANOTHER THING – AND THEN, WHERE THE -- I MEAN THE -- THE BBM, THE BLACKBERRY MESSENGER, WHICH IS THE MOST SECURE MESSAGING ENVIRONMENT THERE IS. AND SO, THOSE ARE ALL THE STUFF THAT'S COLLECTIVELY TOGETHER.

FORTT: I WANT TO GET BACK TO THAT. TALK TO ME ABOUT FOXCONN AND THE DEAL THAT YOU'VE DONE THERE. IT SEEMS LIKE YOU ARE MINIMIZING THE RISK INVENTORY-WISE OF THE COSTS GETTING OUT OF CONTROL AND MANUFACTURING. WHAT KIND OF NEW FLEXIBILITY DOES THIS GIVE YOU? AND WHAT DO YOU GIVE UP IN THIS DEAL?

CHEN: I GIVE UP VERY LITTLE, HONESTLY SPEAKING, BUT I THINK THIS IS THE RIGHT PARTNER TO DO BUSINESS WITH TOGETHER. AND IF YOU THINK -- SO IT'S JUST A VERY, VERY BRIEF THING ABOUT FOXCONN. WHEN I FIRST CAME HERE ABOUT 45 DAYS AGO, THE NUMBER-ONE THING I KNOW, IS YOU KNOW, OUR HANDSET VOLUMES ARE DROPPING, AND WITH THAT OUR FIXED COSTS ARE TOO HIGH. THE FIRST THING I NEED TO DO IS GET RID OF THE FIXED COSTS, IF I CAN, AND THEN THE INVENTORY COSTS, SO I DON'T HAVE TO CONTINUE -- DON'T HAVE TO BE WRITING DOWN THINGS. WE DID THAT. AND THE FOXCONN IS ONE OF THE BIG PARTS OF THE EQUATION. WE'RE GOING TO WORK WITH THEM, AS WE JOIN, DEVELOPING THE MANUFACTURING MODEL, THEY WILL DO THE BUILDING MATERIALS, THEY HAVE TREMENDOUS ASSETS IN SUPPLY CHAIN, ABILITY TO REALLY GET THE COST DOWN, GREAT LOGISTIC, VERY GOOD QUALITY, WE'LL PROVIDE ALL OF THE SOFTWARE.

FORTT: SO THEY'RE TAKING ON SOME OF THAT RISK.

CHEN: RIGHT, A LOT.

FORTT: A LOT OF THAT RISK ON – WHAT DO THEY GET? MARGIN?

CHEN: MARGIN. AT THE END -- YOU KNOW, WE WILL GET A CERTAIN AMOUNT OF RETURN. I WON'T BE ABLE TO ARTICULATE THAT, BECAUSE THIS IS ALL PRIOR TO CONTRACT, AND BEYOND THAT CERTAIN AMOUNT, THEY WILL START SHARING ON THE MARGIN.

FORTT: SO THAT MEANS YOU'RE FOCUSED ON MARGIN FROM BLACKBERRY ENTERPRISE SERVER BECOMES ALL THE MORE IMPORTANT.

CHEN: YES.

FORTT: YOU'RE MINIMIZING THE RISK ON THE HARDWARE, NOT EXPECTING THE GROWTH THERE AT LEAST IN THE NEAR TERM. SO YOU NEED TO GO OUT AND CONVINCE THOSE CIOs, THOSE ORGANIZATIONS THAT HAVE BEEN WITH YOU FOR A LONG TIME – A LOT OF THEM ON WALL STREET -- NOT TO LEAVE BLACKBERRY ENTERPRISE SERVER. HOW DO YOU DO THAT? HOW MANY HOURS ARE YOU ON A PLANE? WHERE ARE YOU GOING TO MAKE SURE THAT HAPPENS?

CHEN: THAT'S A GREAT QUESTION. SO I THINK IF WE'RE CORRECTLY WITH THE FOXCONN ARRANGEMENT, YOU'RE ACTUALLY GOING TO SEE REVENUE UP TICK ON THE HANDSET WORLD. AND THE REASON IS WE'RE GOING TO GO JOINTLY ATTACK AND GO INTO EMERGING MARKETS. YOU KNOW, WE'RE GOING TO DO INDONESIA FIRST, AND DO MALAYSIA, AND A LIST OF COUNTRIES THAT WE'RE GOING TO JOINTLY WORK WITH. GOING TO THE MARKET. AND WE USE OUR CHANNEL AND WE USE THEIR CHANNELS. SO THERE'S A LOT OF GOOD THINGS THAT HAPPEN THERE. BUT LIKE YOU POINTED OUT, IT'S REALLY IMPORTANT THAT WE GET TO THE ENTERPRISE SERVER WORLD.

FORTT: HOW DO YOU CONVINCE THEM TO STICK WITH YOU AND TO GROW WITH YOU?

CHEN: WELL, I THINK IN THE PAST COUPLE OF YEARS, THE ISSUE THAT THE ENTERPRISE CUSTOMER HAS WITH US IS A CLEAR DIRECTION AND FINANCIAL STABILITY. I THINK I CAN NOW LAY OUT A ROADMAP TO SHOW THAT WE ARE MANAGING THAT. IF YOU -- YOU KNOW, FROM A PRODUCT PERSPECTIVE, WE HAVE THE MOST SECURE END-TO-END PRODUCT.

FORTT: WHAT DOES THAT MEAN ANYMORE? BECAUSE WITH THE NSA CONTROVERSY, RIGHT -- EVERYBODY WHO SAYS THEY WERE SECURE IN THE PAST IS IN QUESTION. ARE YOU REALLY SECURE? CAN THE U.S. GOVERNMENT SNOOP IN ON BLACKBERRY COMMUNICATIONS? CAN YOU SAY ABSOLUTELY YOU ARE THE MOST SECURE NETWORK ABOVE EVERYBODY ELSE?

CHEN: WELL, I'M NOT GOING TO DRAG GOVERNMENT INTO COMMERCIAL, BUT IF YOU LOOK AT A FEW GOVERNMENTS, YOU KNOW, I THINK -- I THINK OUR WHITE HOUSE IS STILL USING BLACKBERRY. LAST I CHECKED, THE GERMAN CHANCELLOR IS USING BLACKBERRY. YOU KNOW, WE HAVE A WHOLE HOST OF GOVERNMENT --

FORTT: YEAH SHE IS NOW, RIGHT?

CHEN: YEAH, SHE IS NOW USING BLACKBERRY. I THINK THAT SPEAKS VOLUME OF THAT. I'M SURE I DON'T WANT TO GET A LETTER FROM -- YOU KNOW, FROM SOME OTHER GOVERNMENT BODIES OUT THERE, YOU KNOW. BUT WE HAVE A LOT OF GREAT CUSTOMERS WHO HAVE TRUSTED BLACKBERRY AND HAVE CHECKED IT OUT, SO TO SPEAK. AND WE, BY THE WAY, WE HAVE THE RIGHTS TO OPERATE IN THE U.S. GOVERNMENT AS WELL AS THE NATO. SO IT'S ONE OF THE FEW VERY HIGH-END REQUIREMENT – SECURITY REQUIREMENT SPECS THAT WE MEET.

FORTT: YOU ENGINEERED A TURNAROUND AT SYBASE. YOU DIDN'T HAVE TO TAKE THIS JOB. WHY DID YOU TAKE IT, AND IS THIS HARDER? IS THIS GOING TO BE HARDER THAN SYBASE WAS?

CHEN: WHY DID I TAKE THIS? THAT'S INTERESTING. SO AFTER I LEFT SYBASE, WE WERE SUCCESSFULLY ACQUIRED BY S.A.P., I STAY A COUPLE OF YEARS, AND THEN I DECIDED TO DO SOMETHING ELSE. ANYWAY SO, YOU KNOW, I KIND OF DO SOMETHING ELSE FOR A YEAR. WHEN THE BLACKBERRY SITUATION HAPPENED, I FELT IT'S SUCH AN ICONIC -- THIS IS SUCH A FUN THING TO DO IF WE COULD DO IT. IT'S TOUGH. IT'S REALLY, REALLY TOUGH. BUT I THINK THE MARKET NEEDS BLACKBERRY TO DO WELL. I'VE TALKED TO A LOT OF MY FRIENDS WHO ARE IN THE ENTERPRISE, CIOs, CARRIERS, SO FORTH. THEY LOVE FOR BLACKBERRY TO DO WELL. SO THIS IS A HUGE CHALLENGE. I LOVE CHALLENGE. KIND OF, LIKE, YOU'RE A BALLPLAYER, YOU WANT THE HARDEST GAME, I WANTED TO DO THIS GAME. THAT'S ONE THING ABOUT – IS IT HARDER THAN SYBASE? WELL, PROS AND CONS. YOU KNOW, IT'S NOT AS STICKY, BUT IT'S A MUCH FASTER-GROWING MARKET. SO, YOU KNOW, IT'S A LOT MORE HIT-ORIENTED. IF I COULD BRING OUT A REALLY COOL PHONE AND THEN TIE THAT INTO MY ENTERPRISE SECURITY OFFERING, YOU THINK THE COMPANY COULD DO VERY WELL VERY QUICKLY.

FORTT: WE'LL YOU'VE GOT A LOT OF INVESTORS BETTING ON YOU TODAY. VOLUME IS HIGH. THE STOCK IS UP. THANKS FOR SITTING DOWN WITH US.

CHEN: THANK YOU.

FORTT: AND LET'S DO IT AGAIN NEXT QUARTER.

CHEN: OKAY, LOVE TO. THANK YOU VERY MUCH.

FORTT: JOHN CHEN OF BLACKBERRY, THANK YOU FOR JOINING US.

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