Investors are no longer wondering whether BlackBerry Ltd. willrun out of cash. For some, it's now a question of when.

The struggling smartphone maker embarked on a plan to raise $1billion in convertible debt yesterday after the collapse of a $4.7 billionbuyout deal. While the effort gives a cash infusion to the company,the move raised speculation by analysts and investors that itsmoney is disappearing quickly.

BlackBerry shares yesterday plunged 16 percent to $6.50 in NewYork, bringing its year-to-date decline to 45 percent. The stockrebounded 3.2 percent to $6.70 at 9:54 a.m. today.

BlackBerry's cash shrank by almost $500 million last quarter—aburn rate that would use up most of its $2.6 billion cash andinvestments by the end of next year. The company also has about$2.9 billion in purchase commitments due within 12 months,according to filings. The dwindling funds will put a heavy burdenon BlackBerry's comeback attempt, said John Stephenson, who helpsmanage about C$2.8 billion ($2.69 billion) at First AssetInvestment Management Inc. in Toronto.

“It's going to be very difficult to turn this around,” saidStephenson, whose firm owns some BlackBerry stock as part ofexchange-traded funds. “They've lost so much ground.”

John Chen, the former chief executive officer of Sybase Inc.,took the helm of BlackBerry yesterday, replacing CEO ThorstenHeins. As part of the shakeup, Fairfax Financial Holdings Ltd.abandoned its plan to acquire the company, opting instead to becomethe lead investor in the bond sale. Fairfax, already the smartphonemaker's largest shareholder, will buy $250 million of thedebentures, which can be converted into BlackBerry shares.

Chen plans to overhaul the company so it can survive in the longrun—rather than preparing it for a fire sale. Fairfax CEO PremWatsa, who is rejoining BlackBerry's board after spending threemonths trying to orchestrate a deal, expects the turnaround plan tobear fruit within a year and a half.

“We went with the idea that the next three or four or sixquarters are going to be tough,” Watsa said in an interview. “Weexpect the cash to stabilize somewhere there and then pick up—andfinance it with enough cash to give us a long runway.”

Lisette Kwong, a spokeswoman for Waterloo, Ontario-basedBlackBerry, declined to comment on the company's cash managementbeyond Watsa's remarks.

Chen successfully turned around Sybase, which he sold to SAP AGfor $5.8 billion in 2010. Still, investors remain skeptical he canwork the same magic with BlackBerry. After yesterday's stocktumble, the company's value has fallen to $3.4 billion. Followingyears of BlackBerry losing ground to Apple Inc. and SamsungElectronics Co., the shares are trading more than 95 percent belowtheir 2008 peak.

'All-Out Sprint'

BlackBerry needed to move very quickly to keep up with acompetitive smartphone market—something that hasn't happened sofar, said Jack Ablin, chief investment officer at BMO Private Bankin Chicago, who helps manage $66 billion in assets.

“The company needed an all-out sprint to keep up in thatbusiness, and BlackBerry was not running fast enough,” he said.

The $1 billion debt sale will help keep the company afloat,though it's hard to say for how long, said Alexander Peterc, ananalyst with Exane BNP Paribas in London.

“Whatever they do will cost them more cash than they actuallyhave in the bank today,” Peterc said. “They're basically extendingtheir lifeline by a couple of quarters with this billion.Otherwise, they would have run out of cash probably in a year'stime.”

Poor sales of phones and related services—along with risinginventory costs and large purchase commitments—have made itdifficult for BlackBerry to find a buyer, said Michael Walkley, ananalyst with Canaccord Genuity Inc. in Minneapolis. That's why thecompany was forced to adopt the debt sale and management change asa Plan B, he said.

Chen, 58, said he sees a lot of assets inside BlackBerry—itsenterprise software, network, patent portfolio, andinstant-messaging application—that could be better exploited.

“The question is: Could we actually pool these pieces togetherand differentiate ourselves in the market?” Chen said.

One way to stem BlackBerry's cash burn would be to shut down theunprofitable phone-manufacturing business and focus on sellingsoftware for managing devices, said Anil K. Doradla, an analyst atWilliam Blair & Co. in Chicago.

“It's a recurring business model, and more importantly, it's ahigher-margin business because they don't build hardwareplatforms,” Doradla said.

Healthy, Growing

Asked if he might close the handset business, Chen said he isn'truling anything out.

“I'm more focused on making sure our businesses are healthy andgrowing,” he said.

When Chen joined Sybase in 1998, the Dublin, California-basedsoftware maker was in the midst of a restructuring, had announcedplans to cut 10 percent of its workforce, and was trading near arecord low. When he sold it to SAP, the price was more than sixtimes higher.

BlackBerry's odds of a fairy-tale ending look tougher,Stephenson said. He sees the company heading down the same path asPalm Inc. That company failed to turn itself around and was sold in2010 to Hewlett-Packard Co., which discontinued Palm'sproducts.

“This is becoming a Palm Pilot of Canada,” he said.

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