Recent reports that it will introduce an Android OS phone suggest thatBlackBerry (NASDAQ:BBRY) may finally be ready to acknowledge the obvious:BlackBerry OS 10 (BB10) is not a viable smartphone ecosystem. WhileBlackBerry fans may take the news hard, I actually find reason for encouragement about BlackBerry's prospects. BlackBerry branded Android devices can offer an added value other Android makers cannot match: reasonable, if not perfect, security.

It's the Ecosystem

After I wrote BlackBerry's Collapsing Ecosystem back in September, I was of course bitterly castigated by BlackBerry fans and investors who accused me of writing "click bait" articles. Since then, there has been a growing awareness among SA contributors of the implications of BlackBerry's declining user base. This began with an article by Shock Exchange (a BlackBerry Bull) and continues to yesterday's article by Kasteel Research, a self-avowed BlackBerry fan who is "no longer interested in BlackBerry stock".

BlackBerry's user base has been declining at about 3-4 million users per quarter for some time, and this was once again confirmed belatedly when the company issued its full fiscal-year 2015 financial report. Page 4 of the management's discussion section confirmed that the number of BlackBerry device users had fallen once again to 37 million.

Service revenue is falling even faster than the user base, because the service revenue derives from the number of BB7 users, which is falling faster than the total number of users. Nothing that BlackBerry has offered by way of hardware or software initiatives suggests that this trajectory is going to change as of fiscal 2016 Q1, which is due to be reported on June 23. Therefore, I expect the user base to decline to 33-34 million, although this data will not be furnished in BlackBerry's initial earnings release, as usual.

BlackBerry fans like to point out that the number of BB10 users is growing. True, but if this growth rate is not large enough to compensate for users exiting the ecosystem, then the total number of users still declines. The circumstances would discourage any new developers from embarking on BB10 development, and the apps available on Amazon's app store don't really compensate for the lack of developer support.

Furthermore, there's a snowballing effect where the declining ecosystem discourages new hardware sales, thereby accelerating the decline. I have argued that at some point, BlackBerry's management would have to acknowledge that its hardware business is no longer sustainable.

Although some have urged that BlackBerry jettison hardware, in fact, hardware is still a very large part of BlackBerry, 42% of revenue last quarter. Although Chen stated an expectation that software (10% of revenue last quarter) could be grown into a $600 million/year business in fiscal 2016, almost no one considers this realistic.

Secusmart Points the Way

The reaction to the Reuters report that BlackBerry might field an Android OS smart phone has been decidedly mixed. SA contributor Orange Peel Investments (long BBRY) hailed the move as possible genius. SA contributor Kia Investments (short BBRY) pointed out all the possible pitfalls of Android OS smartphones, not the least of which is security. Kia points out that Android, being an "open" system, is more heavily hacked and infested with malware.

Too true, but I'm reminded of the SecuTABLET device that was launched back in March. Many mistook this as BlackBerry's re-entry into the tablet market. Not exactly. BlackBerry's announcement, and most of the subsequent coverage, made no mention of the fact that the SecuTABLET actually ran Android 4.4 KitKat.

BlackBerry's German subsidiary Secusmart led the creation of the Samsung (SSNLF) derived tablet through combining security features of Samsung, Secusmart, and IBM. Samsung contributed its KNOX technology, Secusmart contributed its Secusmart Security Card technology, and IBM (NYSE:IBM) an app wrapping security technology.

Even with all this, the SecuTABLET was submitted for certification by the German government for one of the lowest levels of security that national governments use: For Official Use Only (FOUO). FOUO information is not considered sensitive from a national security or defense standpoint, and the designation mainly pertains to whether the information can be freely distributed outside the organization originating it. In other words, typical FOUO information would not be given out in a press briefing.

But even though the SecuTABLET targeted a very low level of government security, it represented a quantum leap over the average Android device. As such, it could reasonably appeal to corporate and especially financial segment users who need enhanced, though not necessarily iron clad security.

Not a Panacea

The SecuTABLET offers an existence proof for a reasonably secure Android smart phone that could appeal to BlackBerry's corporate customers as well as consumers. The advantage of Android is that users could then tap into the wealth of apps available on the Google (NASDAQ:GOOG) (NASDAQ:GOOGL)Play Store. An Android-based BlackBerry phone instantly makes BlackBerry part of the Android ecosystem and fundamentally solves BlackBerry's ecosystem problems.

As Kia points out, this is not without cost. Although Google has not made its licensing of Android OS very clear, it does appear to derive some licensing revenue from Android through support services offered to Android OEMs. And Google does require compliance with certain standards in order to be able to offer Google Play access.

These do not seem too high a price for BlackBerry to pay in order to become part of the Android ecosystem. However, offering an Android smart phone does not guarantee success. Competition is very tough, and margins are thin. But BlackBerry does have an important discriminator in Secusmart, and this may give it an edge that will woo back some corporate and individual users.

Adopting Android OS would represent the final step in an ongoing transformation pointed out in the Reuters report. BlackBerry has been shrinking its hardware business, from a peak headcount of 17,500 in 2011 to 6,225 in February of this year. If BlackBerry adopts Android, it may follow the Google model of marketing custom-made devices by manufacturers such as HTC. This would allow BlackBerry to focus on software and services, especially in the enterprise while still affording the company a fairly high-margin revenue stream from BlackBerry-branded hardware.

What to Look for in the Earnings Call

This has all been by way of set up for the earnings call next week. If the Android rumors are true, I would expect some form of acknowledgment byBlackBerry management. Most importantly, investors will want to know what the time line is for the roll out of the new Android devices. With ever shrinking revenue and user base, BlackBerry can ill afford to wait very long to get the Android devices into distribution.

The market may take the Android announcement hard since it does represent a capitulation on BB10. Of course, this will be candy coated, with BlackBerry maintaining that it isn't discontinuing BB10, and that the operating systems will carry on side by side.

Nokia did the same thing with Symbian when it adopted Windows Phone under the leadership of the ill-fated Stephen Elop. But there was never any doubt that Symbian was doomed once Nokia started making Windows Phones. The same lesson applies here.

Even if the market reacts negatively, I see a ray of hope in a BlackBerry Android device. The device has a security discriminator that puts it ahead of the Android pack. More importantly, the device has a ready-made ecosystem of apps and services that BB10 lacks. With Android, the BlackBerry investment thesis of a turnaround starts to make sense. It never did with BlackBerry OS.