Troubled Times For Blackphone Manufacturer Silent Circle

Silent Circle, the firm who developed and released Blackphone, an Android powered handset focused on privacy and security, is going through some tough circumstances right now. It has been forced to let go of 20 members of its workforce (which has reduced its staff to about 85 percent) in the last half year. Now it is mulling whether it has the ability to build future models of Blackphone at all. On top of that, the company is trying to recoup the millions of dollars it spent in launching its smartphone, which until now has yet to meet sales expectations.

This much has been revealed by way of court documents related to a legal battle Silent Circle has with Geeksphone, a former partner who is now suing the Blackphone maker over $5 million in payments. Based in Spain, Geeksphone had provided assistance in producing the original Blackphone, and now it wants to get paid out of the $30 million sale of shares in both companies’ Blackphone SA joint venture (originally SPG Technologies) to Silent Circle, a deal that was announced in February of last year, only a year after the partnership was established.

The lawyers representing Geeksphone contend that the first Blackphone failed because Silent Circle overestimated the demand for its smartphone. Furthermore, other associated partnerships did not work out for Silent Circle, precipitating its troubles. For instance, when Silent Circle agreed to purchase back 50 percent of SPG Technologies, it was expecting to gain lavish distributor deals with three partners (BigOn Telecommunications from Dubai, Kumion from South Korea, and America Movil from South America) in order to sell 250,000 units of the Blackphone. However, BigOn did not distribute the 25,000 units it was supposed to sell, Kumion abandoned the deal, and America Movil only bought 6,000 of the 100,000 units it was supposed to purchase. Silent Circle then had to borrow enormous amounts of cash in order buy inventory, while at the same time, making preparations for the release of the Blackphone 2. It never quite panned out, and had to terminate quite a number of its staff in order to minimize costs. Meanwhile, the operating losses mounted and its debts piled up, too. 

Still, despite everything that has happened so far, Silent Circle remains positive. The company had promised a follow up to the Blackphone 2, and it wants to push through with that plan, but considering the financial struggles it has gone through recently, its margin for error might be melting away.