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  (Source: Nickelodeon)
Analysts expected a modest profit, but underestimated BlackBerry's ability to disappoint

There was a time not so long ago -- 5 or 6 years, perhaps -- when the BlackBerry was viewed as a slick status symbol, a business road-warrior's go to device.  But its maker -- the Canadian company formerly known as RIM, now rebranded BlackBerry Ltd. (TSE:BB) -- can only look helplessly back on those days when its brand image held such cachet.

I. BB10 Looks Like a Flop, Early On

Today BlackBerries are the bunts of jokes ("When are you going to get a real phone?") and worse yet they're just not selling.  BlackBerry seemed to give things an honest effort, in January launching its much-delayed modern operating system makeover -- BlackBerry 10 (BB10).  And prior to that, last year it had shuffled management, tapping Thorsten Heins to be its new chief executive.

But for all that effort, the fiscal report [PDF] for Q2 2013 (fiscal Q1 2014) suggest the phonemaker has little to show for it.  Two quarters in and BB10 is starting to look like one big flop.

Analysts hoped for over 3.5 million BlackBerry 10 devices sold; instead only 2.7 million managed to be sold -- in line with previous estimates by market research firm Interactive Data Corp. (IDC).  Embarassingly, even the struggling Windows Phone platform passed BlackBerry by.

Overall BB sold 6.8 million smartphones, 

Worse, BlackBerry bled $84M USD ($0.13 USD/share) -- a surprise loss.  Analysts polled by Thomson Reuters were hoping for a profit of around $39M USD ($0.06 USD/share).  The analysts expected $3.4B USD in revenue, RIM delivered only $3.1B USD.

BB10 phones
The BB10 Q10 (left) and Z10 (right)

But probably the most grim sign for BlackBerry was that only two out of five of its device buyers bought BlackBerry 10 devices.  There were some mitigating factors -- namely, the keyboard equipped Q10 variant (a favorite among some die-hards) wasn't be available till May.

Thus expect BlackBerry to chalk poor BB10 sales up to slow carrier rollouts globally or other excuses.  But at the end of the day, the fact is that these devices were available on many markets (including here in the U.S.); the Q10 has been on sale for a month, and the Z10 was on sale the entire quarter.  

They simply weren't selling; or viewed differently customers didn't appear to feel the Q10 was worth waiting for.

After all the sacrifices, BB10 is coming up short in sales. [Image Source: Unknown]

Marketing was confused to nonexistent.  Part of that may be due to lack of resources.  After putting so much into its OS push, BlackBerry may simply not have had enough cashflow to buy ad time and hire top grade advertising talent.

In the company's own words it's facing hardship due to the "highly competitive" nature of the smartphone market.  It expects to post a loss in Q2 2013.

II. BB's Best Survival Bet is as a Secured Services Provider

The question is whether it can ever be a viable phonemaker again.  Trying to design you own user interface, app ecosystem, etc. is a massively expensive endeavor that only the biggest companies -- Google Inc. (GOOG), Apple, Inc. (AAPL), and Microsoft Corp. (MSFT) -- for the most part dare to do.

All things considered BlackBerry put up a valiant effort with BB10, considering its limited resources.  Even with all the delays, BB10 has some very nice features and relatively little in the way of glaring deficiencies.  "If it wasn't good enough," CEO Heins and company must be wondering -- "Will anything be?"

The RIMdenberg can't seem to catch a break. [Image Source: Jason Mick/DailyTech LLC]

The answer is likely no.

BB10 was almost destined to fall behind Windows Phone -- the sole surprise was that it did so so quickly.  CEO Heins contends, "[BlackBerry customers] an end-to-end solution, including the device."

True, but the worst case scenario is that there may not be that many BlackBerry customers soon.  If only ~1m customers bought BB10 handsets, the global user base may dwindle around 20-30m units (assuming a 2 to 2.5 year upgrade cycle).  Revenues would be at around $1-1.5B USD.  At that level it will be hard to attract developers, and nearly impossible to keep pace with Google, Apple, and Microsoft in OS development.

RIM's stock took a 26 percent hit as shorters and serious investors alike jumped off the ship amidst the grim earnings.

BlackBerry Secure Work Space
BlackBerry is already starting to transistion to platform agnostic services. [Image Source: BB]

Will BlackBerry die entirely?  That's unlikely.  It's losses aren't that bad (particularly, given its $3.1B USD cash pile).  If it isn't acquired (though who would be willing to take on this baggage is a tough question -- Hewlett-Packard Comp. (HPQ)?), it will likely be forced by that "highly competitive" market to become a third party provider of security products -- its service specialty.

It's already quietly started selling secured business service solutions for Google's Android and Apple's iOS.  It wants the focus to be on BB10 -- but that just isn't working out in its favor.  Sooner or later cold hard business realities will be force BlackBerry to become an enterprise service firm and bow out of the hardware market -- no matter how Thorsten Heins and his dwindling brigade of BlackBerry loyalists wish that weren't the case.

Sources: BlackBerry [PDF], Reuters

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RE: Surprise?
By EnzoFX on 6/28/2013 6:15:02 PM , Rating: 4
Microsoft is surely surprised, they couldn't be happier they're better than a flop. They're top 3 (out of 4) and they may not even care Apple is 3rd to last.

RE: Surprise?
By Labotomizer on 6/29/2013 1:18:49 AM , Rating: 4
The big difference is that MS has plenty of money to play for the long run, and Windows Phone is a really good OS. Apps are being launched left and right currently. I think MS is right at the tipping point now. More people are showing interest, they have their advertising together and apps are there. My daughter chose WP8 over iPhone today.

RE: Surprise?
By Tony Swash on 6/29/13, Rating: 0
RE: Surprise?
By BladeVenom on 6/29/2013 5:36:24 PM , Rating: 2
Latest from ComScore, May 2013 U.S. market share: Blackberry 4.8% - Windows Phone Microsoft 3%.

RE: Surprise?
By melgross on 7/1/2013 10:11:03 AM , Rating: 2
May data is already too old. Blackberry is like Palm was—too small to wait it out. People simply are losing interest. Their high in subs was 80 million. Now it's down to 72 million. Does anyone have any doubt it will continue to drop?

RE: Surprise?
By Rukkian on 7/1/2013 1:36:28 PM , Rating: 2
I dont really care about that link, as tweets really are not a good indicator of anything. I don't tweet at all (see no reason for it) and I am sure there are many that feel the same. With BB, most people (at least in the US) have them because their IT department made them use it, and are locked down much more often. Many times this would include tweets, and any non-work function.

I am by no means a BB fan, but the numbers would definately be skewed if you are using stats that come from a completely non-business related activity.

RE: Surprise?
By p05esto on 7/1/2013 11:04:35 PM , Rating: 2
Agreed, I just got the Lumia 928 WP8 phone and it is amazing. The OS is perfect and so much smoother than iOS and Android. I agree that Windows Phone is about to tip over and explode marketshare. As more people see the OS in action and how it's customized the more they want it.

RE: Surprise?
By T2k on 7/2/13, Rating: -1
RE: Surprise?
By Bateluer on 7/4/2013 12:41:20 AM , Rating: 2
Metro was renamed due to poor appeal, its called the 'Windows 8 UI' now. But, its still garbage.

How anyone can stand the infinite downward scroll in WP8 is beyond me. Its smooth and fluid, but utterly useless at actually doing anything. Shame too, because Nokia really makes some damn nice hardware. Its just the OS that cripples it.

"The Space Elevator will be built about 50 years after everyone stops laughing" -- Sir Arthur C. Clarke

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