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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 Gio6518 on 6/28/2013 6:57:27 PM , Rating: 5
I doubt Apple will completely dissappear. .. . But yes their market share is diminishing.. . Look at tablets from 99 percent down to 42..iPhone down to 12 percent. .. the iPhone 5s are piling up at the warehouse.. .. unless Apple finds something to put out in the market (face it steal from someone) their stock is going to keep dropping. .. . But they do have a large amount of capital to keep them in the ball game for a long time

RE: Surprise?
By retrospooty on 6/28/2013 7:08:09 PM , Rating: 2
Yup... They will last a long time. It looks like the next iPhone 5s will be more of the same - rehash the same old product, with a little faster CPU. Oh boy, cant wait. LOL.

With that said, I am willing to bet than 2014 will show a pretty major upgrade for iPhone. They cant possibly keep the same small screen with lower res than all competitors high and mid range and lower DPI as well.

RE: Surprise?
By Labotomizer on 6/29/2013 1:22:22 AM , Rating: 1
Considering the Lumia 928, with a 720p screen, at the very least equal build quality, with more features and a better OS (in my opinion, of course) is $49 on VZW right now it's hard to imagine something not happening over at Apple. The question is how innovative they are without Jobs.

RE: Surprise?
By tayb on 6/29/2013 8:42:18 AM , Rating: 2
The market share numbers are meaningless. Apple is still seeing enormous year to year growth but its eclipsed by worldwide availability of cheap/free Android phones that are stripped to the core. Take a look at usage statistics or browser metrics and it is apparent that while Android shipping nearly 7 times as many phones the phones either aren't being used to browse the web or aren't capable of doing so. Safari still owns 58% of the global mobile browser market, which is really pathetic if you think about given how many millions more units Android has shipped.

Apple is printing money. They are the most profitable mobile phone company by a landslide. I believe they take in more profit than all other mobile phone providers combined. The idea that they are struggling in the market is laughable. From a business perspective, they own it because they own the profits. Someone else can sell the 99 cent phones, Apple isn't interested in market share, they're interested in profits.

RE: Surprise?
By Tony Swash on 6/29/2013 6:02:07 PM , Rating: 1
by Gio6518 on June 28, 2013 at 6:57 PM I doubt Apple will completely dissappear. .. . But yes their market share is diminishing.. . Look at tablets from 99 percent down to 42..iPhone down to 12 percent. .. the iPhone 5s are piling up at the warehouse.. .. unless Apple finds something to put out in the market (face it steal from someone) their stock is going to keep dropping. .. . But they do have a large amount of capital to keep them in the ball game for a long time

I read your comment and thought of this

The idea that Apple is in any sort of trouble is risible but I can see that it appeals to some people so much that the abundant evidence that Apple is the most successful company in the PC market, the handset market and the tablet market, or the fact that iOS is the most successful mobile OS using any measure of platform performance, will not change the powerful wish dream of Apple failure. Dreams are nice but if you confuse them for reality you can end up very confused and looking a bit odd.

By the way the iPhone 5s cannot be piling up in the warehouses because it is not an Apple product that has been released or distributed in any way. Whatever the next Apple handset is called it is extremely unlikely to be released before the fall. When it is released it will immediately become the best selling handset in the market, but then you know that already don't you?

RE: Surprise?
By themaster08 on 7/1/2013 2:15:46 AM , Rating: 2
By the way the iPhone 5s cannot be piling up in the warehouses because it is not an Apple product that has been released or distributed in any way.
The comment was referring to the current iPhone 5:

RE: Surprise?
By melgross on 7/1/2013 10:21:21 AM , Rating: 2
That's amusing as the 5S isn't out yet. But then, you're just stating what you want to see happen, not what is happening. The iPhone is down, as it always is before a new one comes out. But not to 12%, to 17.5%. I also doubt any of these percentages, because we have no real idea as to how many competing products are selling, it's all guesses. Apple is the only company that tells sell through. The others either give sales to the channel, or shipments, or, as Samsung does, nothing.

When you look at usage numbers that several firms give, iOS products are well ahead of all others combined. That's very strange for a minority product. How can a product that's below 50% have an 85% usage?

It's also interesting that late last year Samsung said that its tablets were selling "very poorly".

RE: Surprise?
By Dug on 7/1/2013 2:21:36 PM , Rating: 2
Ha ha.
You aren't looking at ownership.
Just because someone bought an Android device doesn't mean they still don't own an i device and use it.

"Paying an extra $500 for a computer in this environment -- same piece of hardware -- paying $500 more to get a logo on it? I think that's a more challenging proposition for the average person than it used to be." -- Steve Ballmer

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