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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 Tony Swash on 6/30/2013 5:37:31 PM , Rating: 0
Here is what I think.

I do think that understanding markets is important. I do think that platform performance and platform health (using common sense metrics) is important. I don't think that market share is a good proxy for the platform performance of the various mobile operating systems. I do think that by using any of the many sensible metrics that can be used to measure platform performance it is clear that iOS is a very robust and healthy platform that is out performing Android which is a poorly used platform.

I do think that the lazy lumping together of all the various types of Android devices and OS variants in all the very different global device markets into one homogenous lump called 'Android' conceals considerable, interesting, significant and complex differentiated markets, and also conceals some of the more significant reasons for Androids under performance as a platform.

I don't think Apple is remotely 'in trouble' and that in all the markets within which it is a serious player (PCs, tablets, handsets, software, digital content, tech retailing) it is in a very strong position and is mostly the strongest player in each product sector. I do think that the outlook for Apple is very good based on the depths of it's strengths in all it's various products lines and the unusual degree of integration in both it's product lines and in it's corporate governance.

I do think that over the next decade the mobile device markets will be dominated by a mix of the various strains of Android on the one hand and a more monolithic iOS on the other, neither will 'win' and neither will 'lose', both operating systems will be used by in excess of one billion users each within a few years, probably sooner rather than later. Android will generate a great deal of low value added economic activity but like the legacy Wintel PC business it will be hard for most Android OEMs to make much more than thin profit margins although a few will do quite well commercially.

Google, for whom Android users are not customers, will invest heavily in supporting both platforms with it's service offerings and apps so iOS users will lose nothing in relation to Google offerings. On the other hand Apple will continue to invest heavily in it's service and content value stack, which because of it's depth of integration will be best of class, and it's offerings will not be offered to Android users. Apple will continue to dominate the high value added end of the PC, tablet and handset markets, as well as dominating device sales to the enterprise, education and government sectors and will remain very profitable and very successful.

Neither Android users nor iOS/Mac users should have anything to worry about in the future as all will find great products and services available for the foreseeable future.

Blackberry and Nokia will continue to be very weak and will probably eventually disappear or be bought. Windows phone will fail. Windows on the desktop will continue a long steady decline into a relative niche position, profitable, quite large but a tech backwater. Google and Samsung will have a fraught relationship and either side could provoke a rupture but like a bad marriage the relationship could stagger on for a long time before a divorce happens.

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

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