On Jan. 30, Research In Motion brought its latest BlackBerry 10 operating system to market. Wall Street, however, was not very impressed as the stock immediately collapsed by 12% to close out the trading session at $13.78. That very same day, Research In Motion executives announced that the company was set to officially rename itself BlackBerry (BBRY). In conjunction with this move, the corporation formerly known as Research In Motion awarded R&B entertainer Alicia Keys the title of "global creative director." Taken together, these recent transactions indicate that BlackBerry now wants to move its image away from that of a dowdy electrical engineering outpost and into that of a chic consumer electronics trendsetter. Unfortunately for BlackBerry shareholders, this latest smoke-and-mirrors marketing plan will have no effect on the bottom line. Despite the name change, BlackBerry stock is a losing investment.
The Web 2.0 Revolution
A 2008 photograph of President Barack Obama and his trusted BlackBerry handset captured the apex of this original smartphone movement. At the time, the BlackBerry handset was an indispensable tool for the technocrat, political wonk, brash executive, and upwardly mobile young professional who loved to work. On June 23, 2008, BlackBerry stock established an all-time high at $147 per share. In summer 2008, BlackBerry, the then brand of choice for the IT workaholic, controlled roughly half of the smartphone market.
According to Jessie Hicks and The Verge, BlackBerry engineers haughtily dismissed Steve Jobs and his iPhone as a non-factor and elementary tool for the simple-minded. Of course, it was Steve Jobs, former 1960s hippie, who was ultimately able to capture the imagination of today's counter-culture hipster movement. BlackBerry shareholders paid the price, when stock collapsed to a 52-week nadir at $6.22 last fall. Throughout the Web 2.0 Revolution, Wall Street professionals have effectively taken a backseat to Occupy Wall Street protestors, social media junkies, and slackers.
On Jan. 3, research firm comScore released its latest report detailing November 2012 U.S. mobile subscriber market share. This report presents averages of data for the quarterly period between September 2012 and August 2012. According to nominal comScore information, the smartphone market has effectively degenerated into a duopoly, where Apple (AAPL), Google (GOOG), and Samsung (SSNLF.PK) occupy overlapping wings of the regime. Google Android and Apple iOS power 54% and 35% shares, respectively, of the smartphone market. On the handset side of the ledger, Samsung and Apple account for a combined 46% share of the original equipment manufacturer market. The duopoly is actually gaining in strength, as each unit of this machine increased share by roughly 1% above the prior quarter.
Financially, Apple benefits most from this "winner take all" technology business structure. For its latest 2012 fiscal year, Apple reported unit sales of 125 million iPhone handsets. The iPhone accounted for $80 billion, or more than half of Apple's $156 billion worth of 2012 net sales. This staggering performance is attracting competition from not only Google, but from the likes of Nokia (NOK), BlackBerry, and Microsoft (MSFT), all of which are struggling to remain culturally relevant. Apple's 2007 "I'm a Mac and I'm a PC" spoof has largely come to fruition. Microsoft and BlackBerry, especially, are corporate relics that mimic the dowdy persona of the suburban office park technocrat.
BlackBerry Is Not Hip
Research firm comScore reports that BlackBerry, Microsoft Windows, and the practically defunct Nokia Symbian operating system now languish at the bottom of the smartphone scrap heap, as these separate enterprises divide a paltry 11% market share between themselves. Rather than cultivating an established and mature base, BlackBerry, Nokia, and Microsoft are now copycats seeking out a proverbial fountain of youth. Web 2.0 stalwarts Apple and Google remain notable for minimalism, alongside consumer-friendly features and specifications suitable for aspiring common folks, teenagers, and celebrities rather than tech geeks.
On April 6, 2012, rapper Nicki Minaj danced the night away at the Nokia Lumia 900 launch concert event in Times Square in New York City. Last holiday season, Nokia followed up this effort with an aggressive Lumia 920 launch. The Lumia 920 is a "fun phone" that Nokia manufactures in five separate colors, ranging from fire red to gold. For its latest fourth-quarter period of calendar 2012, Nokia reported sales of 4.4 million Lumia 920 phones, which is a sharp improvement above the 2.9 million 920 handsets sold the prior quarter. Nokia has put together recent wins to position itself as a viable third option to the entrenched Google Android/Apple iOS duopoly.
BlackBerry is now a fish out of water as it attempts to compete against Nokia, Google, and Apple -- to harvest counter-culture purchasing power. In conjunction with this BlackBerry 10 release, the company is set to roll out two different phones -- the touch screen Z10 and the traditional QWERTY keyboard X10. The BlackBerry 10 platform is notable for its Hub feature that integrates social media, web browsing, and email applications. In terms of security, BlackBerry users now have the ability to effectively set up a firewall between work and personal profiles. Going further, BlackBerry and Visa (V) brass recently closed a deal to transform BlackBerry 10 devices into virtual wallets through near-field communication technologies.
BlackBerry has now unwittingly transformed into a "Jack of all trades, master of none" caricature. A lack of focus will only confuse and demoralize the IT professional technocrat, who once historically served as this company's staunchest ally at Waterloo.
The Bottom Line
On Dec. 20, 2012, BlackBerry released its third-quarter report for fiscal 2013. BlackBerry closed out its third-quarter books with $12.6 billion in assets above $3.3 billion worth of liabilities on the balance sheet. In terms of BlackBerry business valuations, this $9.3 billion in snapshot book value significantly exceeds Wall Street's $8.5 billion market capitalization price tag. BlackBerry is a buy, only if the recent BlackBerry 10 launch were to materialize as a success driving bottom-line profits throughout Q4 2013 and into fiscal 2014. Conservative investors, however, should consider selling BlackBerry stock now and taking profits. BlackBerry has posted a 160% gain over the past four months.
Tepid BlackBerry 10 sales results would swing this company back into the red and precipitate the gradual deterioration of balance sheet financials. For the three months ended Dec. 1, 2012, BlackBerry posted a scant $9 million profit. This small glimmer of hope arrives after the prior six-month period during which this company lost $853 million.
The improved balance sheet featuring $2.7 billion worth of cash and investments at BlackBerry is not necessarily symptomatic of business expansion. Revenue remains on the decline, while financial managers slash costs, aggressively collect receivables, and work off inventories. Over the past nine months, BlackBerry has converted a net $1.6 billion in receivables and inventories into cash and investments. Without a transformative product launch, however, this "float the note" playbook can only last for another 18 months before nervous creditors demand higher rates, or even begin to call debt.
BlackBerry now lists $3.1 billion in intangible assets on its balance sheet. The smartphone patent market peaked last summer, while Google closed out the $12.5 billion acquisition of Motorola and Samsung and Apple sued each other over patent infringement claims. Last January, the Federal Trade Commission ordered Google to allow competitors access on "fair, reasonable, and nondiscriminatory terms" to the former Motorola patents. According to Therese Poletti and MarketWatch, the patent bubble is now bursting. Theoretically, BlackBerry patents will depreciate toward zero if these assets cannot be leveraged effectively to turn a profit. BlackBerry's apparent strategic review to sell off intellectual property to the highest bidder and break up this business would thus fail to materialize.
In this smartphone game of musical chairs, stubborn BlackBerry shareholders may find themselves as the odd men out.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.