It's been about 30 days since BlackBerry's (BBRY) Chief Executive Officer Thorsten Heins officially introduced the BlackBerry 10 devices at an event in New York City. As most of you know, a lot can happen in thirty days. However, it's way too short of a time frame to gauge how well any new device will ultimately be received. Keep in mind the rollout won't hit BlackBerry's largest market, the United States, until late March 2013. However one of the new models, the Z10, is available in select markets that include Canada, the U.K. and the United Arab Emirates.
How well is the new phone selling?
The news coming from these markets has been extremely encouraging. The Z10 has received high praise from technophobes for its impressive specifications and cutting edge technology. The reviews by everyday users have been very positive and as cited in a recent customer satisfaction survey, the Z10 was the clear choice among end users.
According to reports from the select markets, sales have been very robust with stores reporting that they are sold out and putting customers on waiting lists.
BlackBerry CEO Thorsten Heins has said that sales have exceeded the company's expectations but has not provided any hard numbers. However, in a recent interview with German Newspaper, Frankfurter Allegmaine (full interview here), Heins said that BlackBerry has increased the production capacity for the Z10 and that a high percentage of the phone buyers have been Apple (AAPL) and Android users switching to the Z10. Furthermore, he previously stated that the reception of the Z10 in Canada was twice that of any other prior BlackBerry device and, in the U.K., almost three times greater.
How has the market reacted?
What was the response to all this good news? Some analysts, including those from MKM Partners and Canaccord Genuity, have issued downgrades citing skepticism of anecdotal sales volume. They allege that reported store sell-outs are because of low inventory as opposed to extraordinarily high demand. Furthermore, they cite the delay (until least April) of the Q10 keyboard model as additional evidence that sales will be weaker than expected. In response, the company's stock price has pulled back from around $18/share just prior to the January 30, 2013 BB10 launch and is currently trading in the $13.50 range.
So what does Thorsten Heins know that we don't?
Everything is based on conjecture at this point as no hard numbers have been released. The result is that a host of analysts, investors, and industry insiders are trying to read the tea leaves and each is coming up with his or her own conclusion. Of course, Thorsten Heins knows what those numbers are, but he's not telling. Instead he's saying they will come later after some more business is done - presumably meaning after additional agreements with carriers in the U.S. and other leading markets are finalized. But make no mistake about it, Thorsten Heins knows what the numbers are. He probably gets hourly updates and could cite from memory those sales broken down by region and store level.
If Thorsten Heins knows what the numbers are, why doesn't he just tell us? Why be coy? If the numbers are as great as he says why doesn't he end the conjecture, the bashing, the negative analyst reports, and just release the raw numbers?
I suspect it's because he knows it doesn't really matter. If he released hard sales figures right now, those same analysts would say "it's too early and those numbers don't mean anything - wait until the rollout in the U.S." Doubters would continue to doubt and supporters would continue to support and not much would change. I further suspect that when the exact figures are finally released they will support the anecdotal sales reports and Hein's own statements of robust sales. Heins is a smart man and is aware that to hint at strong numbers and not deliver would put into question his credibility going forward. With that said, expect strong sales numbers.
Thorsten Heins knows that it just doesn't matter for another reason too. Thorsten Heins knows that BlackBerry is never going to regain anywhere near the market share it once enjoyed. Loyal BlackBerry users and investors reading this are now saying "OK, HERE WE GO - here comes the bashing." But the numbers are the numbers and according to this CNN article (located here), BlackBerry commanded 55% of the smartphone market less than four years ago. Today, it has less than 5% of the global market and even if it doubles that percentage in the next couple of years it won't come close to being what it used to be. Thorsten Heins knows this and he's OK with it. As CEO he can't really say that in so many words, but it's true. He also knows that he doesn't need to regain the position of the dominant player in the smartphone market because enough of his 80 million client base will buy into the new devices this year and next, and the year after that. Thorsten Heins knows that it will be enough to bolster sales revenue and cash flow and buy more time for his management team to move forward in their shared vision of remaking the company from a smartphone manufacturer into a provider of enterprise solutions.
Where does BlackBerry go from here?
Thorsten Heins knows that the acquisition of QNX was a game changer for the company. He has hinted that, in the future, BlackBerry might divest itself the hardware (smartphone) part of its business and concentrate on software. Before you say this is blasphemy, consider that Qualcomm (QCOM) did the same thing when it sold its base station business to Ericsson (ERIC) and its cell phone manufacturing business to Kyocera (KYO) and exclusively focused on developing and licensing wireless technologies and selling the application specific solutions that go with them. At last check Qualcomm was doing quite well.
Thorsten Heins knows that there's a very good chance that BlackBerry will not be in the smartphone hardware business five years from now.
What does all this mean for Investors Today?
Finally, Thorsten Heins knows that he is managing the company for where it's going to be five, ten years from now and that revenue and cash flow are more important than share price. The firm needs to remain viable and I believe Heins and his management team can do it. But in the near term, meaning the next 12 -18 months, the price of BlackBerry shares will continue to be under pressure as investors' focus will be on smartphone market share and revenue and neither of those is going to change in any significant way as a result of the new BB10 smartphones. Based on prior analysis, which you can read here (link to analysis) I maintain the shares are range bound at their current level.
Therefore, long term investors - meaning those with investing time horizons of longer than 3 years might want to consider a core and satellite strategy. Using this strategy, you keep the "core" long-term holdings and trade a small (typically no more than 10% of total) satellite" position, selling into rallies and buying on dips. This way you can take advantage of short-term temporary pullbacks while leaving your core long-term holdings in place to play out over time.
Finally, Thorsten Heins knows that Alicia Keys is not really going to show up for work at 9 AM on Monday to start at her newly created position of Global Creative Director and he's OK with that too.