With BlackBerry (NASDAQ:BBRY), the focus is on the upcoming sales figures for the new BB10 platform. Everyone is concerned that BlackBerry will be no longer, and rightfully so. With the most recent reports that the Z10 smartphone is selling, BlackBerry isn't going anywhere in the next 6 months. But most people can't see the forest for the trees.
The real value in BlackBerry is to look down the road at the direction this mobile company is headed. There has been lots of information recently that shows the direction that BlackBerry CEO Thorsten Heins would like to take the company.
The two steps required for Blackberry's success is the near-term financial results and long-term growth.
True innovation requires "out of the box" thinking, and we are starting to see that again from BlackBerry.
Samsung values enterprise mobile security
Recently many TV commercials have been aired from Samsung (OTC:SSNLF), showing that you don't need two phones anymore (one work phone and one personal phone). SAFE (Samsung for Enterprise) is a new program that utilizes a security feature called Knox. The Knox feature allows the mobile device to be divided into work and personal sections. This feature is synonymous with BlackBerry Balance.
The chart below illustrates the efforts that Samsung is making to secure the Android operating system and differentiate itself from all the other android varieties.
Samsung has made a conscious effort to go head-to-head with BlackBerry in the corporate world. Is the corporate sector ready for two choices, definitely! I anticipate that Apple will follow suite with their own version of mobile enterprise security in the near future.
NATO approved security
Security vendor Secusmart has been approved to provide a hardware security solution to encrypt email, voice-over-IP, text messaging and calendaring using BlackBerry Balance. This technology provides a microSD card for 128 bit AES secured encryption.
According to Secusmart CEO Hans-Christoph Quelle, the card can encrypt voice communications via Public Key Encryption (PKI) at the rate of 10 kbps. The German government has approved this security implementation utilizing their own security keys, with upwards of 40,000 BlackBerry 10 units.
BB10 replacing laptops
I have been listening to many BlackBerry interviews and the common theme that keeps appearing is that BlackBerry wants to be more than a smartphone.
"Whenever you enter an office, you don't have your laptop with you, you have your mobile computer power exactly here," Heins told The Times while pointing to a BlackBerry 10 handset. "You will not carry a laptop within three to five years."
This makes sense to myself, as I have noticed many people (ok some) purchased the playbook device solely for the HDMI output. Playing videos became a lot cheaper. BlackBerry has also made the Z10 expandable with the removable battery, micro SD memory slot, micro HDMI port and USB 2.0 ports. As processor speeds increase and the wafer size gets smaller, the handheld mobile device becomes more capable to handle the average desktop needs. It is conceivable that some workplaces and school computer labs will have only keyboards, mice and monitors. Bringing your device with all your data stored locally, allows you to work anywhere. Most applications used now are either web browsers, word processors, spreadsheets or other data applications. Granted there will still be a need for power workstations to run engineering applications (i.e. AutoCAD, MatLab) and some data intensive software suites, but for the general computing public this will not be a necessity.
This is also where BlackBerry Balance will shine when connected to the corporate network. Now through the BlackBerry enterprise server, security policies can be implemented to manage how the corporate data is handled. Remember the ISO audit days, this just became so much easier.
As drivers get built into the BB10 OS, more functionality will start to appear. As an example of this increasing functionality, see the section below on gaming.
The late Apple (NASDAQ:AAPL) CEO Steve Jobs was quoted with his view on computing.
"What a computer is to me is the most remarkable tool that we have ever come up with. It's the equivalent of a bicycle for our minds. (Memory and Imagination: New Pathways to the Library of Congress)
It sounds like to me that Steve Jobs would be supportive of this new innovation.
A good yardstick comparison with BlackBerry's entrance in this sector, would be Google's (NASDAQ:GOOG) Chromebook. The idea behind the Chromebook is an inexpensive notebook that allows computing over the cloud. For organizations this would reduce the total cost of ownership (TCO). This is where BlackBerry could fulfill a niche market, as they have corporate acceptance of their products. As new BB10 devices surface and the TCO decreases, many organizations would be willing to pay a higher price, increasing the average selling price (ASP) for the BlackBerry devices.
Portable gaming consoles
Currently in the BB10 OS developer's kit, physical game pad controller software has been built in. As an extension to the mobile computing theme, using the Z10 as a gaming console is becoming a reality. While it is a stretch that the Z10 will compete with the latest PlayStation or Xbox, gaining market share in the gaming world would be a positive. In 2012, 17 million Nintendo 3DS and PS Vita's were sold.
SteelSeries Free and Wii remote gaming controllers are currently included in the NDK, with GameTel support coming in the BB 10.1 OS update. The game Shadowgun is demoed with the Z10 as a gaming console unit.
As BlackBerry devices are routinely seen as corporate tools by the young and hip, this will bring the cool factor back. Market penetration into this demographic will increase topline revenue over the long term, and provide adoption as a more robust ecosystem.
There has been some talk about BlackBerry's QNX integration into the automotive industry. I won't go into detail here as there have been articles covering it in depth. For a brief introduction, check out the QNX reference vehicle.
The value that this can bring BlackBerry is currently unknown as this is a relatively new implementation. Within the automotive application framework industry, BlackBerry via QNX is a leader. As this sector matures, the integration within all BlackBerry technology areas will become more valuable.
The near term is becoming less of a concern as the Z10 is accepted globally. BlackBerry has staggered the release of the Q10 (physical keyboard) from the Z10. This will allow for a sustained cash flow over the next 3 quarters to finance BlackBerry's new direction, and to minimize the cannibalization of its $2.9 billion cash position. The recent announcement by Thorsten Heins BlackBerry CEO, that BlackBerry will increase production, further adds to the cash flow benefit.
Over the long term, the added benefit of the gaming consoles and car integration directly to the topline will be relatively negligible. Currently QNX adds a small percentage to BlackBerry's top line (under $1 billion), and that is across many industrial sectors. The inferred benefit will be drastic over the long term, as the integration between the automotive, gaming and mobile computing sectors, will lead to higher demand and increase sales.
As BlackBerry's average selling price fell below $300 in 2010, BlackBerry started down the slope of losing money. In the height of the fiscal losses, BlackBerry's ASP for handheld devices were in the low $200 range. It is clear that the focus moving forward is to be in the higher end range for handheld devices, upwards of $400 ASP. If BlackBerry can continue to sell product in the higher end, the bottom line will be affected in a positive direction. How much is dependent on the long-term acceptance into other niche markets. The return above $300 ASP will likely result in BlackBerry returning to profitability.
As mentioned earlier regarding the TCO (total cost of ownership) in a corporate environment, BlackBerry's Enterprise solutions will grow. One of the main revenue streams for BlackBerry has been the service fees that at times accounted for 30% of total revenue. In the last analyst conference call, there was concern over a loss of service revenue and that a restructuring would take place. Deploying Enterprise BlackBerry solutions as a desktop computing environment would require a support and service infrastructure, recapturing an additional revenue stream.
If BlackBerry can execute its business plan over the next two years, we will likely see all-time highs for its stock price. I would anticipate that two years would be the length of time for BB10 to be fully adopted and the share value to be in excess of $75. From the two-year mark, additional acceptance of BlackBerry's future niche market technologies will allow BlackBerry to grow to new heights approaching market capitalizations over $50 billion.
With many companies coming out with "me too" products, BlackBerry has decided to become a leader and not an industry follower.
While it is true Samsung has innovated with its mobile devices (i.e. eye tracking feature), the South Korean company is following BlackBerry.
If you want something sweet try an "ice cream sandwich," but you might find out it won't last long and will probably melt away. Hopefully it won't give you a tummy ache. The BlackBerry Z10 is not the flavor of the month, but a new start to mobile computing.
Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.