There is not much time left in the U.S. until the launch of BlackBerry's (BBRY) new handset, and the market is responding very well to the news. Over the past two days, the stock has gained substantially and I expect the momentum to continue. The handset is already selling well in 20 markets. However, as I said in my previous article, the U.S. market is extremely important when it comes to controlling the global Smartphone market. AT&T (T) and Verizon (VZ) will both launch the handset during the current month at different dates. I have been optimistic about the company and believe it will again become a major player in the global Smartphone market, and the warm reception from the U.S. Smartphone lovers is further strengthening my belief.
One Million Reasons to be Optimistic
The news of the order of one million handsets from one partner was hugely positive and helped the stock close strongly. BlackBerry stock was up 8.2% in the regular trading hours and further 2.24% in the after-hours trading. A sales order of one million units is a massive positive for any company, and especially for a company that is making a turn-around. It shows the confidence of the partners in the product. Carriers have just started taking pre-orders in the U.S., and this news indicates that the carriers are receiving strong demand for Z10.
According to Bloomberg, the company generates one-fifth of its revenues from the U.S. market. So, a warm welcome from the U.S. customers will be a big step towards the company regaining its position in the global Smartphone market. On the other hand, Z10 sales in other parts of the world are still strong. Recently, BlackBerry CEO, Thorsten Heins said in an interview that the company was amazed at the reception it got in India. According to Heins, the company shipped handsets that it believed were enough for five days. However, after two days he received an emergency call from his manager that all the handsets were sold. Overall, Z10 sales remain strong and I am extremely optimistic about the reception of Z10 by the U.S. customers.
Launching a Cheaper Handset will be a Mistake Right Now
Recently, some of my fellow Seeking Alpha authors have advocated that the company should launch a cheaper Smartphone. At the moment, I believe this will not be a good idea. BlackBerry has always been a high-end product, and having a Smartphone is a sign of prestige at the moment. It is all about positioning yourself. Apple (AAPL) has positioned itself in the high-end bracket from the start, and the company has reaped benefits of creating a high-end unique brand. I believe BlackBerry has what it takes to give strong competition to Apple and Samsung (SSNLF.PK), and launching a cheaper handset can affect the standing of the company.
It is difficult for a company to move from low-end products to high-end products. Consumer perception does not usually change; Samsung being the only notable company to do that in the recent past. On the other hand, moving from a high-end product to a low-end product is relatively easy. At the moment, I think BlackBerry should focus on its high-end markets and try to win back its lost market. Once the high-end markets starts saturating, then the company can move to low-end markets. It is true that there is a lot of potential in the developing markets. However, as I mentioned above, sales of Z10 are strong in India, one of the biggest markets in the developing world, and BlackBerry does not need to divert focus to low-end products. Moving to low end markets can hurt the margins, especially when sales of high-end sets are strong in the developing countries.
Recent downward pressure on the BlackBerry stock was due to the delay in the U.S. launch. The delay in launch was caused by the long testing period of the U.S. carriers. However, I think BlackBerry's loyal investors were happy with the price fall rather than being anxious as it gave them an opportunity to add to their current positions. I stand with the optimists on BlackBerry, and believe that the company will again be able to get a foothold in the global Smartphone market. Competition will be intense and the company will have to focus on innovation. Nonetheless, it will be present in the market and hold its own.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.