BlackBerry Inc. (NASDAQ:BBRY) has been receiving more than its fair share of press coverage over the last year. The flailing phone maker has made a bold move to retake what was once a hearty share of the phone market. BlackBerry finished developing BB10 in January 2013, and has been rolling out its flagship Z10 smartphone since. This past week, the Z10 finally made its debut here in the States. The stock hit $16.80 during the release, but has continued to dip ever since. There are a variety of factors causing negative sentiment around the stock right now.
Poor Initial Sales
The United States is one of the largest smartphone markets in the world by volume, coming in at a close second after China. Evidently, America is the place where BlackBerry could unload a large number of devices and regain market share. Investigations into the release of the Z10 here in the US, however, have come up negative.
Goldman Sachs looked into sales at AT&T locations across America in order to gauge consumer response. What they found was disappointing to say the least:
"Despite the product itself being relatively well received by sales associates and online reviews, sell-through at most locations was less than 10 per day, and in many it was as low as 2-3 per day," Goldman said.
Compared to other smartphone launches, the Z10 release was embarrassing. Although the phone may be selling well internationally, the thriving US market is essential to BlackBerry's success. The other markets that BlackBerry has chosen to compete in are minute in comparison. Sachs downgraded the stock to a "neutral" after the news.
It can be said that the Z10 is not yet available at every carrier here in the US. It will be available at Verizon within several days, but it is reasonable to assume that launch may also go poorly. AT&T (NYSE:T) has 105.2 million subscribers, compared to Verizon's (NYSE:VZ) 111.3 million. The two companies are titans in the American cell phone market, so it is astounding to see that AT&T had such poor sales.
One reason for the Z10 selling poorly at AT&T may be marketing. Although BlackBerry allocated its largest marketing budget ever for BB10, the situation at wireless stores doesn't seem to be indicative of that. Citigroup analyst Jim Suva noted that AT&T retail locations had already "shifted focus" to other devices, and gave the Z10 poor placement in the stores. Suva noted that the Z10 was placed near older devices at the side or back of the stores. Suva also stated that <5% of stores nationwide sold out of the device.
A Citigroup analyst speaking on MSNBC also stated that sales personnel in AT&T stores were not well trained in the BlackBerry Z10.
BlackBerry got its product into the United States several months late. As I wrote in a previous article, this could have made all the difference. A month in the technology industry is a very long time; strong competitors such as the Galaxy S4 are that much closer to being released. The iPhone 5 also continues to dominate domestically, making the situation that much more complicated for BlackBerry.
The BB10 Z10 smartphone is priced at $199 with a two-year contract. The device was created to compete in the high-end market, and is being priced as such.
As I stated before, BlackBerry's decision to enter the most cutthroat part of the market may harm them. You can get an Apple (NASDAQ:AAPL) iPhone 5 for the same price (with a 2-year contract, of course), and you can get a Nokia (NYSE:NOK) Lumia 920 for only $99.
The iPhone 5 has been the best selling mobile device in America for several quarters, and has no reason to slow down. The hype is massive and consumers want to get their hands on an iPhone. If you can't afford the 5, you can get an iPhone 4 for free with a two-year contract.
The Lumia 920 is also a stellar device selling for cheaper than the BlackBerry Z10. It is a top of the line smartphone with features such as inductive (wireless) charging, and is being sold for half the price. Obviously BlackBerry wants to keep their margins high, but their decision may have cut their sales drastically.
The United States release of the Z10 smartphone isn't going as well as everyone wanted it to. While BlackBerry may be performing well in other markets, it needs to sell phones in the US to reclaim what it once had and be profitable. Unless BlackBerry manages to create a turnaround domestically, the stock will keep slipping. BlackBerry earnings on Thursday should be indicative of its poor showing here in the States.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.