The successful launch of BlackBerry (BBRY) Z10 has initiated one of the hottest debates: Can the Z10 help BlackBerry regain its lost glory? I ran a deeper analysis on this product to figure out its overall impact on this stock. I have given due consideration to various factors like its price-point, availability of apps, product demand and performances of other competitors in the same segment.
BlackBerry's Enterprise subscriber base, which is around 18 million out of its total subscriber base of 80 million, is a valuable advantage against its competitors. Given its sizable installed base behind corporate firewalls, BlackBerry's BES, NOC architecture and Enterprise revenue will keep driving company sales. Z10 is more likely to appeal large corporation's IT departments, luring them to upgrade their existing BlackBerry BES infrastructure with a new user-friendly BlackBerry device.
Is Z10 really out-of-stock?
Initial Z10 sales look impressive. Launches in France, Saudi Arabia, UAE, Kuwait, London and Canada have gone well. Most of the stores were out of stock soon after the launch. But does this depict an overwhelming demand for Z10?
I think both low shipment volumes and moderate sales have created a mirage for investor optimism. BlackBerry is using the Deliberate Scarcity strategy, which Apple (AAPL) used in its recent high-profile launches. Most of the stores in Tier-2 cities just received one to three Z10 phones, and stores in metro cities received only eight to ten Z10 phones. In Feb 2013, Z10 shipments were around 325,000 units against the Street's expectation of roughly 1 million units. Further, any benefit from Z10 will be counterbalanced by the cannibalization of the Bold 9900 series sales, which have declined sharply since Z10's launch. To make sustained profits, the company will have to increase its Z10 shipments by at least four times, which at this stage seems doubtful.
A very expensive smartphone
Z10 is very highly priced, which will result in limited consumer demand. Nokia (NOK) and Samsung (OTC:SSNLF) are leading the industry by providing low priced smartphones. Nokia's Asha and Lumia 620 are popular among the low-budgeted customers. Its latest Lumia 920 has also seized good market share of high-end smartphones already. Similarly, Samsung is also having a wide range of low-budget smartphones like Galaxy Y, Galaxy M Pro, Galaxy Y Pro and Galaxy Pro, Galaxy Fit, Galaxy Gio, Galaxy Ace, and Galaxy Mini. On the contrary, Blackberry smartphones are focused on high-budget customers. Also, its subsidized rate is not better than the competing high-end smartphones. Let's have a quick look at the price comparatives
Current UK pricing for high-end smartphones
Contract-2 Yr price
£36/month + £25
£25/month + £25
T-Mobile and Orange
Source: Carphone Warehouse website
Unimpressive market demand
Although the UK and Canada have been historically important for BlackBerry, they remain relatively smaller markets for high-end smartphones. The annual smartphone market in the UK is half its total population of 63.2 million people. Only 31.6 million can afford a high-end smartphone, and BB's sell-through share in this market is only 10 to 14%.
Likewise, the annual smartphone market in Canada is half of its total population of 34.8 million. Out of those 17.4 million, 70% can afford a high-end smartphone, and the company's sell-through share lies between 12 and 16% in this market. Given that initial pent-up demand is already exhausted in these countries, I don't expect BlackBerry's share to increase any more in these markets.
Coming over to the U.S., it represents 19% of BlackBerry's sales from the total subscriber base of 80 million. Poor initial sales in this market indicate the aftermath of launch delay. It will further face fierce competition from new Android Phones-Samsung Galaxy IV, Windows Smartphone's (Nokia Lumia series) and iPhone5, resulting in cautious inventory levels by carrier partners. The timing of the Z10 launch in the U.S. is also very near to the Samsung Galaxy IV launch, which will affect its sales negatively furthermore.
Applying normal rates of decay in launched markets, and assumptions for channel fills in the US and other emerging markets, it is very likely that the company will ship roughly 1 million to 1.5 million units in second quarter. This is significantly below Street expectations of around 4 million units.
No. of Apps available on BB10 devices
The biggest problem so far with Z10 is the lack of available apps on BB10 OS. As per MKM Partners, less than 10% of the 100 most popular Android apps and less than 5% of the most popular iPhone apps are available on BB10 OS. In the past, BlackBerry has not had much success in luring popular partners and developers to the BB10 ecosystem, and this seems to be repeating itself. BB10 devices have about 70K apps available, in comparison to Apple's 700K apps and Android's 650K apps.
Top Android Apps availability on BB10
Source: appworld.BlackBerry.com and iTunes app store
Top iPhone Apps availability on BB10
50 games/50 non-games
Source: appworld.BlackBerry.com and iTunes app store
The bottom line
In the near-term, higher Average Selling Price of Z10 and pent-up demand may drive some upside. But in the longer-term this stock will remain challenged. The company has an unimpressive cloud strategy, less focus on Bring Your Own Device concept, limited popular apps, and operating losses in its core business. Taking all these points into consideration, I would not make position in this stock for now.