Seeking Alpha
Long only, deep value, growth at reasonable price
Profile| Send Message|
( followers)  

Year 2013 is turning out to be a milestone year for BlackBerry (NASDAQ:BBRY) - after the successful launch of Z10, the company was able to become profitable again. Successful launch of Z10 has laid foundations for the company to grow and compete well in the market. Furthermore, financial prudence and a focus on operational efficiency will enhance the company's efforts to take back its market share from Apple (NASDAQ:AAPL) and Samsung (OTC:SSNLF). However, the game has just begun and it is by no means the end of this fascinating journey. It is always interesting to see a fallen giant get back on its feet.

In this article, I will try to assess the future threats and opportunities of the company, and also, how the management is planning to meet these challenges.

Q10 to Be the Next Catalyst?

Excitement about the launch of Z10 has cooled, and at the moment, everyone is looking towards the launch of Q10, the handset with the traditional BlackBerry keyboard. Q10 will be launched in the U.K. at the end of the current month - the handset will sell for £580 ($888). Q10 is available for pre-orders at Carphone Warehouse on O2, Orange, T-Mobile, Three and TalkMobile. Carriers will charge £100 ($153) more than Z10, and monthly contracts are also cheaper for Z10 - it is an indication that carriers as well as retailers are more confident about the set with the traditional BlackBerry keyboard.

I have been saying in my previous articles that Q10 might prove to be even bigger hit than Z10 due to the loyalty of BlackBerry customers towards its tradition. Vodafone (NASDAQ:VOD) will also be launching Q10 soon; however, the company has not announced the price and exact date of the launch. BlackBerry has always been a trusted handset to be used by government organizations. As a result, a major chunk of BlackBerry sales have come from government institutions in the past. There are rumors that the Chinese government has ordered two million BlackBerry Q10 handsets to be distributed among its officials. If these rumors are true, then BlackBerry will surely have an interesting day in the market.

Strong expected sales of Q10 along with impressive debut of Z10 and BlackBerry 10 are extremely encouraging for the company. Canada is home ground for BlackBerry and it is always strong in its home country. However, according to these new numbers, BlackBerry is also becoming popular inside the U.S. The chart shows a comparison between Z10 and Sony's (NYSE:SNE) Xperia Z during the past month. According to the chart, Z10 has recorded way more traffic than its counterpart - both of these handsets were released within one month of each other. Increased web traffic usage numbers from Z10 inside the U.S. indicate that the set is becoming popular among American customers, which is extremely encouraging for the company.

Financial Prudence and Threats

In the earnings call, management emphasized that they were making an effort to promote high performance culture inside the company. For any company making a turnaround, it is vital that each and every member of the management believes in what they are doing. I liked the idea that the company is looking to promote people from within, giving them more sense of affiliation and increasing the overall morale of the workforce.

Coming towards the numbers - BlackBerry will need a lot of cash to continue its turnaround, and one of the best ways to preserve cash is to decrease costs. We have already seen the impact of restructuring as about $1 billion in savings have allowed the company to report impressive numbers. However, the most important numbers here are the cash reserves and future cash flows. Year-end cash reserves have not changed much during the past year. However, short-term investments have increased substantially for the company. BlackBerry spent substantial cash to support the launch of Z10; advertisement and promotions were some of the biggest cash expenses. Furthermore, the company has increased its advertisement expense.

If we look at the total liquid investments and working capital, the company is in a lot stronger position than it was a year ago. Total cash and liquid investments are $2.65 billion at present, compared to $1.77 billion at the end of the last year. So, as far as cash and liquid assets are concerned, the company is in a fairly strong position, and it will be able to maintain its efforts to compete with Apple and Samsung.

Moving on to the threats, at the moment, the biggest threat is the competition. Apple has an incredibly strong position inside the U.S. and Samsung is also fighting Apple in its backyard with the launch of Galaxy S4. Apple and Samsung will remain the two biggest players in the market for some time as these companies have far more resources than most of their competitors. BlackBerry has a great product and loyal customers; however, it will take some time to recapture the lost market share. Meanwhile, if the war comes down to price, it will hit the average selling price and margins of the companies will be severely affected - Apple and Samsung, being the biggest players will be able to cope with declining margins due to their strong financial position. However, BlackBerry and Nokia (NYSE:NOK) will suffer sternly as these companies do not have the financial strength of the bigger competitors.

Conclusion

The smartphone market is interesting at the moment. The opportunity is there and the market participants are trying their best to take the biggest slice of the pie. BlackBerry has made an impressive entry, and the successful launch of the handset has allowed the company to plan more products in the future. The next significant moment for the company will be the launch of Q10, which I believe will be a success due to the anticipation of BlackBerry's loyal customers. The road ahead it tough for BlackBerry and the company will have to be on its toes due to the constantly changing trends in the sector. However, I believe the new, more focused and lean BlackBerry will be able to cope well with the hurdles in its way.

Source: BlackBerry: The Fascinating Journey Will Continue