BlackBerry: Making Progress In The U.S. Market

| About: BlackBerry Ltd. (BBRY)

Last week, I published an article which gave a prediction of BlackBerry (BBRY) sales in the U.K. It was based on the ranking of smartphones by sales, as listed on the Carphone Warehouse website.

This week, I have tried to make the same prediction for sales in the USA. This exercise proved to be much more difficult, and I suspect less accurate than the one I did for the U.K. sales. There is no major retailer in the U.S. that captures the same percentage of the market that Carphone has in the U.K. I am therefore dealing with a smaller sample size, and inherently lower accuracy. I chose Best Buy (NYSE:BBY) as the base for my analysis, because it sells all of the popular phones and deals with all of the four major carriers. Best Buy provides a listing of smartphones ranked in order of sales. However, it breaks down the sales separately for each carrier, and it treats phones of different colors as different phones in the rankings. What that means is a lot of extra work for me in doing the analysis, but probably an improvement in accuracy because I have a more detailed breakdown of the sales.

I used the same technique that I used in the U.K. analysis. I listed the phones in order of sales, then developed a mathematical model that estimated market share based on the ranking. I used published data from KantarWorld to calibrate the mathematical model.

The results are shown below, listed as % market share for each of the popular phone models:

The iPhone 5 is still well ahead of the pack, but I believe Apple (NASDAQ:AAPL) is slowly losing market share to the multitude of Android phones. Sales of the Galaxy S3 appear to have slipped, and the Motorola (NYSE:MSI) Droid RAZR is now challenging for second place. Galaxy fans are probably holding off on their purchases, waiting to buy the S4, or expecting a price reduction for the S3. I have the BlackBerry Z10 in 5th spot with 6.8% of the market, which would equate to somewhere between 600,000 and 700,000 phones per month. That compares with a forecast by Peter Misek of Jefferies who estimated 500,000 sales, based on checks done at a sample of stores.

I should mention that I started this analysis last week, and my first attempt used rankings from the Best Buy website as of last Friday. I updated those numbers this morning (Tuesday April 9th) and the BlackBerry share is definitely climbing. The black Z10 shows in third place from AT&T (NYSE:T) and eighth from TMobile, the white model from Verizon (NYSE:VZ) is placed 15th. This compares to last week's placings of 3rd, 40th and 34th.

Forecast market share by manufacturer is:

Forecast market share by operating system is:

The USA market analysis, like the U.K. analysis, shows BlackBerry clearly beating Windows for third place, but both are a long way behind the Apple and Android market shares.

In the U.K., the older model BlackBerry Curve has been selling quite well. This has not happened in the USA, where the Curve has virtually dropped off the sales charts. The U.K. result can be explained by the fact that carriers are offering very low prices on the BlackBerry Curve, as low as $17/month for a two-year contract with a free phone (with relatively low usage limits). In the USA, the major carriers are charging at least $50/month for a two-year contract, and in some cases, the total two-year cost for the BlackBerry Curve is actually higher than that of the Apple iPhone 5 or the BlackBerry Z10.

The total cost for a typical iPhone or Z10 two-year contract in the USA is about $1400 including the phone cost ($200). The cost for the lower-priced phones is $1200 (the phone is free with the contract). The price difference is negligible, which explains why the lower-priced Android phones have not penetrated the U.S. market to the same degree as they have in the U.K. In the U.K., the price difference between a low cost Android phone and a high-end phone such as the iPhone 5 or Z10, on a two-year contract, can be over 400%, so we see cheaper phones such as the Galaxy Ace, the BlackBerry Curve and the LG Optimus L3 among the more popular phones.

I have made some wide ranging assumptions in developing these mathematical models, which I hope to be able to verify and refine as more information becomes available. I also acknowledge that they are based on consumer purchases. They do not include sales to major enterprises and therefore, the BlackBerry sales are very likely underestimated.

I believe it is still too early to judge whether or not BlackBerry can recover a bigger share of the U.S. market. Early signs are promising, but there is a long way to go yet. Whenever new information becomes available, I will check and update these models, and see if I can identify trends. Two pieces of information referenced in an article on Seeking Alpha this morning provide a means of verifying the sales forecast models. Firstly this graph showing internet usage by phones in the U.K., places BlackBerry with 15% of the market, roughly in line with my own U.K. sales forecast. Secondly, this chart showing internet usage by the Z10 versus the Sony (NYSE:SNE) Experia. In the U.S., the Z10 usage is about 3 times that of the Experia, again roughly in line with my sales forecast.

I am staying long BlackBerry. I don't have any illusions about it toppling either of the two front runners in the smartphone race, but I do believe the shares are undervalued, and it can be a very profitable third place niche player.

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.