Can BlackBerry Afford To Say 'No' To Smartphone Discounting?

| About: BlackBerry Ltd. (BBRY)

Canadian smartphone maker BlackBerry (NASDAQ:BBRY) has seen its stock price more than double from its 52-week low, as the company has introduced some good smartphones based on a new operating system. Both Z10 and Q10 have performed adequately post their launch in 2013 without setting the market on fire. However, the company has not refreshed its lower and middle segment smartphones in a long time. Competitors like Samsung (OTC:SSNLF) are introducing new smartphones almost every month, while BBRY has not launched a Curve successor in a long time.

Though smartphones have become very competitive with the entry of a large number of non-traditional players such as Lenovo, Acer, Asustek etc., the industry has also grown at a tremendous clip. Most of the growth is coming from developing countries like China and India where people are migrating from normal feature phones to low cost smartphones. This market segment has been almost wholly captured by the Android companies such as Samsung, LG and other local companies. Other companies have been forced to introduce devices for these segments. Nokia (NYSE:NOK) recently introduced Lumia phones for this segment (Lumia 520 and Lumia 620). Even Apple (NASDAQ:AAPL) has been forced to enter the mid end smartphone segment by heavily discounting its older iPhone 4. BlackBerry's current Z10 and Q10 are too expensive for the features that they offer. For example, Q10 is being launched at ~Rs 45,000 (~$850) while Samsung and Nokia (NOK) flagships can be bought for $600-700. BlackBerry currently has nothing to offer except these 2 phones. I think that BlackBerry needs to lower the price of its flagship products and quickly introduce lower and middle tier phones.

BlackBerry refrains from discounting wars, but that strategy won't work

BlackBerry has said that it will not get into a discounting war with its competitors. However, you can only go and implement this strategy if you have a unique value proposition. While the BB 10 OS is quite good and BBRY phones are solid products, they don't have a killer feature like older BBRY products (push email). Even the current king of smartphones, Apple, is being forced to discount its smartphones in order to compete. BlackBerry will be forced by the market to lower its prices quite drastically in my view, as the competitor flagships like S4, Sony Experia Z and Nokia 920 offer equivalent to better features at a much lower price.

Do you think new handsets will push up market share? And if BlackBerry does not bring handsets in quick succession like Samsung does, would you be able to compete at all?

We're not here to ape competition strategy of price drops, or to liquidate old stock or inventory like some companies are doing. India has always been top priority market for BlackBerry globally. Z10 was launched in India within a month of global launch and India will be the second country in Asia Pacific to get the Q10. We're not indulging in price wars with competition or massive cash back offers, but we're offering value. We have ensured that total cost of ownership of a BlackBerry comes down, so we lowered data plan prices from Rs299 to Rs129 a month for 15 circles, for full BlackBerry experience. We've rolled this out with Aircel, Idea and Vodafone. We're in talks with other operators to taking it pan-India. We don't want to set false pretexts by saying that we will be there in the $100 segment. The Q10 (to be launched day after) and Z10 are placed as premium devices in the market for which, we know, that the consumer will pay a premium for the value they offer. We're addressing the customer base that owns a $100 device and is now looking to upgrade to a $300 (approx Rs17,000) smartphone. With the Q5, which will come on the BB10 platform, we're targeting the urban youth.

Source - ET

BlackBerry cannot afford product delays

BlackBerry announced a lower end Q5 device some time ago, but there has been no news on the release date. The Q5 will have the same features as Q10, but less sophisticated hardware in order to keep the pricing low. Meanwhile, competitors are flooding the market with new smartphones with better hardware. You can buy a top of the line Android Nexus 4 for $300-$400 with features that would rival Z10. I am not sure whether it was wise of BBRY to come out with two premium smartphones before a mid tier smartphone. I think that Z10 will not have much of a future once the A10 is launched. The Q10 remains the main flagship phone, as it embodies most of BBRY's key differentiators. The timing and execution of new launches is very important for BBRY as rivals are improving their products almost every day. It cannot afford to delay the launch and distribution of new products. The danger is that by the time the product reaches the retail shelves, they might be obsolete. Apple is under huge fire for not shortening its iPhone product cycle of 1 year.

The BlackBerry A10 is the successor to the Z10, and further builds upon the company's burgeoning lineup of devices. The A10 will occupy the highest tier, moving the Z10 and keyboard-equipped Q10 to the midtier. The lower-end Q5 will continue to occupy the lower, more affordable strata. By quickly expanding its product line, the company is hoping it can better cater to consumers of varying income levels.

Source - CNET

Tablet and lower tier smartphone are big deficiencies in BBRY's portfolio

The tablet market has become the fastest growing computing device segment in the technology industry. It has become vitally important for mobile players to have a tablet product in order to survive in the technology industry. BBRY has not refreshed its "Playbook" line for a long time now, and this is becoming a problem for the company. Technology companies need to be present in all parts of the computing device industry. While it would be too hard for BBRY or Nokia to get into the PC/laptop space, they cannot afford to miss the tablet space. BBRY's CEO does not seem too interested in tablets, which can prove fatal for the company. The absence of a lower tier smartphone is also a problem, as the Curve has become obsolete. A Curve replacement is necessary for BBRY to win over millions of new smartphone customers in the emerging countries. The Q5 seems to be aimed at the $400 category where it will compete with the iPhone 4 and Nokia 820. BBRY has nothing to compete with the Nokia 520 and Samsung's lower priced Galaxy smartphones ($200 category). Apple is also going to introduce a lower priced iPhone in the near future. BBRY needs to enter this segment in order to remain a viable player.

Stock Performance

BlackBerry is quite cheap with low valuation multiples and has a decent amount of net cash on its balance sheet. The company has returned to profitability and its phones are showing good traction in some markets like Europe and Canada. The new management has introduced some key changes which have helped restore faith in its turnaround story. The BBRY stock remains one of the most volatile stocks in the technology space, though it has stabilized somewhat in the last quarter (~$13.5-$16 range). The stock is trading at a low valuation like other smartphone/mobile stocks. Both P/B and P/S remain below 1x for the stock, as compared to the industry average of around ~2x. This indicates that the stock price can increase considerably if the company manages to launch products on time.


BlackBerry has started to gain some traction with the Z10 and Q10 introduction after being given up for dead by most technology analysts. However, the company's strategy is missing some key pieces, such as a new tablet and introduction of lower and middle tier smartphones. Though the management has promised a new Q5 smartphone, the timing is very important. If the company misses the launch date (like it did for Z10), then the company may not be able to compete effectively. Product cycles have shortened dramatically and even Apple is under massive pressure to refresh its iPhone line. BlackBerry also needs a good tablet to replace its ageing Playbooks. BlackBerry has done well in the past 12 months to launch new smartphones, return to profitability and give a roadmap for new BB 10 launches. It needs to continue to execute otherwise all its efforts might go in vain. I remain positive on BBRY stock, given the current risk reward profile.

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.