Over the past few years BlackBerry (BBRY) has been plagued by many mistakes: an outdated operating system, bloated head count and a lack of management control, but none has been more glaring than failure at the hardware level.
BlackBerry's failure to recognize the changes in the needs and wants of smartphone users caused it to lose its position of leadership to the likes of Apple (AAPL) and Samsung. So much so that many are predicting that BlackBerry will be totally out of the hardware business in a few years, and will be solely focused on its software, security and operating system.
I do not agree with this prediction for a few reasons:
- No manufacturer has been able to make an appealing Qwerty keyboard device other than BlackBerry. Many like Nokia (NOK) have tried and are still trying, but BlackBerry is still the king of the Qwerty.
- Many of BlackBerry's customers demand supply chain control and do not want BB10 devices that are made all over the world in countries that they do not trust. If BlackBerry were to allow another company like Lenovo (LNVGY) to make a BlackBerry, how could customers feel secure with this device the way they do now that BlackBerry controls everything.
- The device business when done properly is a proven money maker (30-40% margin), and why would BlackBerry want to give those profits to someone else.
So if we assume that BlackBerry remains in the hardware business, then long-term success and improvement of shareholder value will depend on how well it executes the innovation, development, launch and marketing of new devices. Let's have a look at how the new BlackBerry has done so far.
The Z10 was launched January 30, to positive reviews and considering it was BlackBerry's first attempt at a full touch screen design and operating system I would consider it very successful. BlackBerry listened to its customers and made major improvements with its release of the 10.1 firmware update. On the negative side, BlackBerry Z10 was late, and BlackBerry missed the boat on paying millions of dollars for a Super Bowl ad when no one in the U.S. could actually buy the phone as it had not been released and would not for 2 months.
The Q10 was launched in early march to very positive reviews and marked the return of BlackBerry to its long-held stronghold of physical Keyboard focused smartphones. The Q10 mirrored the staggered launch of the Z10 allowing for a careful read of demand so it could supply prudently. The Q10 also benefited from some of the market feedback received from the Z10 and incorporated those improvements at launch time.
The Q5 is currently launching in Emerging Markets and the U.K. at roughly half the price of a Q10 making it free on most phone plans. It has all the functions of the BB10 operating system, with four colors and designs targeted at a younger and more casual user.
So far we have seen a new device launch every two months, and as stated numerous times this year we are expecting six devices before the end of the year. This would mean we have three to go, and there have been many rumors about what we can expect. Here are some i have come across.
This A10 seems to be the hottest rumor out there, a 5" OLED display touch screen device in line with the Z10 but with the nice back of the Q10. This would replace the Z10 as the flagship touch device and is targeted to go head to head with the Samsung S4 and the iPhone 6.
The Z5 also seems logical in order to keep symmetry in the product families and to offer a lower price point in the touch screen segment. Would go head to head with the anticipated lower price iPhone, and cheaper Google (GOOG) android devices.
How about an S10 for those of us who have used a Torch in the past? It would be very interesting to see another slider BlackBerry that could give the user a larger display with the convenience of a slide out keyboard.
From the above list of released and rumored devices I really feel that BlackBerry has stepped up its game on the hardware side. Six new devices in 12 months will be quite an accomplishment, and a great step in rebuilding shareholder value.
But it cannot end there, BlackBerry will have to keep up the pace on device innovation, and improvements as we go along. I think we have seen that being demonstrated with two releases of firmware BB10.1 and BB10.2 in the six months BB10 products have been on the market. These updates have dealt with camera quality, security, battery life, android app support, and many more issues based on user requests and feedback. All of this a great sign that BlackBerry is listening to its customers and a major advantage it has over Android devices, which typically never get any updates to the Google operating system after it is released.
Playbooks, Tablets and Televisions
Recently BlackBerry CEO Thorsten Heins said, "In five years I don't think there will be a reason to have a tablet anymore, maybe a big screen in your workspace, but not a tablet as such. Tablets themselves are not a good business model." The CEO received a lot of criticism for this statement. However in the recent BlackBerry 10.2 update we can see a little clearer what exactly he may have been getting at.
BlackBerry 10.2 will be supporting Wireless HDMI and Miracast as well as the DLNA it already supports. These are all open standards, which allow high-definition video to be delivered to any modern TV, laptop, tablet, desktop, or other mobile phone. In fact Miracast is an open standard version of Apple's Airplay. This would mean that you could have your BlackBerry replace your Apple TV box and save the $99.00 purchase price.
This also would lead to an end of the tablet as we know it today. All you would need is a basic inexpensive flat screen (dumb tablet) that can connect to your BlackBerry (mobile computing device) and relies on the BlackBerry for all of its computing power and memory. I think now we can see what he was getting at.
Thorsten also added, "In five years, I see BlackBerry to be the absolute leader in mobile computing -- that's what we're aiming for."
You would be able to stream anything you're interested in through your BlackBerry (mobile computing device) and watch it on the TV on your family room wall or desktop screen. BlackBerry could even market a simplified, and therefore inexpensive 10" or 7" BlackBerry Playbook that because of its simplicity may be able to sell for as little as $100.00 to $150.00.
BlackBerry is well on the road to repairing its device reputation, with an anticipated six devices this year, all with the features, functions, and price points the market is demanding. BlackBerry is listening to its customers to make sure the launch of a new product is followed by improvements in firmware to tweak and improve the performances of those devices over time.
Earnings this week will reflect, one full quarter of Z10 sales globally, one month of sales of Q10 in the UK, Canada, and Middle East, and the continued roll out of BES 10.
While I expect earnings will exceed second-quarter guidance of breakeven, i would expect the guidance for the third quarter to be a real catalyst for share appreciation and potential short squeeze. This guidance will reflect a full three months of sales of the Q10 and Z10 globally, BES10 Globally and one to two months of the Q5.
BlackBerry is definitely getting better at the hardware game, and that is a big reason I hold BlackBerry for the long term.