BlackBerry - Where To From Here?

Jun.30.13 | About: BlackBerry Ltd. (BBRY)

In an earlier article dated April 18, 2013, I forecast that BlackBerry (NASDAQ:BBRY) would sell from 5.1 to 7.0 million devices in Q1 and generate revenue of between $3.0 and $3.7 billion.

Actual sales were 6.8 million devices and revenue was $3.1 billion and the company continued to generate positive cash flow. With sales at the high end of my unit forecast and revenues over $3 billion, you might wonder why I decided to become bearish after being a long time bull, as I disclosed in my recent article "I am joining the Bears in the BlackBerry bush". The answer lies in the conference call.

I listened carefully to the discussion and to comments by Thorsten Heins about BlackBerry's performance and prospects. The tone of the conversation was disquieting. First, despite a relatively good quarter that was close to guidance of a small loss, Heins was defensive rather than confident. The press release gave no details of the mix between BB10 and BB7 devices but the conference call revealed the split was 2.7 million BB10 devices and 4.1 million BB7. The robust sales of BB7 devices suggest that there remains a solid market for the traditional BlackBerry notwithstanding its ageing operating system. I am not really surprised, since I continue to use by Bold 9900 which meets my needs and supports the Bloomberg application which I use daily, not yet present on the Z10 or Q10 (both of which I have purchased).

As investors, we have to make bets on future events in an intensely competitive marketplace where the companies and their leaders often have no more ability to predict the outcome than we do as observers. Our relationship with the CEOs of the companies we back with our money is one of trust and confidence, based on limited interchanges at annual meetings, through press releases and statutory disclosure documents and of course through direct contact on conference calls. The conference call is the important medium, since only there do we have the opportunity to listen to the leader of the company and make an assessment of his competence, his confidence and his ability to lead.

Great leaders win battles with limited resources. They inspire, they motivate, they challenge and they dare. History remembers the dark days of World War II in the United Kingdom when little separated Britain from catastrophe other than the will of its people to resist, and the terrific leadership of Winston Churchill with his epic line "we will fight them on the beaches ... we will never give up".

I was hoping to hear the CEO confidently and proudly point to the accomplishments of the quarter. There were many:

  1. Selling 3.7 million BB10 devices in the 16 weeks since the Z10 was released;
  2. Launching the Q10 in so many markets worldwide;
  3. Launching the Q5 for European and Asian markets;
  4. Launching BES 10.1 and making it easier for enterprise to manage heterogeneous devices from a robust management system with 18,000 servers already installed;
  5. Announcing the availability of the marvelous BBM messaging service on Android and iOS platforms;
  6. Keeping a strong balance sheet now with over $3 billion cash;
  7. Planning new devices for launch later this year including not only BB10 devices but also another BB7 device for certain markets; and,
  8. Obtaining the largest order in BlackBerry history for 1 million units of the BB10 devices.

It is not so much that this list is news or that these achievements were not discussed. It was a matter of tone. If he had given us a forceful reminder that this company is far from dead and a transparent description of BlackBerry's plans for the future and I would have added to my already over-sized investment in BlackBerry shares.

He did not and I started to sell. A lot of investors joined me in doing so, and the stock fell 28% in a few hours.

It is not too late to save BlackBerry, and Heins may be the man to do it, but some immediate actions are needed.

First, the company needs to be transparent. Secrecy will not inspire confidence. Problems faced are problems that can be solved. Problems hidden just grow until they are insurmountable.

Next, the company needs to listen to its users even more than it does already. Mark McQueen's recent article on SA puts it squarely out there. Mark is no fly-by-night investor but is well-respected in Canadian business as CEO of Wellington Financial LP and a regular contributor to the Business News Network. Mark pointed to the absence of key applications from the BB10 applications library - not twenty of them but just a couple - and lamented the absence of the "mini-track pad" that so many of us BlackBerry users have found useful. Heins simple statement as to what applications were forthcoming and when they would be available would have been welcome.

Finally, the company needs to express confidence and not bravado. Confidence is calm, it is fact based and it is compelling. We have set these goals. We will accomplish them by this time frame. If we are going to miss a due date, we will tell you and we will tell you why. I am sure you get the picture.

I have always been a fan of BlackBerry and I would like them to succeed. If I see them moving in the right direction as I have described herein, I will be a bull again.

I still hold some well out of the money BlackBerry calls for which there is no real market today. I will only add to my position if I see clear evidence that the company is not lapsing into an abyss of secrecy and excuses, or if it become so cheap that it is worth the risk. I may take a short position along the way.

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.

Additional disclosure: I continue to hold some well out of the money BlackBerry calls for which there is no real market