The narrative in the press has recently been about how Windows Phone has overtaken BlackBerry (BBRY) for third place in the mobile OS race. While it is true that Windows Phone did ship and sell more units than BlackBerry in Q2 of this calendar year, most articles fail to mention how Nokia (which represents most Windows Phone sales) has performed very well with the budget market and its Lumia 520 and 620 phones, while BlackBerry has focused mainly on the premium end of the market with its BlackBerry 10 launch.
For most consumer products, market share is analyzed both in terms of unit and dollar share. This allows people to get a clearer picture of where money is actually flowing, and thus avoid unduly penalizing premium products such as Grey Poupon mustard in favor of lower-cost competitors. In other industries such as the car market, manufacturers like BMW are often grouped into a separate luxury/premium car segment, so they can properly be compared with competitors around the same general price range that target similar consumers.
Smartphone market share information is rather primitive in comparison, counting a Samsung Galaxy Ace sale as the same as a Samsung Galaxy S4 sale that drives four times as much revenue. The Galaxy S4 owner is likely to be worth much more to developers compared to the Galaxy Ace owner as well, since they are likely more affluent and would spend more on apps.
These gaps in smartphone market share knowledge have negatively affected the perception of BlackBerry, as BlackBerry is portrayed as quickly fading while Windows Phone surges. As we will illustrate below though, BlackBerry can be seen in a significantly better light with other metrics.
Unit Sales
When comparing unit sales over the last four calendar quarters, we can see that BlackBerry and Nokia have fairly similar numbers for smartphone sales. Nokia has transitioned well from a mix of Symbian and Windows Phone sales to essentially exclusively Windows Phone sales over the past year, demonstrating strong unit growth with their Windows Phone Lumias. In Q2 2013, Lumia unit sales exceeded BlackBerry sales for the first time, despite it being the first full quarter of the BlackBerry 10 launch. BlackBerry is at the beginning of their transition to BlackBerry 10 and sold an estimated 2.7 million BlackBerry 10 units.
Q3 CY2012 | Q4 CY2012 | Q1 CY2013 | Q2 CY2013 | |
BlackBerry Smartphone Units (Million) | 7.4 | 6.9 | 6.0 | 6.8 |
Nokia Smart Devices Units (Million) | 6.3 | 6.6 | 6.1 | 7.4 |
Nokia Lumia Units (Million) | 2.9 | 4.4 | 5.6 | 7.4 |
Hardware Revenue
Comparing smartphone hardware revenue gives a different picture. BlackBerry has maintained a lead against Nokia and the Lumia line in every quarter, and this lead actually increased by $367 million during the most recent quarter. Nokia's Lumia line has exhibited strong growth in dollar terms as well, although far less pronounced than their growth in unit sales. This is due to Nokia's growth being driven by lower end units such as the Lumia 520, which are priced at around $150 without a contract. Approximately 43% more was spent on BlackBerry devices last quarter than on Nokia Lumia devices. Since Nokia represents around 81% of Windows Phone shipments, BlackBerry maintains a lead on Windows Phone as a whole for hardware revenue as well.
Q3 CY2012 | Q4 CY2012 | Q1 CY2013 | Q2 CY2013 | |
BlackBerry Smartphone Revenue ($ Million) | 1695 | 1594 | 1592 | 2168 |
Nokia Smart Devices Revenue ($ Million) | 1222 | 1589 | 1537 | 1520 |
Nokia Lumia Revenue ($ Million) | 581 | 1096 | 1346 | 1520 |
Note: BlackBerry smartphone revenue is derived from reported hardware revenue minus $129 per PlayBook shipped. Nokia's revenue has been converted from Euros to USD based on the average exchange rate during each quarter.
Average Selling Price
The average selling price for BlackBerry smartphones has increased by 38% from $231 to $319 since the launch of BlackBerry 10. On the other hand, Nokia Lumia ASPs increased with the introduction of Windows Phone 8 devices, but decreased by 15% last quarter with the success of the lower-end Lumia models. The Lumia line did have a slightly higher ASP than BlackBerry in the 4th quarter of 2012, but now has an ASP that is 36% lower than BlackBerry's.
Q3 CY2012 | Q4 CY2012 | Q1 CY2013 | Q2 CY2013 | |
BlackBerry Smartphone ASP ($) | 229 | 231 | 265 | 319 |
Nokia Lumia ASP ($) | 200 | 249 | 240 | 205 |
Conclusion
BlackBerry does face many challenges in rebuilding its business, but the competition versus Windows Phone has not been going as badly as it may seem in the press. BlackBerry still has a higher dollar share of the smartphone market than Windows Phone does, a fact that often gets overlooked by market analysts who count a $150 smartphone the same as a $500 one. Given the higher level of difficulty in calculating dollar market share, it seems likely that analysts and media will mainly stick to using unit market share, despite the inherent problems in using that approach alone.
The unit market share numbers do show the demand for high quality budget phones such as the Lumia 520 though, which accounts for 27% of Windows 8 phones despite only being available for 3.5 months at the time of the report. With sales of the legacy BlackBerry OS continuing to decline as the OS and product portfolio ages, it is important for BlackBerry to introduce entry-level BlackBerry 10 phones that can compete effectively at the low end of the market. Although these low-end sales do not do much for profitability, they can introduce new smartphone users to a brand. As well, selling a large number of low-end units will help with BlackBerry's unit market share numbers, which tend to be widely quoted and lead to perceptions that the brand is recovering. For example, the large number of low-end Lumia sales have increased Windows Phone market share to the point where some authors are talking about it challenging iOS for number two in the global market. BlackBerry's introduction (or non-introduction) of entry level BlackBerry 10 products will show whether it is attempting to fight for consumer market share still (budget phones are particularly important outside of North America), or whether it is going to focus on the enterprise market and stop competing for unit market share.
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.
