BlackBerry - Can Z30 Resurrect BB10

| About: BlackBerry Ltd. (BBRY)

BlackBerry (NASDAQ:BBRY) has imploded over the last 6 months due to some strategic mistakes in product pricing as well as intense competition in the smartphone market. BlackBerry's management seems to be cut off from the consumers and did not realize that it cannot get a big premium over the other smartphone makers who have got similar offerings. The Z10 and Q10 were exorbitantly priced in my view and had to be discounted later on to clear away the inventory. The Z30 which is BBRY's latest BB10 product launch seems to have been launched much more prudently. The product is currently priced at ~Rs 40,000 (~$650) in India compared to the Z10 and Q10 which were both launched at ~Rs 45,000. The Z30 is BlackBerry's first phablet launch and has got a good hardware configuration. But you can get similar configuration in Android devices sold by the top companies such as Samsung (OTC:SSNLF), Sony (NYSE:SNE), Lenovo (OTC:LNVGY) and LG (OTC:LGEAF) at equal/lower prices. The Z10 proved that the market did not assign much of a premium to BB10. Z30 is the fourth BB 10 device and seems better positioned than its predecessors. But I do not think that Z30 can revive BBRY's new OS platform, as things have turned much worse for the company. BlackBerry has not found any buyers and the stock has declined sharply over the last few months. The company might seem cheap but there is a lot of uncertainty facing the company. I would look to avoid buying the stock as the upside seems limited.

Blackberry Z30 enters the Phablet Segment too Late

Samsung pioneered the "phablet" trend in smartphones with its Galaxy Note and since then this segment has been gaining increasing popularity. Phablets are one of the fastest growing segments in the smartphone area and has forced most companies to come out with phablets. Nokia (NYSE:NOK) recently released two phablets (1320 and 1520), while Sony has also come out with the Sony Z1 Ultra. Low end Android smartphone makers such as Coolpad, Micromax and Lava also have been selling cheap $100-200 phablets for some time now. Even Apple (NASDAQ:AAPL) is rumored to be coming out with a larger screen size for its iPhone 6. Z30 will have a really tough time in differentiating itself in a highly cluttered phablet market. Samsung continues to be the king of the global phablet market, thanks to its first mover advantage. The company has got phablets at almost all price points and screen sizes.

Management seems to have learnt from Z10 in Pricing

The Z10 failure probably made BlackBerry realize that it is operating in a new smartphone world where BBRY does not command a premium. Competitors are offering similar to better smartphones at much lower prices. The BB 10 operating system was supposed to be the killer feature but now it has become a liability. Consumers would be extremely cautious in buying a product whose future support is suspect. BlackBerry has been forced to discount its products heavily as sales did not take off. Its tablet faced the same predicament and was discounted. In case of Z30 the company has kept the pricing competitive at Rs 40,000, but it is still on the higher side.

But Z30 price may have to be lowered even more

BlackBerry is one of the last ones to enter the phablet scene. It makes sense to sell a new innovative product for a high price. But coming out last and still pricing a product high does not make too much sense. The Z30 which was launched at ~Rs 45,000 saw its price being reduced by ~10% in a very short time. But Z30 is still much more expensive compared to similar smartphones from LG, Samsung and Sony. The Samsung Note 2, LG Optimus G Pro and Sony Experia Z have similar features such as quad core ARM (NASDAQ:ARMH) based processors, 2 GB RAM, high resolution large screen size and great cameras. But they are priced in the Rs ~30,000 range ($500), which is 25% lower than Z10. There are higher priced smartphones than the Z30 but they offer something unique. The Nokia Lumia 1020 at Rs 50,000 (~$750) offers a unique 41 MP camera, while the iPhone 5S offers the best mobile OS and the status symbol of owning an Apple product.

So can Z30 Turnaround Blackberry's Fortunes

I think that Z30 is the best BB 10 phone in the market given its features and pricing amongst the four BB 10 phones. The company has also considerably improved the new OS with Z30 coming with BB 10.2 out of the box. The problem is that the competitive landscape has changed drastically in the last 6 months. The extreme shortening of the technology product cycles has meant that BBRY now finds that BB 10 has become a liability. The company reported large losses in the current quarter. This has raised the risk that BB10 might be history in a couple of months. Z30 is not a bad smartphone but it does not differentiate itself sufficiently from the competition either in pricing or in features. While the application processor, memory and OS are competitive the camera is not up to the mark. The pricing is also on the higher side. I think Z30 cannot turnaround BB 10 or BlackBerry's flagging fortunes, though it shows improvement from its predecessors.

Company needs a Buyer

The top management of the company has performed poorly and it remains to be seen whether the new CEO can turn things around. BBM for Android and iOS was also launched after a delay and points to execution issues in the company. Employee morale would be low after repeated layoffs and the uncertainty of a buyout. Not exactly the best environment for cutting edge innovation and design work. The company has also stopped announcing new product /service ideasI have advocated in the past that BBRY might be better off selling/partnering with a bigger technology player. I think that it will be best for BBRY investors that a buyer is found even though the Board has given up looking for partners. The company may lose even more value as it loses scale. A Taiwanese company Trendforce recently said that the company may find itself pushed out of the market if it sells less than 35 million smarpthones a year .

Stock Valuation and Performance

BlackBerry seems cheap with market valuation of just ~$3.3 billion and trades at a low valuation with a P/B of 0.4x and P/S of 0.3x. However, the company is losing money as it writes down inventory and the sales for BB 10 have fallen below expectations. There is a lot of speculation on the how the company will restructure itself. Though the valuation is cheap, I would not be a buyer of the stock given the uncertainty and the failure that the company faced in finding a buyer.


BlackBerry is going to follow Nokia and Motorola in exiting the smartphone business. While Nokia has found a good price for its mobile business, BBRY is facing a lot of trouble in finding one. I was highly positive on Nokia before it sold out, given the company's valuation and the intelligent moves it was making with Lumia devices. Nokia had launched products on time and with a good value proposition capturing the entire Windows Phone market. The recent launch of the phablets and a tablet shows that the company was really firing on all cylinders. BBRY on the other hand, did not release enough products on time and the pricing was quite atrocious. While the Z30 seems a better product than other BB 10 products, I don't think it can bring BBRY back into the top league of smartphone makers. I would look to avoid the BBRY stock as of now given the uncertainty and look at better prospects.

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.