BlackBerry Success: More Than Meets The Eye

| About: BlackBerry Ltd. (BB)
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Currently the world is watching BlackBerry (BBRY) in the UK and Canada, to see how customers respond to the new Z10. In the UK, the white Z10 is sold out until Feb 18th through Carphone Warehouse. Other carriers in the UK are reporting strong sales with BlackBerry declaring record sales in the UK.

In Canada, sales have been strong with many stores reporting the device has been sold out. Some locations of Bell Canada retail stores have indicated sales have been stronger for the Z10, than the iPhone 5 at its product launch. In fairness, the iPhone 4S is still available and heavily discounted which makes the iPhone 5 less attractive. Thorsten Heins, president and CEO of BlackBerry stated "In Canada, yesterday was the best day ever for the first day of a launch of a new BlackBerry smartphone," and indicated the numbers are strong but wanted to verify the sales before releasing the sales data.

Carriers in the United States are currently testing the new Z10 with positive results. Frank Sickinger, head of business sales at T-Mobile USA said "The device is more stable than we anticipated". T-Mobile is looking at mid-March for their launch, but they may move the launch date up, due to positive testing results. Most industry and customer reviews have been very positive.

What does this all mean? Well it appears that BlackBerry is moving in the right direction in the short term, and they will be around to implement their long term plan.

While sales are important, there is more to BlackBerry's success than immediate sales of the BlackBerry 10 devices. It is part of the overall solution for the newly branded company. Thorsten Heins, president and CEO of BlackBerry expressed this week that BlackBerry is already developing the next smartphone and is looking outside the smartphone market for company growth.

The following are some reasons that BlackBerry might be successful in the long term

1. QNX applications

QNX as a company was founded in 1980 and has been developing real-time software for industrial applications. The software is found in approx. 60% of cars today, as well as in aviation, medical, industrial and defense industries.

QNX CAR platform 2.0 has decreased customer development time, from a 3 year average to 14 months. BlackBerry has an advantage over other smartphone providers in that their real-time operating system is suited to be integrated in many cars. This appears to be an area Thorsten Heins is pursuing. A demonstration video is available on QNX's website.

While BlackBerry bought QNX from Harman International (NYSE:HAR) for $200 Million, the revenue generated by QNX is relatively small. It does however provide an excellent platform for growth.

2. Global exposure

BlackBerry has approximately 79 million global users currently. In 2008, when BlackBerry was doing relatively well, the user base was approximately 14 million. During the roughest time in BlackBerry's history and during a global recession, the user base was still growing. In the past two years the rate of growth has been stagnant, and the global smartphone base has increased dramatically; but, it does show an opportunity for an increase in market share and revenue.

3. Balance sheet

When a company has no debt and has $2.7 billion in the bank, it's not a bad thing. Obviously they can't continue to lose money, but we are at the turning point and the next quarter financial report in March will be interesting to say the least. It is interesting to note that during the last earnings call for BlackBerry, it was announced that much of the development cost for the new BB10 operating system was realized on the financial statements.

4. Attitude

It wasn't long ago that I was listening to the earnings call and the prior CEO kept promising the new phone will be available soon, and even gave a timeframe. This proved to be false and many shareholders lost confidence in management. It was obvious that Thorsten Heins as the new CEO, made a substantial effort to regain the trust and confidence of shareholders. No time frame was given until much later, and the dates given were stuck to. Thorsten vowed to not sit on their laurels, and to reinvent themselves.

Research in Motion (RIM) is no longer, at least until the next shareholders meeting. BlackBerry is the new branding and appears to be following the branding set by Apple.

5. Apple

For the first time with the iPhone and iOS 6, there has been a bit of customer negativity. While still a great product, there are a few kinks in its armor that are starting to show.

We had the maps app that everyone was waiting to see, and then everyone was screaming for Google's map app to return. Siri has lost its luster, although I still enjoy asking Siri silly questions and listening to the responses, and a few other smaller user complaints. I'm not going to bash the iPhone because it is still a great product; it's just not in a class by itself anymore.

Something that is hard to quantify is the underdog mentality. In the tech industry, users love the underdog or the next greatest thing that comes along. Apple (NASDAQ:AAPL) is becoming the next Microsoft (NASDAQ:MSFT), Steve Jobs is gone and that makes it easier to say Apple is just another corporate giant.

6. Carrier support and subsidization

BlackBerry is getting good carrier support and more importantly are willing to heavily subsidize the new Z10 phone. It has been previously reported that the carrier's margins have been squeezed by Apple due to the high cost of subsidization. While the Z10 is heavily subsidized like the iPhone, the introduction of more choices should increase margins over time.

7. BlackBerry Enterprise Server

In the past year, many companies and departments in the US government stated that they are moving away from the BlackBerry Enterprise Server. A few of these departments have now decided to give BlackBerry another chance. A pre-release was made available in January for testing. The benefits to a large corporation are obvious in terms of control and security, only time will tell if that is a path that they will continue to go down. The decision by BlackBerry to allow Apple devices on their platform via the BES client for iOS may prove to be beneficial, but the fear is that handset sales may be cannibalized.

Some Negatives

1. Monthly reoccurring revenue model

It was announced recently that the reoccurring revenue model for using the BlackBerry network may be changing. While this can be seen as a positive, if not implemented properly it may create negativity with their carriers. Reducing the fees that are charged to carriers will help the carriers but will effect BlackBerry's top line.

2. App Store

The good, the bad and the ugly. Yes, all three apply to the BlackBerry world app store. While 70,000 apps is good, it has been reported that there are a lot of 'garbage apps'. The main players in the app world are adopting this platform and over time we should see some increased development.

3. Customer service

Prior to the launch of the Z10, there were a few network outages that caused frustration with BlackBerry customers. Knock on wood! Right now everything appears fine - but what about the next outage? It is important that BlackBerry handle customer expectations and limit outages.

4. Q10 physical keyboard device launch

Hopefully this will be a positive, but does the world want their physical keyboard back. Most people have been using a touch screen keyboard and probably have adapted comfortably. Will there be a negative perception towards the physical keyboard? I feel the Q10 will be successful in a small niche business environment for users that send out large amounts of emails. But for the average user the full touch screen will probably be more of a draw.

The momentum is building and moving in the right direction for BlackBerry. Hopefully BlackBerry can continue the momentum long term and on a global scale. The next big hurdles for BlackBerry to overcome are: the US launch, the March earnings call and the release of the Q10. And if anyone has a crystal ball, and can tell me exactly when the short squeeze is going to happen that would be great as well.

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.