Earlier this week, I made a case for why Dell (DELL) should Buy BlackBerry (BBRY). BlackBerry investors weren't too pleased - feeling that they were "above Dell." But today, they're singing a different tune - at least they should, given that BlackBerry shares have now fallen below Dell's.
While I once felt that Dell would be strengthened by acquiring BlackBerry's assets, I'm not feeling that same way today. In fact, I'm now realizing that BlackBerry's best chance of survival is to dismiss the idea that it can ever compete in this smartphone space. The game's over. And investors that think otherwise are just fooling themselves.
The more things change…
The company was left for dead after it had gotten beaten-up and bruised by Apple (NASDAQ:AAPL) iPhone dominance. While I'm more than willing to give BlackBerry credit for its resuscitation after falling to a low of $6 last summer, I just don't believe the company possesses the "wow" factor or the management needed to thrive in the mobile space.
On Thursday, things took a turn for the worse when a report surfaced from analyst group Detwiler Fenton & Co. claiming that customers have been returning BlackBerry's Z10 phone in bunches. In fact, the analysts went on to say that in some cases, device returns had actually exceeded sales. Is that really possible?
Although a BlackBerry representative denounced the claims, it was too late. The stock had already plummeted almost 8%. As of this writing, there's been a slight rebound. But how much does this really matter? This continues the dance that has plagued this company - one step forward and two steps back. Investors would be better served as wallflowers.
Things will only get worse
It is remarkable the string of bad luck that appears each time BlackBerry seems to be making progress. But is it just luck? I think that's too easy of an excuse. Management has failed to adequately prepare this company to compete. And investors are not doing themselves any justice by merely cheering "moral victories."
If BlackBerry is unable to fully exploit this innovative lull that Apple is currently in, what then can investors realistically expect when Apple breaks out of it? And it's just begun. On Friday, Business Insider reported that the new feature on the Apple's iPhone 5S is a fingerprint scanner. Meanwhile, security was once the big draw of the BlackBerry. So what's next to for the company to hang its hat on?
Given that the BlackBerry posted $2.7 billion in revenue in the recent quarter, which also represented a 36% decline, it's hard to imagine that things could possibly get worse. But it just might. Should investors believe that the Q10 phones won't have the same problems as the Z10? What would compel a non-BlackBerry user to switch from an iPhone if existing BlackBerry users are returning their devices? This is what investors have to answer honestly. The phone dream is over.
Change we can believe in
There's nothing wrong with admitting defeat. This is what appears to be so hard for this company. In fact, this was the reason that I suggested that Dell acquire BlackBerry in the first place. That said, admitting defeat does not mean the fatality. IBM (NYSE:IBM) admitted defeat several years ago and exited the PC business altogether.
In fact, not only is IBM (arguably) stronger today, but given the state of the PC industry, IBM appears brilliant for having made the decision. Today, IBM probably couldn't have sold that business for a third of what it received from Lenovo eight years ago. This is what BlackBerry has to realize today. I'm not suggesting that a "smarphone death" is imminent. But with better focus and a new direction, BlackBerry can still be valuable.
As with IBM, BlackBerry should start focusing on services. Two years ago, the company announced the release of Mobile Fusion, which would allow corporate IT departments to better manage the security of mobile devices. The software would allow companies to set up rules governing employee passwords, apps, as well as other software across a variety of smart phones and tablets, including the iPhone, iPad and Android handsets.
At the time, I felt this was the company's most significant development, especially since the platform would allow managers to remotely wipe and lock any devices that go missing or stolen. Given Apple's rumored biotech security feature in the iPhone 5S, it would seem that Apple has an interest in Mobile Fusion.
Unfortunately, BlackBerry's management failed to deploy resources to capitalize on this. Meanwhile, this exact market is something that the likes of Oracle (NYSE:ORCL) and Cisco (NASDAQ:CSCO) are now looking to secure. With Mobile Fusion, BlackBerry had seen the light. But just as quickly, the light dimmed. But it's not too late.
Maybe that's a service that BlackBerry can sell or partner with Apple, given the popularity of the iPhones and iPads. This could be the differentiator that Apple needs to create separation from Samsung (OTC:SSNLF). Services such as Mobile Fusion is what management has to get back to. It worked for IBM and it can work for BlackBerry.
Here's making sense
BlackBerry should pounce on this idea again while its enterprise footprint is still meaningful. Along with Mobile Fusion, management should scale down some of its operations by discontinuing legacy platforms and commit to offering strictly enterprise business services. BlackBerry still has value. But management has been looking in the wrong places. Forget the phone - that ship has sailed and it's sunk.
Disclosure: I am long AAPL. 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.