BlackBerry's Latest Android Phone May Be Fatally Flawed

| About: BlackBerry Ltd. (BB)
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BlackBerry has started pre-orders for the first of its mid-priced Android smartphones, the DTEK50.

The DTEK50 has a good feature set for a mid-priced Android phone, and better than Android average security, but may suffer from inadequate battery life.

A poorly executed Android strategy probably dooms BlackBerry to being a software only company.

As expected, BlackBerry (BBRY) has released a mid-priced Android smartphone, the DTEK50. Although the DTEK50 has a respectable feature set and a bargain price of $299.00, it will likely not reverse BlackBerry's hardware fortunes. The phone's battery life underscores problems with execution of BlackBerry's Android device strategy.

Source: BlackBerry

Death by Half Measures

Even after it became apparent that the Priv had failed in the market place, I defended the Android smartphone strategy, and argued that CEO Chen should be given the chance to see the strategy through. I felt that addressing the security and privacy vulnerabilities of Android could create a differentiated Android smartphone that would offer users the benefits of the Android app ecosystem.

But to make the strategy work, Chen would have to abandon BlackBerry's in-house smartphone design and engineering efforts that had produced the misguided Priv. Huawei, HTC, or LG could produce customized hardware along the lines of Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Nexus.

However, following BlackBerry's June conference call, I concluded that Chen wasn't prepared to do what was necessary, which was to eliminate the internal hardware engineering efforts. Instead, Chen seemed to cling to the hardware engineering organization, while announcing further planned cost cutting to make it "lean and mean."

But the cost cutting and staff reductions had already rendered the hardware organization dysfunctional, and I doubted there was anything they could produce that would be competitive in the market place. With the DTEK50 we see BlackBerry now swinging too far in the opposite direction. As Ron Amadeo of Ars Technica and others have pointed out, the DTEK50 is a rebranded Alcatel Idol 4.

Why did BlackBerry resort to the rebranding strategy? I believe this is an expression of Chen's half measures regarding the hardware organization. He had to cut costs, so the all-touch mid-priced phone was farmed out. Meanwhile, the hardware organization will get to design the other mid-priced phone that has been long promised, which will include the signature BlackBerry keyboard.

The Weight and Bulk of Three Phones for the Functionality of One

SA Contributor Kia Investment published an excellent review of BlackBerry's security claims for the DTEK, and I highly recommend it. Kia concludes that while the DTEK may be the best Android phone in terms of security (which is all that BlackBerry claims), it isn't better than Apple's (NASDAQ:AAPL) iPhone. I still think that this claim could have been sufficient for BlackBerry to carve out some share in the Android market.

To do this, the DTEK would have needed to be competitive in all other categories with similarly priced Android phones. On the basis of published specs, the phone appears very competitive.

An early review of the phone in Engadget, called it a "solid little phone", but also uncovered its fatal flaw. After only a few hours of usage, the phone needed to be recharged. This is, of course, only anecdotal evidence, and we don't know for sure whether the phone was fully charged when the reviewer received it from BlackBerry. After a quick recharge, the phone managed to last through for another six hours.

Battery life is a crucial feature for any mobile device, and consumers can reasonably expect the latest generation of high and medium tier smartphones to last all day. That's because the systems on chip (SOCs) in the new devices are typically fabricated on either the Samsung (OTC:SSNLF) 14 nm FinFET process or the TSMC (NYSE:TSM) 16 nm FinFET process. The new processes make the SOCs much more energy efficient.

The DTEK is equipped with a 2610 mAh battery. The main drains on the DTEK's battery will come from the 5.2 inch 1080p LCD screen and the Qualcomm (NASDAQ:QCOM) Snapdragon 617 SOC. The Snap 617 is fabricated on the lower cost but less efficient 28 nm node, two generations behind current state of the art. In comparison to other similarly sized and equipped smartphones, the battery seems inadequate.

For instance, Apple's iPhone 6 Plus features a 5.5 inch diagonal 1080p screen and its SOC is fabricated on a TSMC 20 nm non-FinFET node. It's equipped with a 2915 mAh battery. Probably, Apple's SOC is more efficient than the Snap 617 used in the DTEK.

To compensate for the short battery life, BlackBerry bundles the DTEK50 with what it calls a Mobile Power Charger, essentially an external battery that increases the weight and bulk of what the user carries by a factor of about three. The external battery is included in the $299 DTEK50 purchase price, and is apparently the only way the phone can be purchased from the BlackBerry site.

I doubt that consumers will find the disappointing battery life of the DTEK50 offset by the external battery, despite the fact that it can "charge all your mobile devices" according to BlackBerry.

Investor Takeaway

I think it's extremely unlikely that the DTEK50 will do well, despite offering some worthwhile security and privacy features. Based on Kia's analysis, corporate and government users who want the best security probably have a better option in iPhone, albeit at a higher price unlocked.

Consumers who are less concerned about security can buy better mid-tier devices from the major Android OEMs for about the same money. And they won't have to carry around three phones for the use of one.

While the Android strategy was viable in principle, BlackBerry's execution continues to hold it back, and I don't see any hope that execution will improve. That means that BlackBerry is doomed to become a software company, which means that BlackBerry is in for even steeper revenue declines as the hardware business continues to shrivel up.

For its fiscal 2017 Q1 BlackBerry reported total revenue of $400 million and hardware revenue of $152 million, 38% of the total. BlackBerry still has a long way to fall, and I doubt that's priced into the stock. BlackBerry is another "turnaround" story that has become a short opportunity.

Disclosure: I am/we are long AAPL, QCOM.

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.