BlackBerry's New 'Piller' Of Success Looks Shaky

| About: BlackBerry Ltd. (BBRY)


BlackBerry has a new "piller" of success.

With it, it hopes to improve its chances of getting hardware license revenues from India.

The piller doesn't look like much.

The "Pillers" Have Looked Better

One of the recurring themes with BlackBerry (NASDAQ:BBRY) nowadays, is how it's exiting the hardware business, but it will still make significant money from licensing out the brand.

I've already explained in my article titled "BlackBerry Smartphones: About To Sell In The Tens Of Millions Again?" that indeed, we'll probably see BlackBerry phones sell well in the future, but that BlackBerry won't make any (or much) money from it happening.

At the time, I explained this was the case for TCL, which is actually a credible company selling smartphones under the Alcatel brand name, which it also licensed. The thesis was simple:

  • TCL's business model implies selling lots of cheap well spec'd smartphones at a low margin. It's the same business model as countless other Chinese suppliers, but TCL went the extra mile of licensing a known brand name on the cheap, to slap on the otherwise-unknown handsets. For this, TCL paid $40 million to use the Alcatel brand name, which sells in the millions.
  • It thus stands to reason that TCL under such a business model is not likely to pay more than $40 million for a brand which sells in the hundreds of thousands (BlackBerry).

Also at the time, the deal excluded some territories. This Monday, some of those remaining territories were plugged. BlackBerry licensed its brand to Indian firm Optiemus Infracom, to manufacture and sell BlackBerry handsets in India, Bangladesh, Nepal and Sri Lanka. Again, this license came with no numbers attached.

This is where things get funny. Who is Optiemus Infracom? Optiemus Infracom was the previously very successful BlackBerry distributor in India, when things were flying. The company even claims to have sold the first mobile handset in India.

Of course, that was then and this is now. So who is Optiemus Infracom today? Here are the answers (Source: Optiemus 2015-2016 Annual Report):

  • It's basically a distributor of smartphones.
  • It employs 301 persons.
  • It had ~$285 million in revenues during 2016 in this capacity. Since it's a mere distributor, it runs at a low 9.5% gross margin. It had $4.2 million in pre-tax profits.
  • It's facing extreme pressure in its business. Revenues fell 34% from 2015 to 2016, on a growing smartphone market.
  • It also rebrands and sells smartphone accessories (cases, screen protectors, etc.).
  • And finally, it just partnered with a Taiwanese ODM (Wistron) to build branded handsets.

It's pretty obvious that Optiemus Infracom is just a very small firm in India; an intermediary in placing phones into retail.

How likely is such a firm to pay any minimally visible fees to BlackBerry, upfront or otherwise? Not very. Here the business model is even more reliant on low costs than with TCL. After all, TCL designs and builds its own phones, whereas Optiemus Infracom will clearly offload the task of designing and manufacturing to Wistron.

Still Not Convinced?

Perhaps you're still not convinced that this isn't exactly a partner that will be bringing in many millions. I've used sound arguments to show it isn't, but if you aren't convinced yet, I'm going to use more visual cues here.

The following are two screenshots from Optiemus Infracom's website, showing just how serious the company is. I am sure many more can be found, this took me just one minute or so:

Right on the homepage, just below the fold (red highlight is mine)

There are many variations of passages of Lorem Ipsum available, but the majority have suffered alteration in some form, by injected humour, or randomised words, which don't look even slightly believable.

For those familiar with web design, that's the kind of gibberish used as a placeholder for final text, so as to properly compose the page. This means the company is so serious that just below the fold in its official website, it displays gibberish - the sign of an unfinished website.

Curious about what this company actually was, I headed to the "About Us" page. Well, it doesn't (can't really) get any better… hehe

About Us


So the question here is: Can BlackBerry build success, revenues and profits on top of this new Indian piller?

I don't think it can. I think BlackBerry took whatever was available, and what was available wasn't much. This isn't going to be a piller of success. You don't get numbers on these deals, because the numbers are ugly.

Disclosure: I am/we are short 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.

About this article:

Author payment: $35 + $0.01/page view. Authors of PRO articles receive a minimum guaranteed payment of $150-500.
Tagged: , , , Diversified Communication Services, Canada
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here