Blackberry - Will It Disappear In A Deep Black Hole?

BBRY

There are lots of views about the future of Blackberry. During the last few years, conclusions have been drawn by some that this company is headed toward a deep black hole and will disappear forever. That has not happened yet. So, while Blackberry still exists, let us look at the numbers to understand what may be ahead for the company.

On Friday, June 28, 2013, Blackberry reported that at the end of Q1FY14 it has 72 million subscribers. Blackberry also sold 6.8 million units of BB7 and BB10 handsets. I am making an assumption that all these sales were to existing Blackberry subscribers. Let us have a look at the unit sales and analyze these numbers:

Q1FY14 Unit Sales:

Type	Units	% of Total Sales	% of Total Subscribers
BB10	2.72 Million	40.00	3.78
BB7	4.08 Million	60.00	5.67
Total	6.80 Million	100.00	9.45

Q4FY13 Unit Sales:

Type	Units	% of Total Sales	% of Total Subscribers
BB10	1.00 Million	20.00	5.17
BB7	5.00 Million	80.00	6.94
Total	6.00 Million	100.00	8.33

Combined Q1FY14 and Q4FY13 Unit Sales:

Type	Units	% of Total sales	% of Total Subscribers
BB10	3.72 Million	29.06	5.17
BB7	9.08 Million	70.94	12.61
Total	12.80 Million	100.00	17.78

Numbers for Q1FY14 and Q4FY13 show that the demands for BB7 handsets remain strong. BB10 handsets sold at a steady pace of approximately one million handsets per month. Because Q10 was introduced towards the very end of Q1FY14, it is safe to make an assumption and say that most of the BB10 handsets sold during last two quarters were of model Z10. Number of existing Blackberry subscribers, who replaced their older handsets with newer handsets during Q4FY14 is 8.33% and it increased to 9.45% during Q1FY14.

Combined numbers for last two quarters show that so far 17.78% of the existing subscribers have replaced their older handsets with new BB7 or BB10 handsets. Further breaking it down - 12.61% of the existing subscriber count replaced their older handsets with new BB7 handsets and 5.17% of the existing subscriber count replaced their older handsets with new BB10 (Z10) handsets.

During the last two quarters, BB10 and BB7 smartphone sales are about 12.8 million devices. Out of this 9.08 million were BB7 devices and 3.72 million were BB10 devices. Most of the 3.72 million BB10 devices are Z10, which was introduced late in Q4FY13. That means that at the end of Q1FY14, during 4 months since launch of Z10, Blackberry sold little fewer than 1 million Z10 handsets per month along with approximately 2 million BB7 handsets per month.

Blackberry 10 platform is now available in 147 countries. Z10 handsets which were launched during Q4FY13 were also made available in all the markets, in a phased manner, during Q1FY14. In addition to Z10, Blackberry also launched two new BB10 handsets - Q5 and Q10 in May-June 2013. Blackberry continues to sell BB7 handsets also due to strong demand in several markets.

Since its launch during Q4FY13, there is a steady demand for Z10 handsets of approximately 1 million units per month. Q5 and Q10 handsets were launched towards the end of Q1FY14 and sales numbers for these are not available separately. In addition to BB10 handsets, Blackberry continues to sell BB7 handsets in several markets. During last two quarters demand for BB7 handsets was approximately 1.50 million units per month. Demand for BB7 handsets declined from 1.67 million units per month during Q4FY13 to 1.36 million units per month during Q1FY14. While there was a decline in demand for BB7 handsets of approximately 1 million units it was offset by demand for BB10 handsets which increased by 1.72 million units. Overall share of BB7 handsets declined from 80% in Q4FY13 to 60% in Q1FY13 and share of BB10 handsets increased from 20% in Q4FY13 to 40% in Q1FY14.

It is evident from the numbers that with the phased introduction and roll out of BB10 handsets in more and more markets, there was a significant increase in overall demand for BB10 handsets. During Q2FY14 a total of three BB10 handsets - Z10, Q10, and Q5 will be available. Blackberry also plans to launch at least one more new BB7 handset in coming months in select markets due to continuous demand. As the older BB7 handsets are phased out, and all three BB10 handsets become available in more and more markets, overall share of BB10 handsets will be greater than the share of BB7 handsets.

Looking at the trend for sale of BB7 and BB10 handsets, it seems that Blackberry will continue to sell a total of approximately 7 million BB7 and BB10 handsets each quarter with BB10 handsets selling in higher numbers with each passing quarter.

Blackberry 10 Platform is now available in 147 markets. Z10 handsets are also available in all 147 markets. Q10 handsets, at present, are available in 96 markets and will also become available in all 147 markets during Q2FY14. A newer and less expensive Q5 was launched in June 2013 and will be available in select markets during Q2FY14, in a phased roll out. 18000 companies have either ordered, downloaded or installed BES10. Demand for BB10 handsets will gradually increase as the companies, who already have installation of BES 10 completed, continue their transition and adaptation of the new system.

Conclusion:

During the launch of new platform and new handsets, Blackberry has managed to maintain or increase its available resources. With the Launch phase completed and behind, Blackberry is now in a better position to focus and deploy its resources towards its enterprise customer base. As the companies make move from testing to adaptation of new system, there will be more information and visibility to understand the future of Blackberry. During this phase, Blackberry will continue to have the pressure of maintaining its available resources. How long it may take will depend on adaptation of the BB10 platform by existing and new customers. Complete transition to BB10 will probably take longer than one or two quarters. Blackberry continues to maintain a strong balance sheet with lot of cash and no debt. At present, it does not seem likely that Blackberry will disappear in some deep black hole. Instead, a successful transition will establish Blackberry as stronger than before.

Disclosure: I am long BBRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.