There has been a lot written about BlackBerry (BBRY) recently. I believe its stock price has more to do with perception than reality over the last few years. No doubt that recent losses and failure of BlackBerry 10 sales to reach the expected volume has not helped.
A look at the situation in 2009 in comparison to 2013 is interesting though:
|Sales||11 Billion||10 Billion|
|Unit Sales||26 Million||26 Million|
|Net Profit||$2.8 Billion||($1.2 Billion)|
As you can see BlackBerry (then known as RIM) made a substantial profit with approximately the same level of sales as they have now. Things are bad, but could still be turned around if the company is wiling to change. People often talk about the share price of $149.90 reached on June 19, 2008, but it was clearly overvalued at that time and it needs to be remembered that this price was not maintained very long, the book value of the company was only about $10.00 at the time. Most of the loss of share price is due to diminished expectations, and not due to actual losses. These expectations had little to do with what really happened to value of the company, and it has actually increased in book value despite all the problems in the business.
BlackBerry Does Not Have to be Samsung or Apple
BlackBerry's growth was based on business customers, not consumers. The first BlackBerry product was as an email pager for business, later mobile phone capabilities were added to the pager turning it into one of the first Smartphone. If they had not expanded beyond their business customers they likely would not have the problems they had today. Clearly if they had not expanded into the consumer market to compete with companies like Samsung and Apple, they could be making money with the volume of sales they have now.
The Z10 Did Not Fit the Needs of Their Customers
I was one of the first people to buy a Z10 phone, and I think it is the best phone I have ever owned. Having said that there are a lot of problems with it:
- When released it could not sync with Outlook over USB, this caused a lot of difficulties with small business customers who could not update the phone without connecting to a cloud service on the Internet. This was also a security issue for some customers.
- The Z10 had a lot of bugs and rebooting issues when first released, especially the version sold by Verizon, one of the largest wireless carriers in the US.
- The Z10 is one of the few Smartphones with no back button, so someone new who had used a Android or iPhone would have a bit of a learning curve. Makes me thing of an automobile, every car has the controls in a similar place, so they don't redesign it just to be different. The learning curve may be one of the reasons that mobile carriers were not pushing the phone and there have been many reports of high return rates.
- Established BlackBerry customers were used to a keyboard, and previous Blackberry touch models such as the Storm have been a failure, so it seems strange that they would introduce a touch screen phone before a keyboard phone. In addition other than BBM client there isn't much in common with other Blackberries other than the name.
- As a new operating system there naturally wouldn't be the number of apps as a more established ecosystem. This is an issue but I think it is somewhat overblown as the phone is compatible with many android apps with little effort, and IOS apps can also be ported with a moderate amount of effort. The apps would come faster if there were more sales. It is a chicken and egg issue.
There are many competitive pressures in the industry currently:
- Some wireless carriers were having problems selling enough iPhones to keep their commitments made to Apple, so they aren't really interested in selling other phones.
- The wireless carriers are interested in keeping their customers happy and don't want to get them upset by selling them something new and different with a learning curve.
- Most Smartphone makers with the exception of Apple and Samsung are having disappointing sales, and no one other than the big two is making money in this industry. For example Nokia was sold to Microsoft and HTC appears to be in bigger trouble than Blackberry. There is little money to be made in consumer Smartphones, they can't compete with Apple's marketing on the high end or the pricing of Android devices on the low end.
BlackBerry 10 is Costly to Implement in the Enterprise
BlackBerry did not make it easy for customers to move from BB7 to BB10:
- The BlackBerry Enterprise Service (BES) software is different for BB10 than the BBOS phones, so the customer has to run addition server software for BB10. Originally the two servers could not even be run on the same computer, but this has been recently corrected.
- There are now many other providers of enterprise software, such as Airwatch, MobileIron and CitrixSystems Inc. These companies make enterprise server products for many types of hardware and are often less expensive than BES. BES now supports iPhone and Android, but other solutions can support even more types of hardware.
- Unless the enterprise needs the highest security an iPhone or Android phone will work for most purposes and the employee can use his own device (BYOD). Many people have had two phones in the past, with BYOD they only need one. This also saves the business the purchase of a phone.
What need to be Done
It will be difficult for BlackBerry going forward. They appear to have an arrogant approach when they are developing products. They don't seem to know what the customers want. They are not designing systems that meet the customers needs in a cost efficient way. They likely would have been better off to make BB10 backward compatible with BBOS rather than making it compatible with Android. I think BBOS with a Z10 quality browser and ability to make quality native apps would have been a better fit. However we can't change the past. Due to the combination of these and other issues the company may be broken up and sold, which will be very disappointing for a business with such promise just a few years ago. However I do have some suggestions:
- Sell Z10 phones at cost to move the inventory, they have been already written down anyway.
- Give BES Client Access Licenses free to anyone using older versions of the software to make upgrade easier and cheaper.
- Continue the focus on Enterprises and high end consumers. Blackberry can't compete in the regular consumer market, so they shouldn't try.
- Consider adding a back button to future phones to reduce learning curve.
- Talk to your customers, have focus groups, act, don't react to problems!
We will have to wait and see how well the newer phones like the Q10, Q5 and Z30 do. I suspect the Q10 will be the best seller. Not sure where the Q5 fits, I think it is at a bad price point and will likely be the next write off unless enterprise customers order it in big numbers. I believe the Z30 is a good product, but it is very much a niche product that likely only appeals to Blackberry fans, so I hope they don't make too many like they did with the Z10.
The next few months will be interesting, I am hoping someone will come forward and save the company and make the necessary changes, if not I think it will be "bye bye BlackBerry".
Based on the current situation I would recommend neither a short or long position in the stock as it is unclear if the business will be sold, turned around or liquidated all of which makes the stock difficult to value.
Disclosure: I am long BBRY.