BlackBerry’s Turnaround Has Stalled

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The 2013 turnaround script for BlackBerry (BBRY) was supposed to go something like this:

New touchscreen and classic QWERTY devices would hit the streets to rave reviews and lineups. BlackBerry hold-outs would upgrade while the devices draw converts from the Apple (AAPL) iPhone and Google (GOOG) Android camps. Developers would flock to the platform while Microsoft (MSFT) and its Windows Phone 8 are firmly banished to fourth place among mobile platforms. Then BlackBerry’s growing value would put the dark days of 2012 far behind it.

Those plans haven’t panned out at all.

So far this year, one of CEO Thorsten Heins’ primary roles has been chief obfuscator: Hard sales numbers for BB10 handsets have been notoriously difficult to come by. Pressed on the matter, Heins has always offered variations on “It’s beyond expectations.” In March, Heins told Bloomberg that sales of the Z10 were drawing “more interest than expected from users of rival smartphones” and that sales were so far above his already ambitious expectations that production of the devices had been increased.

When reporters wrote that Z10 return rates were higher than expected, BlackBerry came out swinging. The company suggested analysts were so far off base, they should be subject to investigation by securities regulators. Heins told the New York Times that reports of high return rates of Z10s by consumers who disliked the BB10 operating system and were disappointed in a lack of apps was “either a gross misreading of the data or a willful manipulation.”

Then in May, Heins made his infamous statement about how tablets are a product that no one would have much use for in five years. But rumors took hold at the annual Blackberry Developer Conference that the company was working on a BB10 phablet.

Well, after the release of Q1 numbers on Monday, we finally have a clear picture of how the BlackBerry revival is going, and it’s not as glowing as the company’s CEO has been alluding for the past six months.

  • 6.8 million BlackBerry smartphones shipped (of which only 40% were the Z10 and Q10 BB10 devices)
  • 100,000 PlayBook tablets sold, along with an announcement that the BB10 operating system will not be supported (despite previous confirmation that it would)
  • BlackBerry’s global subscriber base fell to 72 million (down from 79 million the previous quarter)
  • An adjusted net loss of $67 million for the quarter

Analysts had been expecting a lot more, especially in terms of BB10 smartphone sales. The result — as we all know by now — was a pummeling of the company’s stock, with BBRY off about 30% since that point.

Gigaom’s Kevin C. Tofel put those BB10 smartphone sales in perspective. BlackBerry shipped (not necessarily sold) 2.7 million BlackBerry 10 devices during the first quarter. In comparison, Nokia (NOK) sold 5.6 million Windows Phone 8 Nokia smartphones (more than doubling BB10’s shipments). Apple sold 5 million iPhone 5 smartphones on its launch weekend (and analysts were disappointed with that!) while at least 2.7 million Android devices are activated every two days.

In other words, BlackBerry needs to do better. A lot better.

The recently announced Q5 budget QWERTY handset will help boost BlackBerry’s popularity in emerging markets, and the sales for the Q10 QWERTY smartphone — which is the device that many BlackBerry holdouts have been waiting for — won’t be felt until the next quarter.

The recent introduction of the company’s Secure Work Space service for iOS and Android (along with an expected BlackBerry Messenger rollout for those platforms later this summer) is expected to keep the BlackBerry name in play at the enterprise level, even if it can’t offer a tablet to these customers. As more companies begin the upgrade to the new version of BlackBerry Enterprise Server, it’s expected that Z10 and Q10 smartphone sales will see a further boost.

Thorsten Heins — who has jumped on the defensive with BB10 smartphone sales disappointing and the PlayBook tablet on the rocks — is playing up services as being the key to long-term success. In the Financial Post, he was quoted as saying “we don’t plan to run the company with a short-term, device-only strategy.”

BBRY is forecasting another loss in its next quarter, so it’s worth noting that 71% of BlackBerry’s revenue comes from hardware sales. No matter how dismissive Heins might be about BB10 smartphones, that’s where the money is coming from.

When the Z10 and Q10 were unveiled, anything looked possible … but the new devices have made up a very small percentage of BlackBerry sales, and the company still is losing market share. Opening up the platform to allow more support for competing devices is a good strategy for retaining enterprise customers. However, unless BlackBerry is going to transform itself again (into a purely services company), it needs Z10 and Q10 sales to pick up.

And it needs to start working on the next generation of BB10 devices. Apple, Samsung (SSNLF), Nokia and its other smartphone competitors are not going to stand around waiting while BlackBerry takes another two years to release its Z10 and Q10 follow-ups.

While I wouldn’t go so far as to say the wheels have completely fallen off of BlackBerry’s turnaround, it has definitely lost its momentum. The reality is sinking in that this still is a risky business, and the company is by no means out of the woods.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015.


Article printed from InvestorPlace Media, https://investorplace.com/2013/07/blackberrys-turnaround-has-stalled/.

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