Yes, You SHOULD Kill BlackBerry Phones to Save BBRY

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If BlackBerry (BBRY) has any hope of surviving as a company, it’s as a seller of services, not BlackBerry phones — a reality that is quickly closing in on the company and anyone still holding BlackBerry stock.

blackberry-bbry-stockCEO John Chen says he won’t wait long to pull the plug on BlackBerry phones if it doesn’t return to profitability in fairly short order.

For BBRY owners … they’d better hope he’s sincere.

Pain for BlackBerry Stock

BlackBerry stock enjoyed a brief pop after its late-March earnings report when BBRY showed faint signs of life, but it’s still stuck in a nasty downtrend.

Indeed, BlackBerry stock is off more than 4% since the BBRY earnings report. Take a look farther back, and the carnage is worse.

True, BlackBerry stock is up 8% on the year-to-date on some optimism that the handset maker might survive after all, but pretty much every other time frame you care to look at is gruesome:

  • Over the past 52 weeks, BBRY is down 46%.
  • Over the past five years, BlackBerry stock has lost 88%.
  • And since its all-time high of $148 set in 2008, BBRY has tumbled 95%.

There’s no way around it: Apple’s (AAPL) iPhone and smartphones running Google’s (GOOG) Android operating system have all-but destroyed BBRY. No one wants phones with keyboards anymore — certainly not BlackBerry phones — and the idea that the company can reverse that is almost laughable.

At its peak, BBRY shipped more than 52 million BlackBerry phones in 2011, helped by huge demand from emerging markets. But even that is waning now. For the most recent quarter, BBRY shipped fewer than 2 million phones. That caused quarterly sales to fall below $1 billion for the first time since 2007.

As it is, BlackBerry phones barely have a toehold with consumers. A few years ago, BBRY had 20% of the global smartphone market.

Today, it holds less than 1%.

BBRY Stock: No Upside From BlackBerry Phones

For BlackBerry stock to have a future, BBRY needs to reverse the top-line slide and become profitable soon. It doesn’t have years to stanch the red ink.

Which is why it’s good that BlackBerry CEO John Chen admits he’s willing to evacuate the BlackBerry phones business should it not become profitable once again, and in a hurry.

Because it’s hard to see how it will.

Chen said in an interview with CNBC that it should be possible to become profitable on BlackBerry phone shipments of as little as 10 million a year. The problem is that BBRY is on pace to ship less than 8 million devices this year, and the odds of a new hit phone reversing that trend are low.

As we’ve noted before, between Apple and Samsung (SSNLF), the market is locked up. Heck, HTC boasts what is widely considered to be the best Android smartphone, but it can’t get any traction in a market dominated by Samsung.

The BlackBerry 10 launched last year, and it was a dud.

BBRY is wisely focusing on its services business, which makes mobile devices secure from hackers for governments and corporate clients. Security has been the closest thing to a moat for BBRY throughout its existence. Selling software and services (like BlackBerry Messenger) is a stretch to get BBRY back on its feet, but it has no other choice.

Bottom Line

It’s understandable that BlackBerry wants one last Hail Mary with its handset business, but it’s probably not in the best interest of anyone holding BBRY.

If there’s any sustained upside to be found in BlackBerry stock, it’s almost certainly in services — not coming from shipments of BlackBerry phones.

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


Article printed from InvestorPlace Media, https://investorplace.com/2014/04/bbry-blackberry-stock/.

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