BlackBerry posted its Q1 earnings Friday morning, and to say that it disappoints is a mild understatement. Its subscriber base has slimmed down, and it is failing to get any traction against iOS and Android. Moreover, BBM, or BlackBerry Messenger, is delayed until late summer, where it wouldn’t be totally out of the question to be disappointed once more by further delays.
Last week, the company released its latest quarterly numbers and they are exciting, although not in the sense that Heins would like. The forecast was $3.4bn (£2.2bn) in revenue and $0.07 in earnings per share; the reality was $3.1bn in sales and, more importantly, a loss of $0.13 per share.
BlackBerry reported shipping 6.8 million smartphones in the most recent quarter–half a million shy of Wall Street estimates. It reported $3.1 billion in revenue, with a net loss of $85 million for the quarter. Curiously, there’s no breakdown of the sales of BlackBerry devices. How much of their revenue was “energised” by the BB10? Without actual numbers, we’re left in a cloud of doubt about how well the new platform is actually doing.
The numbers “excited” traders so much that BBRY shares lost 28% of their value in a single trading session, putting them back to the level of a year ago.
The biggest problem for BlackBerry, though, is that there’s pretty much nowhere to go but down from here. Aside from customers locked in to the BlackBerry ecosystem, there’s little demand for BlackBerry mobile devices. BlackBerry 10 is a decent mobile OS, and the Z10 is a well-designed smartphone, and those customers were very excited to finally have a device worthy of even being considered in the same league as the iPhone, or leading Android and Windows Phone smartphones. Once BlackBerry burns through those customers stuck in the BlackBerry ecosystem, though, there won’t be anyone left to sell to.
Actually, I take that back. That perspective is based on a US-centric view of the BlackBerry market. Although the BlackBerry market is virtually non-existent in the United States, BlackBerry is a much more popular mobile platform in other regions of the globe. Every Wednesday, BlackBerry PR sends me an update called New-App Wednesday which lists the highlights of new BlackBerry apps for the week. I’ve noticed that the list is often comprised of apps local to foreign markets like Canada, the United Kingdom, United Arab Emirates, Malaysia, Indonesia, and Dubai. I still haven’t seen Netflix NFLX +6.55%, Pandora, Chase Bank, Skype, Fandango, or many other apps I use on iOS, Android and Windows Phone, but it seems that BlackBerry development is alive and well outside of the United States.
Is that enough to sustain the company? It doesn’t seem like it.
BlackBerry has a healthy cash stockpile, and no debt, so it probably won’t shutdown any time soon. Simple math suggests, though, that a company can only operate at a loss for so long before those reserves dry up, and it doesn’t seem like things are going to turn around for BlackBerry.
During the quarterly earnings call, BlackBerry CEO Thorsten Heins explained, “We’ve never been a device-only company, as we are also running a global secure data network and services business, and we don’t plan to run the company with a short-term, device-only strategy.,” adding, “What is exciting about BlackBerry today is that we’re getting very comfortable with who we are as a company and where we will fit in the market.”
What I heard was, “Don’t pay attention to the low demand and pitiful performance of the BlackBerry 10 smartphones. We’re working on an exit strategy to bail on the failed mobile platform and mobile device market, and will instead position BlackBerry as a services and mobile device management company.”
As for tablets, the BlackBerry PlayBook is no more, says the CEO. He’s unhappy with the device’s performance and is determined to focus on the company’s “core hardware portfolio”. (The company’s website no longer describes the product and only offers a software update for existing customers.)
More to the point: Who wants to buy BlackBerry (the company), for what reasons, and at what price?
Let’s back up. Last week, we heard that Microsoft had once again given up on its perennial hunt to capture a handset maker. This time, the prey was Nokia, Microsoft’s “special” Windows Phone licensee.
The official explanation for the Nokia blowup was that the price tag was too high, but price clearly wasn’t an issue. Nokia’s $14bn market capitalisation weighs in at about 5% of Microsoft’s $288bn. Even when you tack on a 25% acquisition premium, the purchase should have been reasonably easy, especially given Microsoft’s desire to take the handset business into its own hands, if only to counter (or mimic) the strategy established by Google and Motorola.
There’s really only one explanation: The engagement was dissolved because of Microsoft’s bleak view of Nokia’s business – that the Finnish company no longer has the technological acumen and brand loyalty that Microsoft needs to make Windows Phone a legitimate competitor with Android and iOS.
BlackBerry’s market capitalisation now stands at about $6bn. That’s less than half of Nokia’s. If Nokia, supported by Microsoft, can’t gain ground on Google and Apple devices, what gives us confidence that BlackBerry isn’t sliding into insignificance?
The BlackBerry name, as a brand, is strong. But a brand only exists as the carrier of a promise. A brand writes cheques that the product cashes. Without a successful product, the brand dies (go ask Kodak).
While Nokia could be acquired by someone interested in the Windows Phone business, one is hard pressed to form a similar thought for BlackBerry. It may be struggling, but there is a Windows Phone ecosystem, including handset makers. There is no such thing around BlackBerry. Developers aren’t writing apps for BB10 in ecosystem-making numbers, carriers have taken a wait-and-see posture, even the core group of dedicated users (I used to be one of them) appears to be losing faith.
This isn’t a brightly optimistic picture. Today, Blackberry finds itself caught between Samsung and Apple at the high end, and a rabidly fermenting crowd of Android (official or not) clones at the lower price range.
So, why hesitate: Ditch the newer BlackBerry OS too few developers believe in, and bet on Android devices to support BlackBerry’s enterprise services.
The answer is probably the same as it is for Nokia: It’s too late.