This Smartphone Company Will Rise Again
Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As promised BlackBerry (NASDAQ: BBRY) has launched its new BlackBerry Operating system. In my previous article on Research in Motion I explained why I believed BB10 can be a successful turnaround bet for Research in Motion, but also cautioned investors that the current rally is due to BB10 launch hype and the price would decline post launch. The stock has lost 28% of its value since then.
It's unfair to say that the launch was lackluster. The company did surprise investors with the change of the company’s name and delay in US launch. I believe that the recent slide is an aberration and the stock will move back to its pre-launch valuation. The company will face tough competition from Nokia’s (NYSE: NOK) Lumia devices, which have the new WP8 from Microsoft (NASDAQ: MSFT).
The company released a lot of new information for the market during the BB10 launch. The investors already had a pretty good idea about different aspects of the BB10, such as its user maneuverability. The real shock came from the news that the company will be rebranding itself as ‘BlackBerry’ rather than Research in Motion. It has also launched two new devices with the new BlackBerry 10 operating system. The device with the touch based user interface has been named Z10 and the one with a physical keyboard is named Q10. The real investor disappointment has come from the launch dates of these devices. Surprisingly the devices would not be available in the United States until March. The Z10 will be available for users in March, but the Q10 will not be available for the general public until at least April.
BB10 has a number of interesting features that can give it an entry point into the very competitive smartphone OS industry. The new OS has introduced a new ‘Hub’ feature, an exciting prospect especially for BB’s professional target market. The Hub displays all the important notifications in a single display window, allowing more efficient browsing of new messages for various applications such as Facebook, SMS etc. BB10’s new touch keypad also has received positive feedback from techies. It comes with a learning system that remembers most used words and displays them on the keys for the user to swipe them on the screen. The new OS also contains an application for the BB camera called Time Shift. This application automatically takes pictures before and after you close the shutter, allowing users to manually change different parts of a picture.
The stock has slid by almost 28% in the last week. I believe this slide is a market over reaction and investors selling on the news. One must understand that the stock has pushed up from a low of $7 to almost $18, which is approximately a 160% return. Therefore despite the large upside potential of BB10 there were always going to be investors selling the stock to take profits and this is exactly what has happened. There was also negative market sentiment due to the unprecedented delay in BB10 availability in the US. This however is a short term concern and doesn’t represent any fundamental weakness of BlackBerry stock.
A primary concern of the Street has been carrier backing and support for the new Microsoft’s Windows and BlackBerry operating systems. I believe that carriers have a lot to lose with market domination of only two major players. The telecoms have different concerns with both Android and iOS. The iOS is only found on Apple devices and carriers are sort of blackmailed into paying huge subsidies on Apple devices. This is because high demand for the iPhone forces carriers to sell it despite losses in order to attract contracts. On the other hand Google is a constant threat for telecoms because it has shown ambitions of starting its own alternative to telecom services.
The carriers have already shown a lot of favor to Nokia’s WP8 loaded Lumia. Carriers such as AT&T have given a lot of marketing and shelf support to the phone. The initial sales have not been tremendous, but they have shown that a third player can break into this market. BB investors should also take heart from the sales of Lumia and I believe the new OS will see a lot of backing by US carriers. Although this might seem trivial, the amount of advertisement and subsidies carriers provide to new BB devices will likely decide the fate of BlackBerry.
The road ahead is not easy for Blackberry and it will take a lot of effort to retain former glory. That said I retain my bullish stance on the stock. I think the BB10 will enjoy a lot of support from carriers in their bid to find a third OS.
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