Make This Bet on Strong Upside Potential

Mohsin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

In the past few months, the investors of BlackBerry (NASDAQ: BBRY) have seen their share of drama. The stock has fluctuated massively during this time on BB10 news. The market was expecting that BB10 would be launched in the US along with the rest of the world at the end of January. However, the company has held-back on the US launch, but BB10 has been launched in 50 countries all around the world.

BB10

There is still a lot of speculation on the actual success of the new BB10 devices. The market is pretty divided on sales estimate that is also reflected in target prices of BlackBerry stock. The company launched the Z10 and Q10 in the UK last month. The devices are now available in over 50 markets all around the world and have seen a positive response from consumers. The response has been particularly strong in UK, UAE and Canada. According to ComScore Inc at the end of 2012 BlackBerry had a 6.4% market share of the US market and Google’s (NASDAQ: GOOG) Android was leading the race with 53.4% market share.

This market share seems pretty small as compared to the previous high BB had seen before iOS and Android nearly wiped it out. A 6.4% share might not seem a big deal, but it does give the turnaround efforts of BB a head start. This is because this share indicates that despite tough competition, BlackBerry has been able to maintain a loyal customer base. According to company disclosures, there are approximately 79 million subscribers for BB services and these are users who have refused to give up on BB10 despite strong ecosystems and amazing hardware from the competition. This loyalty makes them a strong upgrade contender to the new BB10 devices. A majority of BB users were forced to carry two devices at once, due to limited capability of older BB devices, but the new Z10 and Q10 have the reliability of BB services and visual beauty of competitors.  

Sales estimates

There are huge variations in the initial sales estimates for BB10 handsets. The market was expecting the device marker to sell approximately 1.75 million devices by Mar. 2. These estimates have been significantly revised down by analysts, according to reports. More recent estimates indicate that BB might have sold only 300,000 devices in the given time frame. This is being blamed on lower than expected demand and limited availability. The devices have still not been launched in the largest high-end smartphone market of the world, i.e. the Unites States.

It is also speculated that only 1-1.5 million Z10 units were shipped as compared to 3-4 million initially expected by the industry. According to Pacific Crest, the sales of Z10 would also cannibalize the sales of Bold 9900. The market has reacted to this speculation, and the company's stock has declined 22% from the post launch rally.

Competition

Nokia's (NYSE: NOK) turnaround efforts are also hinged on the success of its Lumia line. The market was expecting Lumia to sell around 6-7 million units during the quarter ended December. The smartphone giant only managed to sell around 4.4 million Lumia devices in the given period. This was only because the results didn’t indicate the full quarter figures and the devices were not available in some of their biggest consumer markets. The situation is pretty similar for BB10 devices and the market should not write them off based on initial data.

If Nokia and BB are to make a comeback, these companies will have to dethrone Google's Android. While it might seem an impossible task, recent information reveals that there might be a possible entry point. According to recent reports, the shaky relationship between Google and China might raise its ugly head again. The Chinese government has started taking notice of Android’s dominance and might take actions to restrict it. This will give BB and Nokia a chance to enjoy a competitive edge in one of the most lucrative markets in the world.

Bottom line

The market has reacted adversely to revisions in sales targets for BB10 devices. I believe that the market is overreacting and the BB10 will get a good response from customers. The real make or break for BB10 is its success in USA and emerging markets. The company has a loyal customer base of approximately 79 million that will continue upgrading to newer BB models. The initial launch data for Nokia’s Lumia was also not so stellar, but the company has seen a positive response from carriers globally.

Blackberry will also be available from all major carriers in the United States. In more recent news, Sprint has refused to support the Z10 device but will allow the QWERTY based version in its lineup. I believe that this price decline is another good opportunity for investors to take a position in BlackBerry. The company has a strong market presence and the BB10 has the potential to get attention. The new OS will not only launch an upgrade cycle in the existing 79 million consumers but get a newer, younger audience interested in the BB platform.

 


SmartEquity has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus