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BlackBerry’s Comeback Is Fact, Not Fiction

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

One of my favorite mythological symbols is the Phoenix -- a bird which is reborn from the ashes of its predecessor. In real life, I’ve witnessed “rising like a Phoenix” moments a few times -- like Manchester United winning the European Championship in 1999 in the dying minutes after being a goal down, or Pete Sampras making a comeback against Jim Courier at the Australian Open quarterfinals in 1995.

Such moments are etched in memory not only because of the comebacks that we see, but also due to the tenacity and resilience of the winners. And now, I think there’s another comeback candidate on the horizon, and this time it isn’t in the sports arena -- but in the financial markets.

The right moves

When BlackBerry (NASDAQ: BBRY) released its fourth-quarter results last week, it unsettled the established order by turning in a profit. Those who were expecting another round of catastrophic results had to rephrase their headlines, while many couldn’t come to terms with the fact that BlackBerry reported a profit -- a fact evident from the number of negative headlines on display in the Yahoo! feed.

But, one fact can’t be ignored -- BlackBerry is turning around. BlackBerry 10, the company’s reincarnated operating system is certainly fresh; it makes the phones look like new-age devices rather than pre-historic artifacts, which is what the Canadian smartphone maker needed in order to stay relevant. Moreover, the company is aggressively expanding its app portfolio, and now sports more than 100,000 BlackBerry 10 apps as compared to 70,000 at launch time.

The Z10 has been received well. BlackBerry shipped 1 million Z10 devices while the Street expected 915,000. According to the CEO, Thorsten Heins, 55% of early Z10 adopters “globally are coming from platforms other than Blackberry.” Its high-pricing even in emerging markets such as India hasn’t pegged back buyers. Moreover, a wireless distributor ordering 1 million devices last month indicates that BlackBerry has cooked up the right device to begin its comeback.

Initial sales seem to be doing pretty well, and the company is set to put its marketing muscle behind BlackBerry 10 by spending 50% more on marketing in the ongoing quarter. However, the bears are still not convinced about the comeback. The 3 million drop in the subscriber base was fodder enough for BlackBerry pessimists, but it should be noted that the decline was probably in the low-end prepaid segment, as Morgan Stanley analyst Ehud Gelblum pointed out.

Moreover, BlackBerry seems to have a concerted plan to win back some of its lost glory. The company is set to continue its push into emerging markets by launching phones running BlackBerry 7 OS. This looks like a smart strategy. BlackBerry 10 would continue to enjoy flagship status without having to undergo any brand and margin dilution, while the older OS will continue to satisfy budget users in emerging markets.

BlackBerry’s launch of a QWERTY keypad-enabled device, the Q10, is also a good strategic move. While most smartphone users now use touchscreens, many loyalists would still love to have that tactile response from the keyboard, and BlackBerry clearly hasn’t forgotten them. The company is gradually launching its new phones in markets across the world, and I believe that it would see success in a gradual manner as well.

Sizing up

When people compare BlackBerry 10 to Apple’s (NASDAQ: AAPL) or Google’s (NASDAQ: GOOG) operating systems and their gigantic market shares, they forget that both these are matured OS’ now. A few years back, when BlackBerry ruled the market, both of them were still making strides and finally managed to overtake BlackBerry after several iterations of their operating systems.

Now, BlackBerry 10 is pretty good for a first generation OS and it should gradually get better. It might even challenge the supremacy of the top two in a few years’ time, and there are a few circumstances which might help it in doing so. It probably won’t be long before Android’s proponents decide to go their own way and marginalize Google.

When HTC released its HTC One smartphone earlier this year, it didn’t speak much about Google. Rather, the Taiwanese company focused on its own software gimmicks. Similarly, when Samsung released the latest Galaxy last month, it continued the trend and forgot Google. As a TechCrunch article pointed out “Samsung will soon take what it needs from Android and go its own way.”

The possibility of a rift between the Android maker and its prime proponent is not baseless, as Samsung is putting weight behind its own open source operating system, the Tizen. Also, as the TechCrunch article said, Samsung might skin Android heavily and exercise more control over the devices, taking away a bigger pie of the revenue. In retaliation, Google seems to be prepping the X Phone, and might even introduce multiple models to capture more market.

A possible fight between Samsung and Google could open up a few cracks for BlackBerry to get in and get some more market share, if the result of the split turns out to be negative. Similarly, negative perception about Apple, which seems to be losing its mojo, could be another driver for BlackBerry.

According to the latest Kantar Worldpanel report, Apple’s share of the U.S. market slipped in the quarter ending February ‘13 from the year-ago period. This happened despite the launch of the iPhone 5, which might suggest that there is some sort of iPhone fatigue setting in and BlackBerry might provide just the alternative needed.

And as far as competition with Microsoft’s (NASDAQ: MSFT) Windows Phone is concerned, I believe BlackBerry could win this game in the long run. As it is, it seems that BlackBerry 10 has got off to a better start than the Windows Phone when it was launched in 2010, with Microsoft not even revealing the number of phones sold. While Microsoft finally seems to have hit the right chord with its Windows 8, along with Nokia, it did take time for it to arrive into its current position.

Windows phone sales have been growing, driven by the Lumia 920, but I believe that BlackBerry has enough fuel to eventually catch up with Microsoft. As far as personal preference is concerned, I would choose a Z10 over a Lumia any day, given the connectivity/messaging options and the ever growing app catalog.

The bottom line

BlackBerry’s turnaround has undoubtedly started, but it would be foolhardy to expect instant results. Operating systems take time to evolve, like we saw with Android, Windows Phone and even iOS. With BlackBerry’s first generation BlackBerry 10 software being a solid one, the company has the right base to rise like the Phoenix. And if you think that the Google-Apple domination is too great to overcome, then you should turn back the pages in history and see who the boss was.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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!

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