Struggling BlackBerry Does...OK

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Amidst fairly neutral consumer reviews of its two flagship handsets the Z10 and Q10, newly-rebranded BlackBerry (NASDAQ: BBRY) restructures because of fears from inside and out that it will lose the battle to maintain popularity among consumers. With early discounts on the company's two newest handsets and a recent major fall in share prices, this suggests that its hopes for better fortunes from the new handsets and operating system haven't panned out.

Sales in the US have fallen significantly in the last year. The new phones and operating system were meant to turn the ship around, but BlackBerry admitted such sales had been a "disaster." This resulted in the company firing Richard Piasentin, its US VP of Sales.

Reviews of the flagship phones and operating system were pretty neutral. Regarding the Q10, Forbes said, "there's nothing new in the package that lets the Q10 stand out. There's nothing special in the BB10 operating system that makes it stand out over and above iOS, Android, or Windows Phone." In a fiercely competitive marketplace, a company must break new ground in order to lead the way. It seems that the OS and phones were too conservative in design, meaning that existing Blackberry users might upgrade to one but it will not attract new users.

Blackberry hasn't yet managed to get a firm grip on the booming app market which generates serious money for smartphone companies such as Google (NASDAQ: GOOG) and Apple (NASDAQ: AAPL). This is an important income stream for its competitors, yet Blackberry phones are not widely thought of as having a good range of apps.

There is no doubt that the competition in the smartphone arena today has grown to be considerably stiffer over the past half-decade. From the market that was dominated by BlackBerry and Apple six years ago, more and more mobile phone companies started flooding the market with smartphones of every possible configuration at varying price levels. Consumers are willing to pay the price for the all-in-one convenience and practicality of the smartphone.

By all indications, Apple has moved way ahead of BlackBerry in dominating the US smartphone market. Apple is joined at the top by Google whose Android OS rivals iOS in terms of consumer acceptance. Many experts believe that the introduction of the BlackBerry 10 came a little too late in the game. Thorsten Heins, BlackBerry’s CEO, is not throwing the towel in just yet, however; the company is poised to take a nip of the market shared by Apple and Google.

Current market studies show that Google’s Android actually leads by a slight margin in terms of market share, taking 52% of the pie. The slice taken by Apple’s iOS comes up to almost 42%. The partnership between Apple and T-Mobile should increase the size of the iOS’ slice of the smartphone market, however, as the iPhone consistently topped T-Mobile’s sales charts for the months of March, April, and May. T-Mobile reported that 31% of their smartphone sales during the same period came from iPhones. AT&T and Verizon’s second quarter iPhone sales were pegged at 60.5% and 43.8% respectively.

BlackBerry share prices fell from $15 to just over $9 on the news of poor global sales in the last month. The company seems to be losing ground in core markets as rivals Google and Apple penetrate them. Stuart Jeffery of Nomura Equity Research stated that "half [BlackBerry's] revenue in hardware is coming from places such as the Middle East and Africa. As Android penetrates those markets, we think the hardware business goes away for BlackBerry there."

Heins had already announced a corporate restructure program that includes a cost optimization and resource efficiency program. It is expected that 10,000 jobs will be cut over the next year, predominantly in middle management. It has already increased its cash in the bank from $2 billion to $2.9 billion. The cash saved is expected to be reinvested in R&D and marketing. Crackberry.com argues that "the snazziest product in the world could fail with a counterproductive bureaucracy, or without any cash to market it."

A lot of the cash saved will likely be reinvested in product development and marketing. Motley Fool argue that though Blackberry has had a bad patch, executives at the company seem optimistic for its future based on work-in-progress inventory figures: "Although BlackBerry shows inventory growth that outpaces revenue growth, the company may also display positive inventory divergence, suggesting that management sees increased demand on the horizon."

Smartphone manufacturers are subject to fashions and fads. A popular company in one decade may be forgotten the next. Nokia (NYSE: NOK) used to be extremely popular worldwide but didn't stay ahead of the curve and, like BlackBerry, has had to slash prices on its latest flagship phon e to maintain sales. BGR.com assesses that "Lumia shipments currently total only about a quarter of Nokia's smartphone shipments three years ago." BGR argues that the Nokia are farther ahead in their recovery curve than BlackBerry and the Lumia should ensure a quicker recovery than BlackBerry's Z10 and Q10.

Different valuers put different valuations on BlackBerry. Nomura Equity Research feel that the price as stands of around $9.30 a share is good, advising a HOLD. Jefferies & Co put the valuation at $18 a share and advise a BUY. Such differentials in valuation show no firm general opinion on the future fortunes of BlackBerry.

Will BlackBerry return to the top of the smartphone table? With global sales of 2.7 million of its new flagship phones since launch and massive discounting ahead of the company's coming products it may struggle against the lions at the table. Apple, for instance, has 400 million iOS phones currently working worldwide. BlackBerry may turn the corner if its restructure, new product development, and marketing strategy succeed. Success is by no means guaranteed.

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Mandy Seay has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and 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!

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