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BlackBerry Puts Everyone in a Confused State of Mind

May 30, 2014 | About:
abirk

Quick Pen

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At times it is difficult to decide which data to trust and which assumptions to make while analyzing the future prospects of a company. Similar is the case with the Canadian phone maker BlackBerry (BBRY), which is giving its investors and the analysts a hard time.

The company has been in troubled waters for a long enough time and John Chen, the CEO, is on his toes to set things right and get the best combination of offerings to its audience. However, while John’s confidence in the company sparks encouragement, the latest set of numbers that International Data Corporation (IDC) has come out which tell a story that conveys a different message altogether.

The 'Not So Encouraging' Numbers

Recently IDC released its Worldwide Mobile Phone Tracker report, followed by a forecast of Worldwide Smartphone Shipments. According to the second report, chances of BlackBerry’s survival, let alone growth, are minimal. The research firm has some significant doubts related to the firm’s ability to continue as a provider of mobile handsets.

Almost half a decade back BlackBerry used to enjoy a market share of round about 20%. Last year that figure stood at a depressing 1.9% and sadly, this figure is expected to drop to less than 1% by the end of the current year, and further drop to 0.3% only by 2018. The data company calculates that the company will be able to ship only 9.7 million smartphones this year, resulting in a 50% drop in shipments compared to prior year period. The worst part of the news is, this analysis comes from IDC at a time when the firm expects the global smartphone market to witness a huge surge in demand.

Worldwide Smartphone Forecast by Region, Shipments, Market Share and 5-Year CAGR (units in millions)

Source: IDC Worldwide Mobile Phone Tracker, May 28, 2014

Operating System

2014 Shipment Volumes*

2014 Market Share

2018 Shipment Volumes*

2018 Market Share

2013-2018 CAGR

Android

997.7

80.20%

1401.3

77.60%

12.00%

iOS

184.1

14.80%

247.4

13.70%

10.00%

Windows Phone

43.3

3.50%

115.3

6.40%

28.10%

BlackBerry

9.7

0.80%

4.6

0.30%

-25.00%

Others

9.3

0.70%

37.7

2.10%

31.50%

Total

1,244.10

100%

1,806.30

100%

12%

* Forecast data

The above image clearly shows what IDC expects from BlackBerry in days to come. While the worldwide smartphone market is expected to witness a compounded annual growth (CAGR) of 12.3% between 2013 and 2018, BlackBerry’s market share will shrink by 25% compounded annually. In comparison to this, Microsoft (MSFT) is expected to enjoy 28.1% growth, followed by Google (GOOG) Android with 12% growth and Apple (AAPL) with 10% growth. The only way, according to IDC, for BlackBerry to be able to survive depends upon how well the company is able to utilize, market and position its security offerings.

Chen’s Strong Belief

IDC’s not so encouraging figures were not able to discourage John Chen. He still believes strongly in the company and is more than sure about the bright future that BlackBerry has. Since the time he took the chair, John has been making a lot of changes in the company, related to its operations, its choice of offerings and management style as well. Some of these moves have already started paying off, while some are yet to show their worth.

John is well aware of all the issues that are eating up BlackBerry’s performance. The primary issue with the handset business has been in discussion for months now. While John believes he can do away with the business and still create value for the shareholders, he wants to keep the business running and add even more to the value. His recent statement clearly suggests this:

"I'll be able to create a lot of value for our shareholders even without the handset business, but I think with the handset business there is a chance to even create more,"

The company is in a transition phase at the moment as it attempts to make a shift from being a hardware company to a software company, with increased focus on security services. The Canadian giant is also looking at developing its competencies so that it can function at the heart of the “Internet of Things” (IoT). Recently, BlackBerry revealed Project Ion that would try to establish a “secured public application platform” that will allow the new age gadgets and applications to get obtain and process information and thus facilitate the IoT ecosystem.

Again, though John hasn’t mentioned any plans of joining hands with Google to produce Android smartphones, he hasn’t complete ruled out the possibility of BlackBerry helping Android to make the platform more secured and reliable. Previously John believed the company had 50-50 chance of surviving. But now, with so much going, he feels the odds are in his favor as he pulls up the chance of surviving to 80-20.

Departing Thoughts

The smartphone space surely has huge growth potential and if BlackBerry can manage to grab even a small portion of it, it will surely benefit. However, keeping the handset business out of the picture, BlackBerry still should be able to come out of its problems if it focuses on its security service offerings, which the company is already on to. Looking at John Chen one will feel surely the company is going to turn around its fortunes, but IDC’s data is forcing us to question BlackBerry’s ability.

Here, one must understand IDC’s study focuses on BlackBerry’s position as a player in the smarphone segment. Even if the forecast turns out to be true, that doesn’t mean the company is going for a toss. John can steer the company in a different direction and return to a healthy state of affairs. I am sure the investors will not mind if BlackBerry loses smartphone market share but at the same time it gains significant position in the security service segment that will help the company to return to profitability and also provide sustainable growth.

About the author:

Quick Pen
A seasonal writer with a Management Degree in Finance and interests in automotive, technology, telecommunication and aerospace sectors.

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Comments

vgm
Vgm - 3 months ago

Thanks for sharing your thoughts.

I agree John Chen is not confused and that's what's key here. In fact he's getting more confident with time. He laid out a simple, yet tough, 6-8 quarter plan when he took over and he's executing on it - ahead of schedule even after a few months in the job. He clearly believes his plan is working and that he will return BBRY to cashflow breakeven by Feb 2015, and to profitability in the following 12 months. It's a mistake to focus on the handset business, as he himself points out. BBRY now has several important strings to its bow, as you suggest. The earnings call June 19 will be the time to assess further progress and gain further insights. Chen has great credibility IMHO and is laser-focused on shareholder value creation.

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