There Is No Recovery From BlackBerry 10
In the summer of 2008, the then-Research in Motion stock was approaching $150 per share, as BlackBerry (NASDAQ:BBRY) handsets once served roughly half of the smartphone market. A photograph of then-presidential candidate Barack Obama carrying his trusted BlackBerry device, which captures the essence of this movement, went viral. BlackBerry, in its heyday, emerged as an indispensable tool for Washington bureaucrats and corporate information technology professionals alike.
Prior to that year, in 2007, Steve Jobs delivered his blockbuster iPhone to the marketplace. As a centerpiece for the Web 2.0 revolution, focus eventually shifted away from the dowdy technocrat and more so toward the jack-of-all trades consumer. This tectonic shift ultimately relegated the status of Research in Motion to that of a bit player in the telecommunications industry.
On December 10, BlackBerry stock collapsed to a multiyear nadir at $5.44 per share. Within the next three months, BlackBerry stock had nearly doubled to close out the Wednesday trading session at $10.10 per share. In retrospect, this near-immediate surge in BlackBerry share price is largely due in part to good-faith backing new CEO John Chen and his promises to lead the company away from its latest BlackBerry 10 debacle. In reality, however, speculators and financial engineers have driven recent BlackBerry stock performance. Over the long term, BlackBerry will remain largely shut out of the telecommunications market.
The Web 2.0 mobile ecosystem
Apple’s 2006-2009 “Get a Mac” campaign still defines today’s consumer electronics market. With “Get a Mac,” Apple (NASDAQ:AAPL) personified itself as a chic yet eager to please hipster. When juxtaposed against Apple, Microsoft (NASDAQ:MSFT) was the technocrat in a tweed suit that needed help simply to stay out of its own way. Technology critic and Verge writer Jesse Hicks would likely highlight the timing of this “Get a Mac” campaign as another changing of the guard. BlackBerry, which Hicks described as an electrical engineering firm, would be outflanked by a new wave of consumer-oriented products. Indeed, BlackBerry executives, like those at Microsoft, dismissed the Apple threat and have been felled by their own arrogance at Waterloo. Interestingly, BlackBerry founder Mike Lazaridis initially dismissed the iPad tablet and iOS ecosystem as “amateur hour.”
Economically, the Apple iPhone is now the leading gateway into a Web 2.0 ecosystem that includes telecommunications, computing, and entertainment. On October 31, Apple released its 2013 annual report for fiscal year ended September 28. For fiscal 2013, Apple reported record sales of 150.3 million iPhone units. The Apple iPhone generated for $91.3 billion, or more than half, of Apple’s $170.9 billion in total net sales. This performance, of course, attracts fierce competition. In terms of popularity, the Google (NASDAQ:GOOG) Android operating system has emerged as the secondary wing of a now-dominant Web 2.0 ecosystem duopoly. The BlackBerry 10 debacle will inevitably downgrade BlackBerry behind Windows within the Web 2.0 mobile ecosystem pecking order.
On February 4, research firm comScore released its report for December U.S. smartphone subscriber market share. The comScore data actually presented averages for the quarterly period spanned between October 2013 and December 2013. At that time, Google Android and Apple iOS systems combined to operate more than 90 percent of existing U.S. smartphones. On the handset side of the ledger, Apple and Samsung dominated the original equipment manufacturer competition. At the bottom of the heap, BlackBerry, Nokia (NYSE:NOK), and Microsoft are simply battling for survival and to maintain relevance within this winner-take-all market. BlackBerry closed out this latest quarter clinging onto a mere 3.4 percent share of the smartphone market.
BlackBerry 10 specifications
The BlackBerry 10 platform initially branched off into two separate handsets in the Z10 and Q10. The Z10 was marketed as BlackBerry’s premium and fully touchscreen-operational phone. Alternatively, the Q10 was notable for itsBlackBerry signature QWERTY keyboard. Blackberry’s reputation for security had convinced Visa (NYSE:V) to ink a deal with the company to transform these latest handsets into virtual wallets through near-field communication technology.
Still, the BlackBerry 10 novelty and updated features have proven to be too little and too late to save this company without major overhaul. The BlackBerry 10 event was eerily similar to that of the Nokia Lumia. In both cases, the initial buzz of investment speculation, slick marketing campaigns, and rap concerts quickly degenerated into disappointment, bargain-bin price discounts, and asset write-downs. BlackBerry 10 lacked the “killer app.” As such, BlackBerry has remained stalled within a destructive cycle in which the Apple iOS-Google Android duopoly maintains its iron grip upon the mobile market while third-party developers refuse to build applications for a BlackBerry platform that lacks a large subscriber base.
Going forward, the Samsung Galaxy S5 and Apple iPhone 6 both loom large as real threats to BlackBerry’s viability as an ongoing concern. BlackBerry bulls hoping for a breakup and buyout may also be left holding onto a bag full of toxic assets. The aftermath of Google’s 2012 $12.5 billion acquisition of Motorola, alongside ongoing patent infringement lawsuits between Apple and Samsung, may serve as evidence that Web 2.0 valuations may be set for decline.
The Motorola buyout was largely a defensive move for Google to shield its share of Android revenue away from litigation. In 2013, however, the Federal Trade Commission ordered Google to provide competitor access to the very same former Motorola patents “on fair, reasonable, and nondiscriminatory terms.” In response, Therese Poletti and MarketWatch declared that the smart phone patent bubble had burst. On January 29, Google agreed to sell Motorola to Lenovo (LNVGY) for $2.9 billion.
The bottom line
Louis Bedigian and Forbes Magazine have already dismissed BlackBerry 10 as “an enormous, record-breaking flop.” Again, Apple reported sales of 150 million iPhone units during its latest 2013 fiscal year. For the sake of comparison, BlackBerry shareholders actually cheered news that The U.S. Department of Defense would continue to make use of 80,000 BlackBerry smartphones. BlackBerry was to rack up $6.6 billion in operating losses through the first nine months of its fiscal 2014. Be advised that BlackBerry’s third-quarter 2014 ended November 30.
The $8.4 billion BlackBerry third-quarter 2014 balance sheet did include $2.4 billion in intangible assets and property, plant, and equipment. In theory, these assets will depreciate toward zero if they cannot be leveraged successfully for a profit. For now, $1.25 billion in convertible bonds, real estate sales, and the aggressive collection of receivables will mask the real deterioration of BlackBerry cash levels. BlackBerry has simply been floating the note, instead of laying the groundwork to emerge as a rehabilitated player within the telecommunications industry.
BlackBerry shareholders should consider immediately liquidating their positions in order to mitigate the risks of future losses. The BlackBerry 10 launch has only added to sales, marketing, and administrative expenses, without any corresponding and real increase in revenue. BlackBerry stock now maintains a support level at $9 per share. From there, BlackBerry shares may break down further towards $7 by the end of calendar second-quarter 2014.