Blackberry – Survival instinct

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Blackberry’s hardware days are numbered.

  • In a week where all of Blackberry’s dirty laundry is laid bare in a new book, Blackberry is also moving to again reduce headcount in its handset business.
  • Blackberry has attempted to play to its strengths by narrowing its hardware focus to financial institutions and governments but this does not seem to be working.
  • In Q1 15A, Blackberry’s smartphone market share fell to just 0.3% (Counterpoint) which I think is very far from enough upon which to base a sustainable business.
  • I think that the problem is that Blackberry has misunderstood why its remaining customers are still using its products.
  • Blackberry is very secure but the others are catching up and critically, I think that iOS, Windows Phone and locked versions of Android are now good enough for every use case.
  • Hence, I think that customers have not switched because they are very slow to implement change rather than Blackberry’s belief that they are choosing Blackberry for its security.
  • Many financial instructions who once would never considered anything other than Blackberry, are now allowing employees to connect using their iOS, Android or Windows Phones.
  • This is why Blackberry’s share is continuing to fall and why I think that its hardware business has no long term future.
  • Blackberry’s response to this is to cut jobs, but it I think that the decline in hardware is structural and that Blackberry is experiencing the classic death by a thousand cuts.
  • By the time the cuts are implemented, share will have fallen further necessitating further cuts and so on.
  • While things are looking very bleak for hardware, I think that Blackberry does have a future with its BES enterprise mobility platform.
  • Blackberry still has far more customers for BES than all of its rivals (except Microsoft) and there is scope for it to leverage this to generate a steady revenue stream.
  • Unfortunately, I think that providing Digital Work services to mobile devices is a commoditising business and bigger rivals like Microsoft and VMWare (AirWatch) could easily give the service away as part of a much larger enterprise software sale.
  • Consequently, I think that Blackberry can eke out a living here but it will be no or low growth and very low margin.
  • It has a good installed base, but it must think of some way to make the BES service valuable again if it really wants to recover rather than just survive.
  • Blackberry continues to be priced on hopes rather than the reality of its outlook and the dwindling value of its assets.
  • Hence, there is plenty of scope for downside and I prefer Microsoft or Google.

 

 

RICHARD WINDSOR

Richard is founder, owner of research company, Radio Free Mobile. He has 16 years of experience working in sell side equity research. During his 11 year tenure at Nomura Securities, he focused on the equity coverage of the Global Technology sector.