BlackBerry – High jump.

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BlackBerry’s target of 5m devices looks much too high.

• The new BlackBerry Priv and its rumoured successors are aimed at such a narrow niche that I doubt that they will ever make money.
• Once this realisation has sunk in, I think that BlackBerry will abandon its hardware business and focus on its software business which has recently been bolstered with the acquisition of Good (see here).
• I think that the main problem with this new line of attack in hardware is that apart from a tiny segment of the market, the smartphone user no longer cares about having a physical keyboard.
• This is very similar to the issue that killed Nokia’s smartphone business in 2007.
• Prior to the iPhone, a smartphone had to be a good phone first and everything else second and Nokia’s entire line up was based upon that supposition.
• The arrival of the iPhone turned this on its head such that mediocre phone performance was no longer a barrier to selling devices.
• It was Nokia’s inability to see that the market had changed led to it losing almost all of its market share.
• Something very similar has happened in the enterprise segment.
• Prior to 2007, an email device had to have a decent physical keyboard upon which to type.
• However, Apple has made the touch-based form factor so popular that almost all users have learnt to adapt to typing on a screen keyboard which has obviated the need for a physical one.
• There are some hard-core users in the financial and government who will love this device but these very few and far between.
• These days, there is very little need for a physical keyboard which is why I think that BlackBerry’s Priv line of devices will only sell in tiny volumes.
• In Q3 15A, Counterpoint Research estimates that BlackBerry sold just 700,000 units meaning that the Priv has to be a knock-out success just for BlackBerry to break even.
• The problem here is that the smartphone market is slowing down and becoming even more competitive and into that mix there is a new device with a feature that almost no one cares about.
• Furthermore, this device is so expensive that only users who care passionately about a physical keyboard are likely to buy it.
• Consequently, I expect BlackBerry to miss its target of 5m units and to withdraw from the market in 2016 focusing instead on software.
• Here, it has a credible proposition which is more than I can say for HTC which is in a very similar situation to BlackBerry but has no plan B.
• I can still see downside in both of these companies but HTC most of all.