BlackBerry's August Quarter Reveals Whether The Company Has To Be Chopped Up
This is where the rubber meets the road: next week, on September 27, BlackBerry is going to reveal its August quarter numbers. This is essentially going to tell us whether the company can be taken private or sold intact… or whether it has to be chopped into pieces that would have to be hawked separately. The reason why this quarter is pivotal is simple: May quarter unit volume weakness was simply so horrid that it is unsustainable. BlackBerry had two major devices out equipped with the new operating system, yet still ended up missing Wall Street unit consensus by a country mile. The company sold 6.8 M units of smartphones in the spring while consensus expectations were at 7.5 M units. The new generation models Z10 and Q10 made up only 2.8 M of the spring units. The fact that BBRY stock plunged by 27% after news about the unit volume numbers were released gives us a sense of just how horrified Wall Street was.
BlackBerry had the new Q5 model launch in July; the company started shipping the model to Asia at around halfway point of the August quarter. The big problem with the Q5 is that it was supposed to be a value model, but it debuted above $400 without contract – essentially three times higher than Google’s Android budget smartphones equipped with 8 megapixel camera phones and 5 inch touch displays. The stench of death is already shrouding BlackBerry. But if the company cannot at least match the May volume of 2.8 M BB10 phones, it will probably be too late to find a buyer for the whole entity. There is a real question mark about hitting even that 2.8 M unit mark, because the sales of the Q10 have slowed down markedly over the summer and the second wave of orders may not have materialized from Asian and Middle Eastern operators. The Q5 was priced so high – especially for carriers that had just been burnt by the tepid demand for the Q10 – that launch orders for the “value” device were probably well below what had been assumed a few months earlier.
If the BB10 units did not grow from May quarter to August quarter, it probably means lights out for BlackBerry. It is very hard to see any private equity fund or Asian conglomerate buying a smartphone vendor that cannot deliver even 3 M units of three different models of a highly anticipated new generation of devices. The context here is that Q10, Z10 and Z5 were aimed at what was a 70 Million strong BlackBerry user base just a few short months ago. The inability of that existing pool of users to absorb more units is the real horror here. It implies sky high defection rates to competing OS camps. Yet BlackBerry has been able to pull rabbits from the hat in some tough periods in the past; opaque emerging market carrier orders sometimes come in stronger than what US analysts project.
If the BB10 units grew from 2.8 M in the May quarter to 3.3 M or higher in the August quarter, there is a chance that BlackBerry might find a willing buyer. 15% or higher QoQ momentum offers a glimmer of hope, even with the big spring volume disappointment. The industry backdrop here is that the already tough price competition is about to get even harsher. Apple did not choose to do a mid-range phone, opting to price the 5C surprisingly high. But now that Microsoft has bought Nokia’s handset unit, it is likely to go on a very aggressive Lumia price-cut campaign in coming quarters. Microsoft simply has to ramp up Windows market share to maintain even a shred of credibility for its mobile OS – and it has the deep pockets to take on Google’s Android army in the all-important sub-$200 category.
November quarter will bring naught but misery and grief for Canada’s gentle giant. The new Z30 is about to launch and will feature a 5 inch Super AMOLED display and a 1.7 GHz processor. BlackBerry is remaining silent about its pricing, probably because the company knows it is wildly out of step with what is needed. To survive, BlackBerry would have needed a $200 model right now – instead, the Z30 is likely to debut well above $600 without subsidies. The very existence of this new luxury model bears silent witness to just how grand the folly of Waterloo’s wizards has been.
BlackBerry could be worth a substantial amount even if it is dismantled and sold piecemeal. But the investor mood about patent portfolios has darkened a fair bit since Google bought Motorola. The battles between Apple, Google and Microsoft seem to be stalling into an endless Somme of trench warfare, running up lawyer’s billable hours without producing clear-cut results. The optimal time to find a buyer for BlackBerry may have been around 2008; the bearable period ended in early 2011. What is left now is the grim process of discovering what is possible.
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