Can BlackBerry carve a new niche, profits?

Can BlackBerry carve a new niche, profits?

Summary: BlackBerry is estimated to post losses for the foreseeable future, but analysts seem confident that the company and its latest devices can carve a niche in the consumer and enterprise markets.

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BlackBerry's Z10 launch — including a 1 million order for the smartphone — has spurred a good bit of optimism about the company's future.

Rest assured, BlackBerry is still expected to report a fourth quarter loss on Thursday. There are also serious questions about BlackBerry's service revenue in the future. And it's uncertain whether BlackBerry can navigate the "bring your own device" trend as Samsung guns for it. Toss in the fact that a U.S. Z10 launch came after the fourth quarter ended, and there's a decent bit of uncertainty.

However, there's a theory that the worst is over for BlackBerry and that the company will be able to support itself. BlackBerry may not be the No. 3 platform in the smartphone market, but it can certainly fill a niche.

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Wall Street is expecting BlackBerry to report a loss of 29 cents a share on revenue of $2.84 billion. Based on current estimates, BlackBerry is expected to lose money every quarter in fiscal 2014 too, but become self-sufficient based on cash flow. 

bbry032513a
The year in BlackBerry shares. BlackBerry has recovered from a dip following the Z10 launch.

 

Morgan Stanley analyst Ehud Gelblum typifies the recent optimism about BlackBerry. Gelblum isn't widely bullish on the company, but did upgrade shares of BlackBerry. Here's why:

  • The shift to BlackBerry 10 will raise average selling profits and gross margins.
  • Service revenue will fall with BlackBerry 10, but many analysts expect a dramatic fall. Anything less will help the company's bottom line.
  • BlackBerry can move existing customers from BlackBerry 6 and 7 to BlackBerry 10 and do well.
  • The company's device business is valued at zero.

OK, so that's not a ringing endorsement of BlackBerry, but an indicator that pessimism is a bit overdone. The primary theme from Gelblum is that BlackBerry can be a strong niche player. He said in a research note:

In contrast to our prior thinking, we now believe there may be room in the handset market for niche midrange players and a base valuation for these vendors as Win8 has lacked traction, and even LG and Samsung appear to be seeking alternate OS strategies.

Simply put, BlackBerry 10 won't land iPhone or Android converts, but can keep the company's base intact.

Gelblum's argument makes sense. If the Z10 can hold the fort, BlackBerry's next device with a physical keyboard could really keep customers in the fold. Let's face it: BlackBerry's move to go with the all-touch Z10 and hold back the version with a physical keyboard makes little sense. The base wants a keyboard.

Other analysts are moderately upbeat about BlackBerry's fourth quarter. Consider:

  • Wells Fargo analyst Maynard Um said BlackBerry likely sold 1.5 million units of BlackBerry 10 devices out of 6.63 million units total.
  • Um added that 130,000 PlayBooks were sold.
  • BlackBerry's recent announcement that there was a 1 million unit order for the Z10 went to a distributor or carrier based on real demand, according to Jefferies analyst Peter Misek.
  • Secure sandboxing branding — Secure Work Space — will provide another revenue stream and be announced in June.
  • Misek estimates that BlackBerry can be a player in mobile device management software. He also noted that BlackBerry may become the preferred MDM provider for AT&T in the future.

Not every analyst is cautiously optimistic about BlackBerry's enterprise future. Macquarie analyst Kevin Smithen noted that Samsung's Knox sandboxing technology included in the Galaxy S4 could thump BlackBerry's Z10 momentum. He said:

At the Galaxy S4 event, we spoke to several mobile procurement people from large financial and consumer products companies who claimed to be trialing the Z10. They appeared to be impressed by the GS4 and all commented that they may delay a decision on the Z10 until they can properly evaluate the new Samsung device.

If Smithen's findings become a trend, it's no wonder BlackBerry is taking aim at Samsung. 

Topics: BlackBerry, Mobility, Smartphones, Bring Your Own Device

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17 comments
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  • BlackBerry > Windows Phone

    The only question is, is that saying something?
    ldo17
    • #Deadphone

      You are rather out of date. Windows Phone already overtook Blackberry in sales share in most of the world, inc the USA.

      Goldman's downgraded Blackberry today because of the terrible launch and lack of sales. #Deadphone
      thevogon
      • Nokia still won't commit to WinPhone with a keyboard

        thevogon: why won't Microsoft and Nokia give a significant userbase even one phone with a physical keyboard? It would have driven a stake into Blackberry because they chose to launch with a phone with serious competitors rather than Q10 which wouldn't have had.
        dowlingm
      • Duh

        Win8P outsold BB phone in 4 qtr is not surprising as the Z10 just got released in the US. As for the rest of the world, many countries have either not yet received the BB and none have a full qtr to report sales on. The jury is still out as to BB traction and if it does better than Win8P. MS has spent a fortune in ad money and if it is not a clear winner on the ratings market against BB whose ad campaign has been far more subdued and not as costly, the the Win8P might not be as strong in the long run.

        As the phone OS market seems lately to be coming into play again, BB may pull part of the share of the market put into play with the changing fortunes.

        Apple pc is a closed system as is BB. Apple pc I seem to remember has something like 5% of the pc market. If BB phone hits the same % as the Apple pc share, it would not be a bad thing as it could mean the platform is sustainable. Any larger market share will be a plus. I could see the company licensing the system to 3rd party phone, makers similar to the Win8P licensing to expand the market but, with a more reasonable licensing fee and maybe some control on the hardware specs. IBM transitioned company to software and it worked at a time when many thought IBM was about to be buried. If BB goes that route, it then move to a point where it may be better positioned to go after the number 1 and 2 positions. Either way, it needs to expand its r&d and product offerings as Apple did but not make all the mistake MS has.
        BrianLevyEsq
        • Old numbers

          Per Gartner. Apple had 12.3% of the US market share.

          http://www.gartner.com/newsroom/id/2301715

          Apple 2,145,082 12.3

          However world wide, the number was lower. Has to be below 7% as that was the lowest one listed.
          Johnpford
      • #Deadphone: WP7. Walking Dead: WP8

        thevogon:
        maybe you didn't heard the news, but WP7 is dead, and WP8 is almost dead, same as Amiga, same as OS2, same as Zune, same as WM.
        WP7 and WP8 are only, how they call them, stepping stones until Blue. According to the whisperers Blue will be the real deal. there is not much info available but seems they are leaving behind the WP8 kernel! If that's the case there is no point at all developing for WP8.

        As a matter of fact we develop for iOS and Android, because there is where the market is; but, we keep an eye on BB10; they are offering a compelling story, and market share way bigger than all Windows mobile combined (WM + WP7 + Wp8 + Kin, and you can add zune market share if you want), so is worth putting resources behind. WP8? not even a consideration; like throwing money to the toilet bowl.
        theo_durcan
      • Really

        They downgraded them because of the lack of sales on a Friday. A working day. When many people have the next day off?
        Doesn`t sound too intelligent.
        Susan Antony
      • Really? Where are the numbers.

        The numbers I've seen show MS stead between 3.1 and 3.2 percent with BBerry at 5.9. BBerry's lead even grows if you look outside the US.

        http://www.comscore.com/Insights/Press_Releases/2013/3/comScore_Reports_January_2013_U.S._Smartphone_Subscriber_Market_Share

        I'm not really a fan of either the Windows or BBerry phone. However, I would like for one of them to stand up and give some competition to Apple/Android.
        Johnpford
    • Could you elaborate?

      I'd like to know, exactly, what makes one better than the other.
      Michael Alan Goff
  • the poor performance

    of Windows Phone is giving BB a small window of opportunity. Had Winphone performed well, BB 10 would have been DOA.
    krossbow
  • wow

    16000 at&t locations, 5 percent sold out of 12 - 24 units in three days? the remaining stated they sold 3 or 4 a day??? that's 4.5 million phones in a quarter in only the second largest carrier...those numbers sound staggering considering word of mouth about how much better the product is than apple and android hasn't happened yet and there was no in store advertising and that 50 percent of the buyers pre ordered online...
    Mark Priest
    • What?

      What kind of illogical math is that?
      no_axe_to__grind
      • math

        illogical math? 16000 stores...AT&T Retail Stores Today, AT&T has more than 16,000 retail locations in the U.S., including company-owned stores and kiosks, authorized dealers and third party retail locations....let's do it together shall we...16000 X 3 phones = 48000 phones 48000 X 90 days in a quarter = 4,320,000. I love teaching people kindergarten math. by the way none of this includes the fact that 50 percent of the phones are sold online so these numbers are conservative. Since AT&T has 31 percent market share and far less business consumers than Verizon I think the math is pretty sound
        Mark Priest
        • I think NATG is questioning the logic, not the math

          It is easy (and entertaining) to take numbers and multiply them over a span of time as you have done.

          While the math may be correct, the logic used to pick those numbers may not be. Just one point might be that you are looking at the initial "sales rush" of the release weekend and assuming it will remain as high as you estimate it to be for the next 90 days.

          Taking your numbers and math one step further could show how generous your outcome might be. For example.

          1 carrier = 4.32 million z10 sold per quarter x all 4 carriers = 17.28 million per quarter in the USA alone.

          That is in the same area as the iPhone and Galaxy line of phones.

          It will be fun to watch as things develop, because the market could sure use a strong 3rd phone system.
          Emacho
          • math

            agreed. But the point of the article was stating disappointment and as you point out if we scale the numbers even further and include online sales the numbers approach Samsung and apple. That was my point!
            Mark Priest
  • It already is number 3

    Even with its older outdated OS based phones, BBRY is number 3. The only question is how close will it get to number 2 in the next 6 months.
    Susan Antony
  • love my Z10

    Loving my new Z10. Well done Blackberry!
    kooool1