Managing the squeeze

BlackBerry said that it shipped one million devices powered by its BlackBerry 10 platform in its most recent quarter to March 2, as the recovering smartphone maker also reported a profit for the period. However, the numbers also showed many of the challenges still facing the company

BlackBerry CEO, Thorsten Heins is excited about the new, dynamic culture at BlackBerry, where they are laser-focused on continuing to drive efficiency and improve the company’s profitability

In total, BlackBerry shipped six million smartphones during the period, continuing its downward trend. This compares with 6.9 million in the quarter to December 1 (BlackBerry’s fiscal Q3), and 7.4 million in the prior sequential period.

Also heading downward was the BlackBerry subscriber base, which stood at 76 million at the end of the quarter, down from 79 million at the end of Q3 and from 80 million at the end of Q2.

The company also said that Mike Lazaridis, founder, and former co-CEO, is set to step down as a director of the company. It said that he had “fulfilled the commitment he made to the board in January 2012” – the point at which Thorsten Heins was named as its new CEO.

For the quarter to March 2, 2013, the company reported a profit of US$98 million, compared with a prior-year loss of US$125 million, on revenue of US$2.68 billion, down from US$4.18 billion.

For the full year, it reported a loss of US$646 million, compared with a fiscal 2012 profit of US$1.16 billion, on revenue of US$11.07 billion, down from US$18.42 billion.

During the quarter, 61 per cent of revenue came from hardware, 36 per cent from services, and three per cent from software and other revenue.

Looking forward, BlackBerry said it will be spending heavily to support the launch of BlackBerry 10 devices, with an anticipated 50 per cent sequential increase in spend in Q1 fiscal 2014. It said that taking this into account, it expects to breakeven in Q1, based on “its lower cost base, more efficient supply chain, and improved hardware margins”.

Thorsten Heins said: “As we go into our new fiscal year, we are excited with the opportunities for the BlackBerry 10 platform, and the commitments we are seeing from our global developers and partners. We are also excited about the new, dynamic culture at BlackBerry, where we are laser-focused on continuing to drive efficiency and improve the company’s profitability while driving innovation.”

BlackBerry launched the first devices powered by its long-anticipated BlackBerry 10 platform at a multi-national launch event on January 30, at the same time announcing it was dropping the ‘Research In Motion’ moniker.

“We have re-invented this company, and we wanted to reflect this in our brand,” Heins said. The firm is now to be known simply as ‘BlackBerry’.

The company also announced the release of two LTE-enabled devices: the 4.2-inch touchscreen-only Z10 and the hybrid 3.1-inch touchscreen/Qwerty Q10.

Many of the key features of BlackBerry 10 had already been demonstrated at various events, although some features were updated as the devices reached the market.

At the heart of the new OS is the BlackBerry Hub, an integrated contacts and social networking app with support for Facebook, Twitter and LinkedIn.

Messages and updates can be read and posted without the need to leave BlackBerry Hub, and contact information can be viewed regardless of the app in which it is stored.

It also supports the BlackBerry Balance feature, which enables users to switch between private and work profiles, with the ability to run both personal and work apps at the same time while keeping corporate data secure and encrypted.

The company’s BBM service has also gained support for voice and video calls, and enables users to share screens in real-time.

Supporting the new devices is a refreshed BlackBerry World store, which includes a range of music and video as well as apps. The app store launched with more than 70,000 apps already available to support the launch of the first BB10 devices.

Research house Ovum said it believed BlackBerry’s financial results are set to provide the first concrete data on how well the new flagship BlackBerry device, the Z10, is performing.

The BlackBerry subscriber base stood at 76 million at the end of the quarter to March 2, down from 79 million at the end of Q3 and from 80 million at the end of Q2

“This could have been a big quarter for BlackBerry, but several factors will work against device sales,” said Jan Dawson, chief telecom analyst at Ovum. “Firstly, the device was only on sale for about a month before the end of the quarter, and critically didn’t launch in the US until several weeks later. Secondly, the Q10, which has the classic BlackBerry hardware keyboard, won’t go on sale for some time still, so many of the prime candidates for buying a BlackBerry 10 device will be waiting for that. Lastly, devices have been supply constrained in the markets where they have launched, meaning that even if people wanted to buy them they haven’t necessarily been able to do so.”

Upon reviewing the results, Dawson said the most important numbers are the one million BlackBerry 10 devices sold, and the loss of three million subscribers. The million devices sold is a sign that BlackBerry achieved decent if not stellar traction in the quarter for its new devices. Given the supply constraints, late launch in the US and the decision to launch the Q10 later, this is a good start for the platform. He believes that the next quarter will provide a much better basis for judging BlackBerry long term, as we will have a full quarter of availability, the launch of the Q10, the US launch and an increase in marketing from BlackBerry and its carrier partners, which should provide a better basis for judging performance going forward.

“This quarter is likely to turn out to be an outlier, with shipments bouncing back next quarter and probably for several quarters afterwards. Anticipation of the launch of BlackBerry 10 likely depressed demand for BlackBerry devices throughout the quarter in markets where the device hadn’t launched yet,” Dawson said.

“The loss of three million subscribers is a worrying sign, however. BlackBerry’s single biggest asset has been its large existing subscriber base, who are the most likely buyers of BlackBerry 10 devices, and the acceleration in the decline of that base reduces the size of the addressable market for BlackBerry 10. It’s also a sign that the growth BlackBerry has seen in emerging markets is no longer enough to offset the rapid decline in mature markets, and it’s unlikely that the company can reverse this trend long-term.”

Dawson believes that as shipments have fallen, service revenues have become much more important, growing from 15 per cent to 36 per cent of BlackBerry’s overall revenues over the past few years. The loss in subscribers means declining service revenues, which will put further pressure on margins, which have dropped in recent years too.

“Overall, there’s some hope in these numbers, but also reasons for serious concern. BlackBerry absolutely has to execute in the next quarter in getting the Z10 available in sufficient numbers, launching the Q10, getting carriers to ramp up their marketing, and building momentum around BB10, if it’s going to make a success of this new platform,” Dawson concluded.