Quick Take
- BlackBerry to debut Z10 in the U.S. on AT&T next week,
followed by Verizon on March 28
- The company has also received a huge 1 million order from a
single customer. However, in the absence of some important
details, it is impossible to infer much from the
announcement
- The U.S. launch is crucial for BlackBerry since it has
traditionally been one of its strongholds.
- Competition from Android and iOS, both in terms of
attracting customers as well as developers, means the road
ahead is tough
- BlackBerry will need to not only convert users of
other platforms, but also stop enterprises from jumping
ship
Ever since news about BB10′s launch in the U.S. came out,
BlackBerry (
BBRY
) has been riding a wave of momentum. The latest news to perk up
the stock was that Verizon (
VZ
) will join AT&T (
T
), in launching the Z10 in the U.S. later this month. While
AT&T will get to launch the long-awaited full touch Z10
smartphone on March 22, Verizon will do the same a week later on
March 28. However, prospective BlackBerry buyers on Verizon will be
able to pre-order their handsets starting March 14. The pricing
remains the same for both the carriers, i.e. $199 with a
two-year postpaid contract. Other U.S. carriers have also expressed
interest in BlackBerry's new devices - T-Mobile started taking
pre-orders for the Z10 from business customers since March 11, and
Sprint (
S
) is expected to launch the Q10, another BB10 handset with a
Qwerty keyboard, soon.
The company announced that it has received an order of 1 million
BB10 units from a single unnamed buyer, making it the single
largest purchase order in its history. However, details about the
deal were not made public, making it hard to draw any context out
of the announcement. For example, we do not know if all those units
will be shipped in a single order or delivered over a period of
time. It is also not known who the customer is. If it is an
existing major carrier partner that has signed a multi-year
contract for not only the existing BB10 models, but also the future
ones - the contract may not be all that impressive. Keeping
the abstractness of the announcement in view, we maintain
our $12 price estimate for BlackBerry's stock
, about 25% below the current market price. An upside/downside to
our price estimate, completely hinges on the sustainability of the
initial success and the kind of market share gains that BB10 sees
in the coming months.
BB10′s U.S. Outlook Uncertain
Geographically, what has hurt BlackBerry the most is the drop in
perceived brand value, in what is one of the most lucrative
smartphone markets in the world - the U.S., where the company
has now lost its 3rd position to Windows Phone. According to
Strategy Analytics, Windows Phone made good market share gains on
some high-profile smartphone launches in Q4 2012, to overtake BB
for the first time ever. BlackBerry will he hoping to reverse
the losses, now that the Z10 is scheduled to launch in the U.S.
next week, but changing public perception of a company that
failed to keep up with Apple and Samsung in a fiercely contested
smartphone market will be tough.
However, the growing number of U.S. carriers announcing support
for BlackBerry has given the company hopes of staging a comeback in
a market that it used to once dominate. But, while carrier support
is a necessary prerequisite, it may not be sufficient to increase
user adoption at a time when rivals Android and iOS are attracting
the most developer resources, and BlackBerry's limited app
availability is being seen as a serious impediment to high-end
smartphone experience.
BlackBerry will also have to fight with a resurgent Windows
Phone for a greater share of the carriers' marketing budgets.
Sure, carriers are looking to increase competition in the
smartphone market and lessen the impact of subsidies on their
margins, but it remains to be seen how much marketing weight
they are willing to put behind the new OS, given iOS and Android's
popularity and Lumia's strong holiday quarter with WP8. The
delays in launching BB10 handsets in the U.S. due to an unusually
long carrier-testing phase, may have potentially been due to this
reluctance.
With BlackBerry nowhere near its peaks of customer appeal, it
will look to get its installed base to upgrade to BB10 initially.
We expect most of the early BB10 adopters to be BlackBerry fans and
existing subscribers, of which there are about 80 million around
the world currently. A majority of these subscribers are in
international markets, where BBM's appeal is still pretty strong.
BB10′s success in the U.S., will therefore depend on the number of
Android and iOS users it manages to convert, especially now that
BlackBerry's market share has tumbled to a historic low of 1.1% in
the country last quarter.
Enterprise Focus Crucial
As important as retail is to BlackBerry, a lot more crucial will
be its ability to latch on to its enterprise clients. By our
estimates, the BlackBerry services division, which includes
push e-mail fees and is reliant on continuous enterprise
patronage, is the company's most valuable division
currently, accounting for more than 35% of our price estimate
for the stock. It is on this division's high-margin revenues that
BlackBerry has managed to generate cash in the last few
quarters despite seeing its handset revenues fall by nearly half in
the past year.
But a carrier push to reduce fees as well as a loss of
enterprise customers to rival platforms as the bring your own
device (BYOD) movement becomes more popular could hinder
BlackBerry's strategic move to boost revenues from the services
division. In addition, the new BB10 devices will not be
supported by the existing enterprise servers (BES), potentially
making the BES 10 upgrade process costlier and complicated, further
reducing BB10′s chances of pushing into the enterprise market. (see
BES 10 Fragmentation Increases The Risk For RIM
)
Making it tougher for BlackBerry is increasing competition from
retail stalwarts Apple and Samsung that are upping the ante in the
enterprise market. Last month, Samsung
debuted its KNOX enterprise mobile
solution
, with which it expects to make its Android smartphones more
secure and take advantage of the ongoing BYOD trend to directly
challenge BlackBerry in the enterprise sector. Apple,
meanwhile, is touting the security of its closed iOS ecosystem and
the iPad's popularity to sign on enterprises customers at
BlackBerry's expense. As a result, BlackBerry's share in the
enterprise smartphone market fell to only about 10% last year.
Apple, on the other hand, accounted for almost 50% of the
smartphones shipped to enterprises, followed by Samsung at 16%.
A lot depends on BB10′s reception in the market
and BlackBerry faces an increasingly uphill battle against the
well-entrenched mobile ecosystems of the iOS and Android that are
steadily making their way into the enterprise market as well.
BlackBerry's mobile market share has plummeted from over 3% in 2011
to an expected 1.8% in 2012. Although we do not expect
BlackBerry to ever reach the heights it once commanded in the
smartphone market, if it manages to take its market share back to
over 3% by the end of our forecast period, there could be a 30%
upside to our price estimate.
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