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BlackBerry is Back From the Dead

Posted
4/1/2013 11:06:00 AM
By: Chris Ciaccia
Referenced Stocks:AAPL;BBRY;GOOG

 

BlackBerry has had a rough go of it in recent years, losing market share to the likes of Apple and Samsung in the smartphone wars. This past quarter shows that while BlackBerry still has a lot of work to do to get anywhere close to its dominance, the company is not dead yet.

 

BlackBerry surprised analysts, earning 22 cents a share on $2.7 billion in revenue when it announced its fiscal fourth-quarter earnings last week. That shocked analysts surveyed by Thomson Reuters, who were looking for BlackBerry to post a loss for the quarter, losing 29 cents per share on $2.84 billion in sales. If that wasn't enough, BlackBerry said it expects to report breakeven financial results for its first-quarter, while Wall Street analysts polled by Thomson Reuters were expecting a loss of 10 cents a share on $3.28 billion in revenue.

 

The company is in a much better financial position now than it was a year ago, thanks in part to the CORE (Cost Optimization and Resource Efficiency) program, which has saved the BlackBerry approximately $1 billion in expenses. The program finished up a quarter early, and is allowing BlackBerry to run at a much more efficient scale than previously. CEO Thorsten Heins noted as such in the press release, talking about the changes that led to a stronger-than-expected fourth quarter. "We have implemented numerous changes at BlackBerry over the past year and those changes have resulted in the Company returning to profitability in the fourth quarter," Heins said in the press release.

 

There's been much optimism placed on the BlackBerry 10 operating system, since it was announced in late January. BlackBerry was losing not only market share to Apple and Samsung, but mind share as well. BlackBerry 10 has made the company relevant again, though it still has a long way to go. BlackBerry's market share in the fourth-quarter was just 3.2%, a far cry from when it used to dominate the game, prior to the launch of the iPhone. The Z10, BlackBerry's touch screen phone has sold well in its initial release, with 1 million units shipped in the most recent quarter. Thought that is a far cry from the 48 million iPhones sold in Apple's most recent quarter, it's a start, and it shows that consumers want the device, with 55% of those 1 million users coming from other platforms, the company noted on the conference call.

 

Societe Generale analyst Andy Perkins, who rates shares Sell, says the release has gone better than expected, helping improve the company's financial results. "With the product launched on the US market, there should be opportunity for the volumes to grow again in Q1 FY14," Perkins wrote in his note. He believes that the launch of BlackBerry's QWERTY smartphone, the Q10, will help results as well. The concern is that the company's high-end phones will have a short shelf life, with the Samsung Galaxy S 4 launching in April as well. "Nonetheless, this is an impressive turnaround for the company," Perkins wrote in the note.

 

Sterne Agee analyst Shaw Wu pointed out the fact gross margins came in sharply higher than anyone was anticipating, as being the primary driver for a positive earnings surprise. Wu noted that gross margins were 40%, "much higher than expectations of 30%-31%, driven by higher ASPs and cost reductions." BlackBerry has been able to stabilize its business Wu noted, and cash only declined $63 million sequentially. BlackBerry 10 isn't going to pose a threat to Apple's iOS and Google's Android anytime soon, but the company has righted the ship. "The key question remains whether the company can maintain momentum..." Wu wrote in his note. Wu rates shares Neutral.

 

For the past eighteen months, many critics (including myself) have called for BlackBerry to be taken private, and reorganized in private, as a public turnaround of this magnitude is extremely difficult. I've been wrong, with the company showing that it can be done. The company still has its fair share of problems, including losing 3 million subscribers from last quarter going from 79 million to 76 million. There's also the matter of a weak Z10 launch in the United States, the world's largest smartphone market. Despite these problems, Heins and his team have stopped the hemorrhaging going on in Waterloo, Ontario, and righted the ship.

 

BlackBerry may never be what it once was, at its heyday, the king of a burgeoning industry. That doesn't mean the Canadian-based technology company can't compete in the marketplace, as it brings new products to market, and expands the reach of BlackBerry 10 into other categories. BlackBerry has put in a lot of hard work, and shareholders have been rewarded, with the stock up nearly 84% over the past six months. There is still a lot of work for BlackBerry to do, but it's no longer at deaths' door. Now, it's up to the company to keep the positive momentum going. I have a feeling that's likely to continue.