BlackBerry decline continues

BlackBerry's most immediate challenge is how to make its device business profitable, says CEO John Chen.

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Although smartphones have, for the first time, outsold feature phones, embattled Canadian manufacturer BlackBerry is not going along for the ride and needs to reinvent itself quickly, before it loses what is left of its perception of usefulness.

Gartner's latest research, released yesterday, shows BlackBerry's operating system only accounted for 1.9% of overall market share last year, falling from its 2012 stake of 5%. The device maker's OS is still lagging behind Android, iOS and Microsoft when it comes to consumer choice, the research house's figures show.

BlackBerry's falling stake comes despite a general 36% gain in smartphone sales in the last quarter of 2013, with these handsets now accounting for 57.6% of all mobile sales - up from 44% in 2012. Gartner's top five vendors for 2013 are: Samsung, Apple, Huawei, LG and Lenovo.

The market is also not impressed with BlackBerry, with its stock continuing to decline to last trade at $8.98 on the Nasdaq, down from the $9.27 it opened at, valuing the company at $4.73 billion. The share price was at an all-time high when the company was in its growth phase, back in 2007, and it reached almost $150.

Its continuing decline in value comes despite top level changes and growth plans unveiled by CEO John Chen to restore the company to profitability. Chen, appointed in November to replace Thorsten Heins, said in December: "BlackBerry has established a clear roadmap that will allow it to target a return to improved financial performance in the coming year."

However, its third quarter results showed a $4.4 billion loss due to an inventory write-down and asset impairment charges.

Speaking on the back of the device maker's latest results, Chen said while its enterprise services, messaging and QNX embedded business are already well-positioned to compete, the most immediate challenge is how to transition the devices' operations to a more profitable business model.

BlackBerry's QNX OS, which it is leveraging in the cloud, could be BlackBerry's saving grace, says World Wide Worx MD Arthur Goldstuck. This unit has potential and offers quality as a utility and may be worth as much as all of BlackBerry, he adds.

Goldstuck says BlackBerry has lost strategic direction and has a history of pushing out devices that are overpriced when it should be aggressively competing in the emerging markets, where it still has potential. He says the rumoured low-cost Z3, or Jakarta, is likely to miss the price mark as well.

BlackBerry, which widened its loss in the quarter, has been moving to a four-unit operating structure: enterprise services, messaging, QNX embedded business, and the devices business. This seeks to drive greater focus on services and software, while establishing a more efficient business model for the devices units.

Chen says: "We have accomplished a lot in the past 45 days, but still have significant work ahead of us as we target improved financial performance next year. However, the company is financially strong, has a broad and trusted product portfolio to work with, a talented employee base, and a new leadership team dedicated to implementing our new roadmap."

BlackBerry needs to focus on the core enterprise business, says Ovum analyst Richard Hurst.

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Goldstuck says it does have money in the bank, some $3.2 billion, and could survive for another two years, but - at the rate it is burning through its cash and investments - by then there would be nothing left. He points out its current stock price is not a low and is off the $7 it saw when it was in trouble, so the market must see some value.

Ovum analyst Richard Hurst says: "It's almost like they are scrambling." He notes BlackBerry - which once dominated the smartphone field - has taken its eye off the ball.

Hurst expects BlackBerry to ditch devices altogether and focus on enterprise mobility, but says this will be tough to do without handsets. He does not see the company dying in the next few years, but says it must stick to its core enterprise business, and the going will not be without difficulty.

BlackBerry needs to reinvent itself quickly so that it does not lose all perception of relevance, says Hurst. Absa Investments analyst Chris Gilmour says BlackBerry should stop wasting money on handsets as it is too far behind the curve to catch up.

The Canadian device maker has lost strategic direction, says World Wide Worx MD Arthur Goldstuck.

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"I think they need to concentrate on security software, even though it is getting usurped by relatively new entrants such as Good for Enterprise."

Goldstuck adds BlackBerry's range of "10" devices failed to convince the market and it has not been innovating when it comes to devices, although its physical keyboard offerings are among the best.

In the third quarter, BlackBerry sold 1.9 million handsets, down from 3.7 million in the previous quarter, most of which were BlackBerry 7 devices.

However, the company has been boosting its Messenger (BBM) offering, launching new services and opening it up to Android and iPhone users. Goldstuck says BBM is superior to many other over-the-top services such as WhatsApp, as it has voice and video, but this message is not getting through to end-users.

BlackBerry must stop wasting money on handset development, says Absa Investments analyst Chris Gilmour.

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Hurst says BBM is losing its appeal in a market where other over-the-top services seem to offer the same functionality at little or no cost. Gilmour says BBM is no longer significant because of the entrance of other similar players.

Goldstuck says the big issue is how BlackBerry would monetise this offering.

BlackBerry, which is shedding 4 500 jobs across the globe, needs to be saved before it runs out of money, says Goldstuck. "Chen doesn't appear to have discovered the magic formula to restore life to BlackBerry yet."

Says Gilmour: "Its main challenge is remaining relevant in a rapidly-changing world. Its main advantage lies in a hard core of fiercely loyal customers who value the security aspects of the product."

Worldwide smartphone sales to end-users by OS in 2013:

Source: Gartner (February 2014)