Is BlackBerry Ltd (BBRY) In Denial Phase?


BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) appears to be in a denial phase. Of course, that is nothing new for the company. Even at the height of losing its place in the smartphone category after the launch of Apple Inc. (NASDAQ:AAPL), it maintained its smartphone was doing well. Now, the company’s much-awaited launch of Priv appears to have joined the list. The Canadian firm refused to accept that the model failed to catch the attention of the consumers. However, it could not deny the fact that its hardware revenue dropped one-third on YOY basis in the fourth quarter. A lot was expected from the model, and the results provided a clear picture it could not make any significant progress in the smartphone sale business as one would have thought it earlier. It was but natural that there is a clamor for removing John Chen as its CEO. He was hailed as the turnaround person and remains the same since software revenue witnessing solid growth.

Mixed Results

BlackBerry Ltd (NASDAQ:BBRY) delivered mixed results for the fourth quarter. While its net loss is narrower than the expected level, revenue fell shy of the market expectations. It was due to a number of reasons. The biggest culprit is the hardware division. Its hardware revenue dropped 33% to $189.9 million from $274 million in the year-ago quarter. Sequentially too, there was no respite as it shed 15%. The main reason is the below-par sales performance of its Android-powered Priv in the fourth quarter. It was also clear indication that the company’s hardware business could not be saved even with the help of Android OS + BlackBerry OS.

BlackBerry Ltd (NASDAQ:BBRY) reported Software and services revenue, on a non-GAAP basis, also dipped Q-o-Q by 6% to $153.0 million while the YOY growth, on a GAAP basis, was more than 50%. The point here is that even its focused area of software appears to be delivering lower than the predicted sales. Revenue from the business segment witnessed a fall of 13% from the third quarter owing to weak technology licensing activities. The company added 3,600 enterprise customers in the fourth quarter alone. Its software and services contribution jumped to 28.0% from 11.2% while hardware section dipped to 39.7% from 41.5% in the prior year quarter. The only region to perform was the North America whose contribution has increased to 46.5% from 31.0% in the preceding year quarter.

Denial Phase

When John Chen assumed the position of CEO at BlackBerry Ltd (NASDAQ:BBRY), there were both optimists, as well as, skeptics. Pessimism was there because he was an outsider as the company was long managed by the insider only. Also, how much he would be allowed to execute remained a big question mark. One of his oft-repeated statements was that he would shift his focus on the software business. However, he could never come out with open to talking about the future of the hardware unit, i.e. whether it can survive or in the event of failure can it be closed, etc. That indicated pressure on him from the big shareholders or other the insiders to back the hardware unit.

One of the problems that BlackBerry Ltd (NASDAQ:BBRY) faced was that it could not accept the reality when it comes to the hardware unit. That has been there right from the beginning when Apple Inc. (NASDAQ:AAPL) launched its iPhone followed by the smartphone Android OS launched by Alphabet Inc (NASDAQ:GOOGL). Even now, the Canadian firm is refusing to accept the fundamental realities of the industry dominated by others, and the company has been consistently losing its share. Its market share in the smartphone is less than a percentage now. Currently, the ecosystem has changed, and the company lacked its competitiveness in the marketplace. As a result, its Priv model failed to impress the market in the hardware business.

Falling Unit Sales

BlackBerry Ltd (NASDAQ:BBRY) realized better average price for its hardware. However, the unit has been witnessing a consistent drop over the years. In the recent fourth quarter also, it could sell only 0.6 million devices. That represented about 0.7 million drops in devices or about 53.8% from 1.38 million units sold in the preceding year quarter. The company thinks that its sales were affected by the drop in demand though partly compensated by higher average selling prices. That was due to the launch of four models. However, it refused to accept that its hardware failed to break the ice of the customers. In the third quarter too, its sales were only 0.9 million units. It has been the case since the iPhone entry.

However, BlackBerry Ltd (NASDAQ:BBRY) might believe that the hardware has bottomed out, and it was time for re-establishing itself with the help of Android OS. It was a different matter favorable reviews were there for the Priv device though it was not sufficient enough to ensure solid sales number.

Tough Call before Chen

The Canadian firm has its own way of functioning and focused much towards hardware design, as well as engineering the OS. The consistence underperformance of BB10 might force John Chen to take some hard decisions. However, it would be tough for him to ignore the insiders and take a decision. Therefore, he might be compelled to provide one more chance of turning the hardware division around. The launch of Android-powered Priv might have been a warning to its current BB10, which might face the exit if it continued to underperform.

Conclusion

BlackBerry Ltd (NASDAQ:BBRY) might find it difficult to come out of the hardware business since it constitutes 40% of its business. In fact, it was one of the primary reasons that the company is not willing to write off. Therefore, it is also quite like that the company might go all out to make its hardware division work for it in the first quarter. As such, it is better to wait until the first quarter results to write off its hardware business completely.

Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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