BlackBerry CEO Shocks the World

Earlier this week, BlackBerry (NASDAQ: BBRY  ) CEO Thorsten Heins shocked the world with some bold predictions. First, at a Milken Institute conference on Monday, Heins argued that tablets will be obsolete in five years. Given that Apple (NASDAQ: AAPL  ) reported 65% year-over-year growth in iPad unit sales in its most recent quarter -- and still lost market share -- Heins' prediction may seem bizarre. However, his point was that smartphones are becoming more and more powerful, and so eventually there may be no advantage to having tablets with dedicated processing power. Instead, you could have a portable screen connected to a smartphone that does all the "heavy lifting."

I think Heins may be exaggerating the usefulness of a tethered screen compared to stand-alone tablets, but his argument for tablets' demise is at least plausible. However, I want to focus on a second bold prediction that Heins made, which is of much greater significance for BlackBerry shareholders. In an interview with Bloomberg, Heins stated that he was very optimistic about BlackBerry's new Q10 smartphone, which just began arriving in stores in the U.K. and Canada this week. In fact, Heins predicted that BlackBerry would sell "several tens of millions of units" of the Q10. If the company can achieve this goal, BlackBerry stock is likely to rocket higher this year.

Q10 expectations are mixed
When BlackBerry formally launched the new BB10 platform, it unveiled its first two smartphone models: Z10 and Q10. Z10 is an all-touch device, while Q10 has a physical QWERTY keyboard. Analysts generally agreed that Z10 would be a niche product, at least initially. People who are looking for a robust touchscreen user interface have already migrated to the iPhone or Google Android phones. With Apple and Google having already locked many users into their respective ecosystems, BlackBerry clearly faces an uphill battle to regain market share. Last quarter, which included roughly one month of Z10 sales in the U.K., Canada, and a few other markets -- but not the U.S. -- BlackBerry sold 1 million Z10 units, which was in line with most analysts' expectations.

By contrast, there has been significant debate about the Q10's potential. Bulls such as Peter Misek of Jefferies have claimed that BlackBerry is now building more than 2 million BB10 phones per month, with Q10 phones making up the majority. By contrast, many observers -- such as Mark Sue of RBC and James Faucette of Pacific Crest -- are more skeptical, expecting strong initial demand for the Q10 model to drop off quickly. Meanwhile, perma-bears such as Brian Blair of Wedge Partners believe that BlackBerry will sell fewer than 10 million BB10 units this year.

Can the Q10 deliver?
Overall, analyst expectations for the Q10 are mixed but skew bearish; on average, analysts expect a brief bounce in sales that will quickly dissipate. In light of this consensus, if BlackBerry meets Heins' projection with 20 million to 30 million Q10 unit sales this year, BlackBerry stock is likely to move significantly higher. Assuming that BlackBerry earns a profit of just $175 per device (based on a gross margin of 35% and wholesale ASP of $500), each additional 1 million unit sales would increase the company's FY14 EPS by $0.25. Even if Q10 sales total just 20 million (the minimum consistent with Heins' "tens of millions" prediction) that would exceed some analysts' forecasts by 10 million or more, leading to substantially higher-than-expected earnings.

Can the Q10 perform this well? Heins pointed out in his Bloomberg interview that BlackBerry has a user base of more than 70 million, although many of those are located in lower-income countries, where few people could afford the price tag of the Q10. In the recently ended fiscal year, BlackBerry generated 37.4% of its revenue in the U.S., U.K., and Canada, down from 39.9% in FY12 and 57.5% in FY11. These figures suggest that 30%-40% of current BlackBerry subscribers may live in high-income countries, and could thus be considered likely Q10 upgrade candidates.

Obviously, it is not clear how many of these users will actually decide to upgrade this year. BlackBerry may also target former subscribers, but most of these people have probably committed to iOS or Android by now, making it difficult to lure them back. Nevertheless, I continue to believe that most current high-end BlackBerry users plan to upgrade this year, and this makes 20 million Q10 unit sales a plausible target for FY14. If Heins can deliver that level of sales, BlackBerry bears will be shocked yet again, while shareholders will be delighted. Any upside beyond that would just magnify the effect.

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Read/Post Comments (23) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2013, at 8:08 PM, dwilh51183 wrote:

    BUY AAPL PRODUCTS! ...THEY NEVER BREAK DOWN, NEVER GET VIRUSES, ALWAYS TOP NOTCH QUALITY.LOOKING FORWARD TO SELLING MY IPHONE 4S FOR 500.00 AND BUYING A NEW IPHONE5S FOR $329.00

  • Report this Comment On May 03, 2013, at 8:17 PM, tkell31 wrote:

    Clearly he's someone you should trust about the future. He did such a good job with...oh wait. I know he only took over after the end was near, but he was still there.

  • Report this Comment On May 03, 2013, at 8:28 PM, makelvin wrote:

    "...Instead, you could have a portable screen connected to a smartphone that does all the "heavy lifting."..."

    Hmm... this sounds awful familiar. Oh yeah, at point Palm was trying to introduce a device called "Foleo". It is a companion device to its Palm Treo. It is essentially a portable screen with a keyboard that requires the Treo cellphone for all of its fundamental functions, storage, and communications to the outside world. I wonder how that turn out?

  • Report this Comment On May 03, 2013, at 9:08 PM, nehmeg wrote:

    Tethering the phone using cable to a portable screen is not very practical and very cumbersome. Docking the phone into a slot on the back of the screen sounds much better and very efficient.

  • Report this Comment On May 03, 2013, at 9:27 PM, Oril wrote:

    Shocks the world.

    Wow, that's heavy.

    Now for some real news.

    Are you aware that DOD (that's the US Defence dept) approved all BB10 devices for use in all departments as well as some Samsung.

    Oh yeah they didn't even mention apple.

    So much for all that Fool BS that was being printed this week about DOD dumping Blackberry.

    Since military and government agencies generally use what they are told and do what they are told there will be no BYOD issues.

  • Report this Comment On May 03, 2013, at 9:33 PM, ericw72 wrote:

    He never said they would sell 20 million in one year. But in two years, which is the average span of a sp model to be sold, he expects probably 30 million. You shouldn't use the obvious and try to make something that isn't true. Analysts expect bbry to sell 2-3 million bb10 devices this qtr. I think that's a hysterical joke. The stock is being manipulated by some group. That is also obvious considering it didn't rise on today's news. But what else is new. Eventually the idiotic shorts will have to cover and it will be at much higher prices.

  • Report this Comment On May 03, 2013, at 9:36 PM, ericw72 wrote:

    Actually Oril, it was ONE lone device that was approved for Samsung. Something I have never even heard of. So we should assume that bbry with 470k devices currently used by the dod won't see a similar amount of upgrades over the next year? Of course we will. Because if the dod trusted ios and droid and wanted to switch, they would have done so over the past 2 years when bbry was "so dead".

  • Report this Comment On May 03, 2013, at 9:37 PM, ericw72 wrote:

    Yes neh, I guess every time you charge your iphone, that is a cumbersome process. Fool!! No pun intended.

  • Report this Comment On May 03, 2013, at 10:01 PM, MotleyDirtbags wrote:

    He never said tablets would be obsolete in 5 years. Those are your words. What he said was there would be no need to own a tablet. That's a big difference. I never heard him say they wouldn't be used. Take your column for an example. it's completely useles, yet we still have it. Useless junk will always be around.

  • Report this Comment On May 03, 2013, at 10:27 PM, RandomMeaning wrote:

    On May 03, 2013, at 8:28 PM, makelvin wrote:

    "...Instead, you could have a portable screen connected to a smartphone that does all the "heavy lifting."..."

    Hmm... this sounds awful familiar. Oh yeah, at point Palm was trying to introduce a device called "Foleo". It is a companion device to its Palm Treo. It is essentially a portable screen with a keyboard that requires the Treo cellphone for all of its fundamental functions, storage, and communications to the outside world. I wonder how that turn out?"

    Good catch.

  • Report this Comment On May 03, 2013, at 10:40 PM, Oril wrote:

    You are right, Heins never said that tablets will be obsolete in five years.

    However what we can fairly certain of is that virtually every Apple product in use today will be declared obsolete by apple. The first generation iPhone that Jobs was so proud of never even made it to six years.

  • Report this Comment On May 03, 2013, at 10:53 PM, Rockthebest wrote:

    Tablets are waste of money.

  • Report this Comment On May 03, 2013, at 11:04 PM, mdl00 wrote:

    @Oril - off topic, much? Perhaps you are not aware this article is about BlackBerry, not Apple. But you are more than free to drool every time Samdung increases the screen size of their phone.

  • Report this Comment On May 04, 2013, at 3:02 AM, rusfuture wrote:

    Heins might have it backwards. I have all this stuff, iPad, two Blackberry Playbooks, and a little Ericson flipphone. The Playbook is the device I am most dependent on. Rather than a "smartphone", which is designed to burn bandwidth, and make the carriers rich, a tablet with wifi/wimax access might be best supplimented with small telephone attachment.

    A tiny headset or earbud-like thingy maybe. The tablet, with a decent-sized screen, is your main device. It is *completely* independent of any metered carrier, but provides telecom-like voice - or full video - access, with appropriate app-attachments, if and when you want it. And I find I quite like having the tiny cellphone seperate from my tablet. Basically, the telecom device - with its carrier dependency, is probably best form-factored as a headset, earbud, or glasses. The tablet needs a big screen, and robust construction. My sense is that the tablet will survive, and the "smartphone" will become a small headset, maybe with voice activation? But maybe I'm biased, as I've been developing computational apps for the Playbook - old-school stuff, programming languages, analytic graphics, and such. The Playbook can run DOSbox, and all this great open-source code, along with email and browser. It's a real workhorse.

    I think the tablet will survive, and the cellphone will become a small thing that you wear, or.just stick into your ear. Isn't this already happening?

    - Rus

  • Report this Comment On May 04, 2013, at 8:58 AM, TMFGemHunter wrote:

    A few comments: Heins said, "“In five years, I don’t think there’ll be a reason to have a tablet anymore,” I think that my paraphrase of "obsolete" is pretty accurate.

    I should have been clearer about what I meant by "tethering": it's a Bluetooth link, not an actual cord. BlackBerry is already using this technology to allow Wi-Fi tablets to "piggy-back" off of a BlackBerry smartphone's cell connection.

    While I'm skeptical about this prediction, the Palm comparison isn't really fair. Palm phones didn't have LTE modems, and they also didn't have much of an installed base.

    As for Q10 sales, I agree that Heins was unclear about what period of time he's talking about. I would imagine the company is planning a Q10 successor for sometime in 2014, but it's possible that BB would follow Apple by dropping Q10's price when the successor hits the market. That could add a lot of additional unit sales.

    Adam

  • Report this Comment On May 04, 2013, at 12:48 PM, Chippy55 wrote:

    Cut the crap. "Shocked" the world? For stating an informed opinion? Just curious but what verb would you use to describe Obama who told Mexicans that the U.S. was to blame for sending guns to Mexico, oh wait, it was he and Holder who sent those 2,000 AK-47s across the border wasn't it. Well what you call Obama's literary agent stating that Obama said he was born in Kenya and his literary agent wrote that in his book?

    By the way, will the Fool be reminding us in 5 years of whether Mr. Heins opinion came true? May 4, 2018 - Shockingly, Mr. Heins, Who Recently Acquired Apple, Made A Shocking Announcement To The World Which Came True.

  • Report this Comment On May 04, 2013, at 1:27 PM, Chippy55 wrote:

    If Samsung is so great why aren't they listed on the NYSE or NASDAQ? Last time I looked you had to invest in them using Global Depository Receipts or on pink sheets for $1,350 per share (triple APPL's price), and it's thinly traded on the pink sheets, roughly 150 shares per day. Or you can buy 87 shares of BBRY, Which of those three stocks will you double your money in? Anyone seeing Samsung going to $2,700 or Apple to $900 this year? And by the way, at what point in the last 6 months (assuming Apple has a long range financial plan, and 6 months seems reasonable) did they decide to go out and issue $17 billion worth of bonds, despite having $137 in the bank? It wasn't that long ago that Einhorn was trying to stir up management by insisting that Apple return some of that $137 billion back to shareholders, but Apple seems to content to just leave that sum of overseas and one of the tax avoidance strategies they follow is known in financial circles as a Double Irish with a Dutch Sandwich, and apparently several companies follow that tax avoidance maneuver, except of course GE which managed to completely avoid paying taxes on income of $14 billion and more infamously Leona Helmsley who stated that "only little people pay taxes" before the Queen of Mean was hauled off to jail. One things for sure, we won't be seeing a short squeeze in AAPL any time soon, the longs outnumber them 49 to 1, but BBRY has 33% of the total float held by Mr. Shorter and whenever the squeeze comes, as a result of news, no news, rumor, or another riot at Foxcon, long term investors will be rewarded.

  • Report this Comment On May 04, 2013, at 5:37 PM, tundrowalker wrote:

    I think his prediction will pan out in a different way.

    Eventually folks won't have a dedicated,all-in-one device. IE: a smartphone, a tablet. Instead, they'll have what looks like a USB flash drive that they simply slip into a screen/speaker output device. It won't stick out like today's usb flash drives. Instead, it'll be form-fitted to the device, like sliding into a hole or such. The stick will have the cpu, gpu, memory, os, wifi, etc all on it. The screen you form-fit it to will just provide screen, speakers, touch, etc...just an input/output device. You can slide the stick into a smartphone-like screen to keep it portable, or slip it out and slide it into a larger tablet-like screen, or slip it out and slide it into a majorly big screen at home to work on it like a computer.

    Look at it this way ... the PC was like the industrial revoluton. All of these things came together to work in one location on the PC... it did music, video, etc. But, then smartphones came along, and folks used them for music, email, chat, phone.

    Now that smartphones are getting more powerful, they can even play more powerful games, can do more powerful things. The system on a chip (SoC) is getting more powerful and smaller every day. Eventually you'll just need a pack-of-gum-sized thing that is your "computer", and you'll just pick-n-choose interface devices to plug it into to interact with it, from a smartphone interface, tablet, laptop ... whatever. So, I can understand his reasoning behind this.

    Blackberry is leveraging QNX operating system, which makes this kind of stuff highly possible, and the smartphones they rolled out are only the first iteration to compete on-par with iPhone. This is what they've done having only toyed around with QNX so far. Given a few year time, their n+1 iteration of phones and devices could be better than iPhones. If they branch off into SoC that plugs into different interface devices, that could be the new future of mobile computing, and it wouldn't put tablets or smartphones out of business... it would put all-in-one tablets, smartphones, etc out of business.

    I really think BB has the potential to do great things in the future. They learned some hard lessons, and insteaad of cutting corners like other companies, they threw money at R&D, optimizing work flows, and are making a concerted effort to get back into the game, not only in the current iteration of it, but in looking at ways of changing it. The QNX operating system is going to give them a massive advantage.

  • Report this Comment On May 04, 2013, at 11:24 PM, MrZ2357 wrote:

    "“In five years, I don’t think there’ll be a reason to have a tablet anymore,”

    is not the same as:

    In five years, tablets will be obsolete.

    I think a first grader can tell the difference.

    Your paraphrase is incorrect and unfair.

    Secondly, he did not say that Q10 will sell in the 10s of millions, he said that the "expectation" is that the q10 will sell in the 10s of millions. His statement on Bloomberg allows for the fact that the Q10 may not sell that well.

    I don't know why you and the media in general miss quote Heins and present an incorrect sensationalized bastardization.

    At best it is sloppy journalism.

  • Report this Comment On May 05, 2013, at 8:25 AM, Webatola wrote:

    Recently I started looking at Apple products specifically laptops and rented a Macbook Air, because all other companies are assembling cheap garbage that’s junk in 3 months.

    And because windows seven and above move text all over the place and delete paragraphs and Microsoft won t bother to fix this. I am either going back to a faster productive windows 98 for office or graduate to a Macbook.

    I have to say seeing the quality of Apple parts etc they will be a healthy company for a long time to come. I wish so much Steve Jobs wouldn’t have passed. He was very passionate and involved in his work and an excellent demonstrator etc.

    Whether I was an Apple freak or not Jobs earned my respect with his presentations of I-tunes etc and I believe every person should be in a job they love with such compassion. That’s how you change the world and truly innovate and I am working on efficiency systems myself to do just that.

    Robert Sandera 2016 Serious American Party Presidential Candidate.

    .

  • Report this Comment On May 05, 2013, at 10:16 PM, BlackberryIsKing wrote:

    TH is a genius. He knows what he's saying and doing. And he is right.

    Apple products suck. Overpriced, under performing, garbage.

    Blackberry Z10 and Q10 run circles around all other phones. The future is Blackberry's. Apple is dead. Android is dying.

    Long BBRY.

  • Report this Comment On May 06, 2013, at 11:18 AM, cbglobal wrote:

    In 2003 Steve Jobs was skeptical about tablets. He died thinking small tablets were not worth selling. But he sold them anyway.

  • Report this Comment On May 08, 2013, at 5:50 AM, Webatola wrote:

    Oh I'm Shocked. And Pigs are going to fly LOL!

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