Is BlackBerry Back?

This Friday will be a big day for BlackBerry (NASDAQ: BBRY  ) . The troubled smartphone maker is hoping for a renaissance, powered by a variety of new phones running the company's QNX-based BB10 OS. The company's upcoming earnings report will be the second since BlackBerry 10 smartphones started to roll out worldwide. It's also the first report since the launch of the Q10: the first BB10 phone with BlackBerry's signature QWERTY keyboard. The report will therefore provide some insight into the demand for these new models.

The BlackBerry Q10.

The new BlackBerry platform is nowhere near challenging market leaders Apple and Google, but investors hope it will be able to carve out its own niche in the rapidly growing smartphone market. However, observers are sharply divided in their beliefs about just how much traction BlackBerry 10 is gaining. Next week's earnings report and the associated conference call should help a lot in terms of understanding whether BlackBerry can mount a real comeback.

Analysts divided
As my Foolish colleague Tim Brugger recently highlighted, BlackBerry analysts just don't know what to expect from the company. Last Friday, an analyst at Societe Generale upgraded the company, writing that demand for the new BB10 phones has been stronger than expected, and the company could have sold more than 5 million units last quarter. Analysts at RBC and Jefferies are also expecting strong results for the recently ended quarter.

However, there is an even larger pool of analysts who are convinced that BlackBerry is on the brink of collapse. This Wednesday, an analyst at Bernstein Research cut his rating on the stock, arguing that consumer demand for the new BB10 phones has fallen off rapidly. Similarly, longtime BlackBerry bear James Faucette of Pacific Crest opined that the vast majority of BB10 phones being produced are going into inventory, and that global BB10 phone demand is less than 500,000 units per month.

Let's see some numbers
Opinion on Wall Street is thus hopelessly divided. Over the past six months or so, a few analysts have crossed over from the bear camp to the bull camp or vice-versa, but for the most part they have become ever more convinced that their initial beliefs were true. Furthermore, the market is flooded with a variety of rumors about BlackBerry supply and demand. We need more hard data to get a decent sense of the company's chances.

BlackBerry investors should be looking for two things on Friday: a sales number for BlackBerry 10 phones (anything above 4 million is good, while anything under 3 million is bad), and some commentary on sell-through. Sell-through refers to the number of units actually in the hands of users, and thus excludes phones sold to wholesalers and retailers that are still sitting in inventory. Last quarter, CEO Thorsten Heins said that at least two-thirds to three-quarters of the units shipped by BlackBerry had already sold through to end users. That's a very strong figure, and investors need to see whether the company can repeat that performance.

What does it all mean?
Nobody thinks BlackBerry is going to rival Apple or Samsung in terms of shipment volume in the foreseeable future. However, BlackBerry has traded below book value for a long time, which implies that many people still expect the company to go out of business relatively soon. In other words, it's not really fair to compare BlackBerry with Apple, Samsung, and Google for investment purposes. If BlackBerry can carve out a small niche in the smartphone market -- perhaps 5% of the high-end and midrange segments -- investors will be thrilled. Anything beyond that is just icing on the cake.

Realistically, to accomplish this, BlackBerry needs to start by converting most of its existing subscribers to BlackBerry 10 devices. Considering how outdated the legacy BlackBerry OS is, these users ought to be very excited about the opportunity to upgrade to a much snappier BlackBerry phone. If this is true, there should be enough pent-up demand to soak up at least 4 million to 5 million Z10 and Q10 phones for the first several quarters of production.

If BlackBerry was able to ship 5 million BB10 phones last quarter, and three-quarters of them sold through to consumers during the quarter, it would strongly suggest that this "turnaround scenario" is materializing. If shipments or sell-through are notably weaker, it will confirm the bears' fears about BlackBerry getting squeezed out of the smartphone market. For now, investors need to wait and see. Hopefully, BlackBerry's future will become a lot clearer on Friday.

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Read/Post Comments (6) | Recommend This Article (9)

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 June 22, 2013, at 11:40 AM, TimmyBee123 wrote:

    "...The new BlackBerry platform is nowhere near challenging market leaders Apple and Google,..."

    It is in Canada, the UK and South Africa. Also other countries in Africa and Asia.

    Stop being so US-centric.

  • Report this Comment On June 22, 2013, at 12:12 PM, TMFGemHunter wrote:

    I'm not being US-centric. I'm being "world-centric". Apple and Samsung are each selling 150 million high end phones a year; if BlackBerry gets 10% of that number this year it would be a solid result.

    Yes, there are a few countries where BlackBerry is relatively popular, but those are far outweighed by the higher-volume markets where BlackBerry is non-existent (e.g. Japan) or very small from a market share perspective.

    Adam

  • Report this Comment On June 22, 2013, at 12:14 PM, HelpIsHere wrote:

    So BlackBerry has 30% of the Canadian market, ahead of Android and just about to capture Apple's lead by the end of this year, .... and you don't think they can compete? Shorts are a dying breed now. Do some research on their market share, it doesn't take much to get your facts straight here.

  • Report this Comment On June 22, 2013, at 5:20 PM, eidsonb wrote:

    I took this quote... "The new BlackBerry platform is nowhere near challenging market leaders Apple and Google, but investors hope it will be able to carve out its own niche in the rapidly growing smartphone market" a bit different.

    BB10 is vastly superior to BOTH the old and stale iOS, so much so that iOS copies many of the features for iOS 7. and the Buggy and Insecure Android.

    If you take it the other way then you should said something about BB10 being off to a good start but only time will tell if indeed it will challenge them for market share,

    The short analysts have a sever case of puckering because of the sucess of BB10 and recent history shows that these so called analysts will say just about anything to counter good news,

    I have a Z10 and love it, replaced my old 9810, I was going to buy a Q10 when they came out but now I am going to wait till November when the A10 comes out,

  • Report this Comment On June 22, 2013, at 9:19 PM, DeezGunz wrote:

    Nice article, I'm long blackberry but for some reason there are people on here that can't handle a sentence or two of skepticism...it's obscenely obnoxious and this comment is the only reason I just signed up here...to tell you to keep up the good work.

  • Report this Comment On June 23, 2013, at 10:08 AM, ashar007 wrote:

    BlackBerry Z10 had lots of fun & cool app that good for consumer also innovation good for business and I have one which is mini gadget of PlayBook but with many New design thus Z10 is ushering the direction of smartphone. I long for bbry, and being hold over 4000 shares, I am confident that long beat out short.

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