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Can You Truly Count on BlackBerry?

On Monday, BlackBerry  (NASDAQ: BBRY  ) posted an open letter to appease its worried customers, partners, and fans.

In short, the letter states that despite the struggling smartphone maker's significant challenges, they want you to know "You can continue to count on BlackBerry."

BlackBerry stock, Fairfax Financial stock
We've heard this one before...
By leading off with a broad-reaching statement like that, it's very clear BlackBerry is attempting to get out in front of the perception its platform is dead. 

But before you go blindly accepting this comforting gesture, let's dig in to examine the letter's claims to see if they actually hold water.

First, BlackBerry cites its goal to cut operating expenses by 50% by the end of its fiscal first quarter in 2015 -- an effort which notably began with its decision to lay off around 4,500 workers a few weeks ago -- while vaguely citing "substantial cash on hand and a balance sheet that is debt free" as evidence it will be able to continue operating.

True, BlackBerry did say at the end of Q2 it had $2.6 billion in cash and no debt. But remember that's down $500 million sequentially from $3.1 billion at the end of June, which means they just burned through nearly a sixth of their cash in a single quarter. That's also not to mention the $400 million restructuring charge BlackBerry disclosed in an SEC filing earlier this month -- but you certainly won't find that information among its press releases.

Worse yet, despite the layoffs, BlackBerry's hardware division could continue burning cash going forward, so citing the strength of its current cash position as evidence of its enduring qualities seems specious at best.

Best in class?
What's more, BlackBerry's letter also states it's important they "set the record straight on a few things," including several areas the company believes it offers "Best in Class" solutions.

Naturally, they don't need to stretch far to argue BlackBerry offers solid security and enterprise mobility management products. After all, as the letter points out, BlackBerry's Enterprise Service 10 server base did grow by more than 30% sequentially to 25,000 last quarter. It should come as no surprise, then, that BlackBerry told investors a few weeks ago that it is refocusing on the "prosumer market" going forward.

But its other claims seem to be mostly fluff, including the assertion BlackBerry provides "best in class productivity tool[s]" through its revamped portfolio of four BlackBerry 10 devices.

Remember, massive inventory writedowns stemming from weak BB10 device sales were the primary driver behind BlackBerry's stunning $965 million GAAP loss last quarter. All in all, that's why it seems more than a little silly when the letter goes on to brag that BlackBerry offers the "best mobile typing experience -- no ifs, ands or buts about it."

In addition, the letter lists BlackBerry's BBM platform as a "best in class mobile social network," a claim largely hinging upon the roughly 6 million customers who've already pre-registered to be notified of its roll out. But they didn't mention the fact that, per the company's own announcement, BBM was supposed to be released for Android and iOS nearly a month ago. Unfortunately, that release hit some stubborn, unforeseen snags which haven't done any favors in building BlackBerry's rapport.

But remember, 6 million waiting users is also minuscule in the grand scheme of things. If you recall, last month Scotiabank analyst Gus Papageorgiou was counting on BBM to grow its installed user base to at least 250 million people to support his incredibly optimistic view of BBM being worth $5 per share in BlackBerry's valuation.

I respectfully disagreed with that view, but in any case it's safe to say BlackBerry's going to need to put up significantly larger numbers for anyone to realistically consider BBM "best in class."

BlackBerry's only hope
But don't get me wrong -- there at least one possible scenario in which BlackBerry can power through these challenges.

The most obvious, of course, involves one of BlackBerry's various suitors successfully taking the company private, which would allow the new owners to infuse BlackBerry with adequate levels of much-needed capital to give them a chance to lower capital expenditures enough to return to sustained long-term profitability. In fact, that's exactly what Prem Watsa of Fairfax Financial (NASDAQOTH: FRFHF  ) (TSX: FFH  ) said he intends to do if he's able to follow through with the $9 per share acquisition offer he put forward late last month.

Foolish takeaway
If the letter made one thing clear, it's that all the negative press surrounding BlackBerry is definitely hurting its business. Regardless of whether BlackBerry's products are indeed "best in class," competition these days is overwhelmingly driven by platform strength. Customers, in turn, make purchasing decisions based on those respective platforms. If people think BlackBerry is going away, they simply won't buy.

In the end, that's why the question still remains: Will BlackBerry be around for the foreseeable future? Maybe, but I wouldn't count on it.

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Read/Post Comments (5) | Recommend This Article (2)

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 October 16, 2013, at 3:20 PM, k1moops wrote:

    Talent is in severe shortage at Blackberry. Without great talent, it is impossible for any company to compete for survival, let alone the tiny Blackberry company. However, if Blackberry wakes up in time and enrol the talents and skills to vastly bolster its human resources now and take much more drastic efforts delivering next generation products and services such as intelligent and analytics devices that provide a vastly more human interface that require no learning curve for an array of different cultures and disciplines, then certainly Blackberry can ride the crest of the creative industry again.

  • Report this Comment On October 16, 2013, at 4:01 PM, hawt2trot wrote:

    "6 million waiting users is also minuscule in the grand scheme of things. If you recall, last month Scotiabank analyst Gus Papageorgiou was counting on BBM to grow its installed user base to at least 250 million people to support his incredibly optimistic view of BBM being worth $5 per share in BlackBerry's valuation."

    6 million Apple and Android users PLUS the existing 65-70 million.

  • Report this Comment On October 16, 2013, at 4:28 PM, TMFSymington wrote:

    @hawt2trot, Sure...but that also begs the question: Why didn't BlackBerry call attention to that in its letter?

    This also assumes all of BBM's existing BlackBerry users will stick around as long as the company's subscriber attrition remains so high. Going forward, remember BlackBerry won't be able to monetize BBM through its subscription fees like it did before, especially as it migrates the app to a free, ad-supported platform for iOS and Android -- a market which already offers plenty of well-established competition.

  • Report this Comment On October 16, 2013, at 5:13 PM, bbgirl65 wrote:

    You can certainly see why BlackBerry would want to go private now, there are literally 1,000's of articles as ill thought out as this one. We see the same author posting more than one per day with mountains of errors in them. At least those of us who follow the market wouldn't have to read all of this crap every day, what a blessing that would be. Samsung phones are cheap looking and feel aweful in your hand and Apple has yet to innovate. BlackBerry has been given plenty of time to challenge these boring companies but the media won't let them get on with business.

  • Report this Comment On October 16, 2013, at 7:54 PM, jwyoungy wrote:

    This is nothing but a bashing article. You love to point out the things BlackBerry left out like the $400 million in restructuring costs but you didn't mention the $500 million in tax refunds announced shortly after that. As for the keyboard, anyone who uses two devices (like myself) knows that the keyboard on BlackBerry phones is the best in the business. The gesture based control is far more efficient than the home button on my iPhone so yes, they are more productive. As for BBM, it is the best I have ever used. I don't know how it will be on iPhone and Android as people have to sign up for a PIN but when you own a BlackBerry, the PIN comes with it. There will also be missing features like video chat and channels when they first launch BBM cross platform. The only thing my iPhone 5 has that my works Z10 doesn't have is the shear number of apps. I don't even have instagrame on my iPhone and most apps I do like are on BlackBerry World. I actually like my Z10 so much that I am getting a Z30 when they come out and ditching Apple. Don't listen to this hack, BlackBerry phones are much better than they used to be. It's articles like this that convinces people to not give BlackBerry a chance and if this garbage slows down then BlackBerry will sell many more phones in my opinion. To be fair, if work hadn't provided me with a BlackBerry Z10, I wouldn't have ever believed that they were any good either.

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Fairfax Financial CAPS Rating: ****