The Last Stand for BlackBerry Ltd. Against Apple and Google

Blackberry (NASDAQ: BBRY  ) will release its quarterly report on Friday, and investors have largely lost hope in the Canadian smartphone pioneer ever recovering from its long slide. Despite once having dominated the mobile-device industry with its innovative keyboard-enriched smartphones, BlackBerry allowed Apple (NASDAQ: AAPL  ) and Google (NASDAQ: GOOGL  ) to surpass its achievements. As a result, BlackBerry has slipped to near insignificance in the smartphone market, and even its latest devices might prove insufficient to save the company.

BlackBerry's story is tragic precisely because of all the potential the mobile player had in the past. As the top choice among enterprise customers, BlackBerry devices combined convenience and security, which at first set it apart from more consumer-oriented smartphones from Apple and Google. Gradually, though, businesses became more comfortable with rival offerings, taking away BlackBerry's key competitive advantage and leaving it without a clear strategic direction. Let's take an early look at what's been happening with BlackBerry over the past quarter.

Stats on BlackBerry

Analyst EPS Estimate

($0.44)

Year-Ago EPS

($0.22)

Revenue Estimate

$1.59 billion

Change From Year-Ago Revenue

(42%)

Earnings Beats in Past 4 Quarters

3

Source: Yahoo! Finance.

Will BlackBerry earnings ever recover?
Analysts have gotten extremely pessimistic about BlackBerry earnings in recent months, tripling their loss estimates for the November quarter and doubling their full-year fiscal 2014 projections. The stock has gone into freefall, dropping another 40% just since mid-September.

BlackBerry's August-quarter earnings results didn't shed as much light on the company's status as many investors had hoped. With a potential deal having been in the works for Fairfax Financial (NASDAQOTH: FRFHF  ) to lead a group to take over the company, BlackBerry didn't provide subscriber numbers or specifics about its BlackBerry 10 handset sales. All investors were left with was a $965 million loss stemming largely from the inventory writedown on its Z10 handset and the hope that the Fairfax deal for $9 per share would go through.

Yet the worst was far from over for BlackBerry. In late September, T-Mobile stopped carrying BlackBerry handsets in stores, relegating them to online-only purchases in order to save inventory space. Then in November, BlackBerry investors got the worst news of all, as Fairfax pulled its offer to buy out the handset maker, having apparently proven unable to line up enough partners to complete a transaction. Instead, Fairfax and other institutional investors committed to investing $1 billion in BlackBerry, with CEO Thorsten Heins stepping down and with Fairfax's Prem Watsa taking over as lead director of BlackBerry's board.

Now, different shareholders have different views about BlackBerry's future. Some believe that breaking up the company would yield more cash than the company's current market capitalization, assuming it can find a willing buyer to pay up for BlackBerry's intellectual property and component businesses. Others point to moves from interim CEO John Chen to streamline management, leading to the departures of COO Kristian Tear and Chief Marketing Officer Frank Boulben as well as CFO Brian Bidulka, as signaling a potential shift toward BlackBerry's enterprise business in an effort to survive as a going concern. Yet one could also argue that cleaning house in the executive suite also makes a breakup more likely, reducing overhead and inviting buyers to put their own personnel into leadership roles.

Meanwhile, Apple and Google have left BlackBerry in the dust. Google's Android currently has 52% market share in the U.S., but analysts expect Apple's iOS to surpass Google to take majority share by August 2015.

In the BlackBerry earnings report, watch to see if the company presents any solid strategy on how it expects to go forward. With time working against it, BlackBerry needs to act decisively to salvage whatever it can from its declining business before it's too late.

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10/1/2014 4:00 PM
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