Why BlackBerry's Future Remains Cloudy

BlackBerry (NASDAQ: BBRY  ) has some momentum heading into the new year, thanks to a newly announced strategic partnership and a business reorganization. Shares are on the upswing as 2013 comes to a close, but there remains a great deal of risk for BlackBerry shareholders.

While it's always tempting to pick the bottom in stocks that have gotten crushed, BlackBerry's underlying business continues to deteriorate. As a result, there's simply no need for investors to gamble on a company with such an uncertain future.

Business is still going in the wrong direction
Optimism over BlackBerry's future involves both the company's quarterly results and its recent strategic initiatives. First, BlackBerry's third-quarter highlights included its business unit reorganization, which will place particular emphasis on its Enterprise segment. The company believes its Enterprise Service 10 platform will increase penetration going forward.

Of course, whether this remains to be seen. It's easy to get excited, since BlackBerry used to dominate the enterprise market. But times have changed. BlackBerry's dominance has been turned upside down, and it's far from a guarantee that it can once again assume a leadership position in the enterprise market.

Aside from this, BlackBerry's underlying business continues to deteriorate. In the third quarter, revenue fell by more than half on a year-over-year basis. BlackBerry recorded a non-cash charge in the amount of $4.6 billion pertaining to some long-lived assets, but even excluding the impairment charge, its adjusted loss expanded in the third quarter.

Investor confidence appears to be boosted by BlackBerry's recently announced five-year partnership with Foxconn, the world's largest manufacturer of electronic products and components. Foxconn will now develop BlackBerry devices, which will allow BlackBerry to penetrate new markets. For example, BlackBerry expects to release a smartphone in Indonesia in early 2014.

Where smartphone investors should focus instead
BlackBerry needs everything to go right in order for its turnaround to materialize. Its business is still collapsing, and it's in such a hole that investors simply don't need to take the risk inherent in catching a falling knife. Instead, you should turn your attention to a different stock to capitalize on growing smartphone demand: Apple (NASDAQ: AAPL  ) . Consider that Apple's iOS operating system held a 13% smartphone market share in the third quarter, compared to just 1.7% for BlackBerry.

Apple has a number of catalysts working in its favor that are much likelier to pan out than BlackBerry's initiatives. First, Apple has the benefit of its iPhone 5c and iPhone 5s on store shelves for the holiday season. It also has finally announced its long-anticipated partnership with China Mobile (NYSE: CHL  ) , the largest telecommunications carrier in the world.

China Mobile has more than 750 million customers who will now be granted access to Apple devices. This should result in not just higher iPhone sales, but also additional revenue streams from integration into Apple's massive ecosystem.

The Foolish conclusion: Don't eat BlackBerry's...story
BlackBerry may entice some investors because of the volatility in its share price. Its shares spiked after releasing its third-quarter results and announcing its strategic partnership with Foxconn. At the same time, its core business performance is still ugly, and it's getting worse.

On the other hand, Apple represents a much less risky play for technology investors interested in global smartphone growth. Its business appears to have stabilized, and it should have a very profitable fourth quarter. While Apple isn't likely to soar upon releasing its financial results, it's not likely to see the bottom fall out either.

BlackBerry is still bleeding huge amounts of cash, and needs everything to break its way to recapture market share. There's simply no need for Foolish investors to take that risk.

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  • Report this Comment On December 26, 2013, at 3:48 PM, Magica wrote:

    I think the turnaround of blackberry will come true. Not only because of the new CEO, but also because of the continent of using their products, changeable batteries and touch screen of Z10, called back mor eand more Chinese Fans.

    5 years contract with Foxconn is the beginning of its turnaround, Even though Apple's phone still hot in the holiday season, it doesn't mean Blackberry will lose in the future market.

    Pricing, promotion, and marking strategies will help to change its market situation.

  • Report this Comment On December 26, 2013, at 4:21 PM, Thompr97 wrote:

    @Magika,

    I don't expect the Z10 to do anything for Blackberry.

    Changeable internal batteries are not the discriminator Blackberry fans think they are. For every use case you can name for them - and I do agree there are some - there is a solution for iPhone that doesn't involve internals. For instance, one can carry spare batteries that clip nicely into the data port on the bottom if one finds themselves in a pinch.

  • Report this Comment On December 26, 2013, at 11:13 PM, benenfoo wrote:

    Blackberry will be saved because of privacy software which is very important these days with rampant spying going on now.Not to worry with last night's drop of around 8% it was a normal correction with moderate volume.Up 3 consecutive days with huge vol and down 1 day not with huge vol .nothing to worry about and there may be a rebound today friday.Be patient !

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