Can BlackBerry Ltd. Win Back a Tiny Corner of the World From Google?

BlackBerry Ltd. is launching a low-cost smartphone in Indonesia, but even a successful launch won't move the needle much.

May 14, 2014 at 1:05PM

Across the world, Blackberry Ltd (NASDAQ:BBRY) has seen its smartphone market share eviscerated in the last three to four years. In the U.S., Apple (NASDAQ: AAPL) has been the primary beneficiary of BlackBerry's slow response to the touchscreen revolution. However, in most of the world, Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) Android ecosystem has been the big winner.

Google's march toward mobile dominance has not occurred simultaneously across the whole world. In fact, in some countries -- most notably Indonesia -- BlackBerry only recently fell from grace. Thus, it's not surprising that BlackBerry is turning to Indonesia in its most recent attempt at a comeback in the smartphone market.


BlackBerry is launching a new low-cost smartphone in Indonesia. Source: BlackBerrry.

This week, BlackBerry launched the Z3, Jakarta Edition smartphone, which is exclusive to Indonesia for now. However, it's highly unlikely that this new phone is going to drive any broader renaissance of BlackBerry's handset business. BlackBerry's enterprise security offerings and the QNX embedded OS represent the real turnaround opportunity.

BlackBerry's fall
There are numerous reasons why BlackBerry's phones have lost their popularity. In emerging markets, one of the key causes of BlackBerry's downfall was the emergence of cheap phones running Google's Android OS.

Since Google gives Android to smartphone OEMs for free, there has been a "race to the bottom" in terms of profit margins on entry-level phones. (As a result, most smartphone manufacturers are barely profitable, if at all.) BlackBerry has needed to invest in software as well as hardware, meaning that its low-priced devices have had inferior specs compared to cheap Android phones.

Indonesia was one of BlackBerry's last bastions of strength. As recently as 2011, BlackBerry held 43% of the smartphone market there, according to The Wall Street Journal. However, by last year, its market share had plummeted to just 13%. As in other emerging markets, Google's Android OS is now dominant, with 81% of the smartphone market.

A new smartphone strategy
In December, BlackBerry announced that it had struck a five-year partnership agreement with contract manufacturer Foxconn. Under the arrangement, BlackBerry and Foxconn would jointly design entry-level smartphones, and Foxconn would manage the inventory, dramatically reducing BlackBerry's risk.

The new Z3 is the first product of this collaboration, and it definitely attacks the "entry-level" segment that Google currently dominates. The Z3's retail price in Indonesia is approximately $191. Despite the low price, the Z3 has a five-inch touchscreen and a five megapixel camera, unlike previous entry-level BlackBerry phones.

Later this year, BlackBerry plans to expand the rollout of the Z3 to other developing markets, especially in Southeast Asia. The company hopes to sell millions of Z3 phones. That would be a small victory in itself, considering that end users purchased just 3.4 million BlackBerry phones last quarter.

This is just a sideshow
If the new Z3 phone posts a good sales performance, it will be a nice PR win for BlackBerry, but little more than that. Based on its $191 price tag, the Z3 is likely to produce very little gross profit, which in turn will have to be shared with Foxconn.

BlackBerry may be able to make some money later by selling apps or selling "stickers" for its BBM messaging service. However, BlackBerry doesn't have nearly the same capabilities as Google for monetizing device usage.

For BlackBerry to return to profitability, it will either need to regain ground in the high-end smartphone market -- which is a tall order indeed -- or it will need to succeed in some of its initiatives beyond smartphones. BlackBerry may win back a few customers in Indonesia with the Z3, but by and large, the smartphone market has moved on. BlackBerry should move on, too.

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Adam Levine-Weinberg owns shares of Apple and BlackBerry and is long January 2016 $560 calls on Apple. The Motley Fool recommends and owns shares of Apple and Google (A and C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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