In the first week after BlackBerry (BB 1.09%) launched its new Z10 smartphone, many analysts and observers claimed that early sales in the U.K. and Canada (two of BlackBerry's top three markets) were very strong. More recently, though, sentiment has been turning against BlackBerry. Several analysts have issued bearish forecasts for Z10 sales, arguing that initial sellouts were due to low unit shipments rather than high demand.
Investors should try not to get too worked up about the sales rumors that have been flying around Wall Street. First, there is no way to judge the accuracy of these rumors; we will not know the true level of device shipments until BlackBerry reports earnings next month. Second, the other device BlackBerry has announced -- the Q10 QWERTY keyboard model -- will not go on sale until next quarter. Since the keyboard is a major attraction for BlackBerry's biggest fans, it is likely that many are waiting for the Q10.
The latest rumors
On Wednesday, Pacific Crest analyst James Faucette stated that his checks point to roughly 300,000 BB10 unit shipments in the current quarter, below the consensus of about 1 million units. Furthermore, he expects only 1 million to 1.5 million shipments next quarter, below consensus of 3 million to 4 million. Another bearish analyst, Michael Walkley of Canaccord Genuity, wrote on Tuesday that BB10 devices are not likely to sell well because they will have the same subsidized price of $199 as Apple's (AAPL -0.57%) iPhone 5 and Samsung's upcoming Galaxy S IV.
Apple's iPhone and Samsung's Galaxy S and Galaxy Note smartphones are all very strong competitors, but analysts who are solely focused on the competition are missing the point. The smartphone market is massive, and BlackBerry only needs to secure a small niche (perhaps 5% of the market) to justify a much higher share price. With nearly 20 million devoted BlackBerry fans in the U.K., U.S., and Canada, the company is virtually assured of seeing a strong upgrade cycle this year. To remain relevant thereafter, all the company needs to do is convert a small percentage of iPhone and Android users in the next few years.
Timing is not everything
The best way to think of BlackBerry's current strategy is that the Z10 touchscreen phone aims to poach users from the iPhone and various Google Android devices, while the Q10 QWERTY phone aims to keep existing BlackBerry users happy. I am not very worried about reports of slow Z10 sales, primarily because many of the existing users will wait for the Q10. Meanwhile, with the Z10 in stores, BlackBerry can try to raise consumer awareness of the new platform.
The "late" release of the Q10 does not bother me, either. While the Q10 will become available close to the expected launch date of Samsung's Galaxy S4 (and even the rumored iPhone 5S), it addresses a different market, and is thus not really in competition with the Samsung and Apple offerings. Regardless of the exact country/carrier launch timings, I expect BB10 devices to sell well and put BlackBerry back in the black in the coming year.
