BlackBerry (BBRY +1.81%) reported first-quarter results last night. This was a make-or-break quarter for the company formerly known as Research In Motion. Unfortunately, the company landed squarely on the "break" side of that equation. Shares of the Canadian smartphone maker opened 25% lower today.
Analysts were looking for sales of $3.4 billion, including about 3 million units of the new BlackBerry 10 devices. On the bottom line, Wall Street wanted to see about $0.07 of adjusted earnings per share.
BlackBerry Z10. Source: BlackBerry press materials.
The $3.1 billion top line fell about 9% short of the Street target, and a $0.16 net loss per share wasn't even in the right ballpark. BlackBerry argues that Venezuelan currency effects dragged the bottom line down by $0.10 per share, and that adjusting for this effects would land "in-line" with the break-even guidance. But you know, a $0.06 loss per share is still a loss.
Management was not happy about sharing BlackBerry 10 device sales. There was no hint of this information in the earnings release, which only revealed 6.8 million units of smartphone shipments. Investors had to wait for the Friday morning earnings call, where BB10 handsets were presented as "approximately 40%" of total smartphone shipments. That's 2.7 million units, far below the consensus estimate.
Making matters even worse, many of those shipped Z10 and Q10 handsets seem to stick in channel inventory and store shelves, not selling through to end users.
Shipped smartphones were equal to the reported total sell-through. At the same time, older BlackBerry 7 inventories declined, which points to rising BB10 inventories. Unsold inventories, that is. Management dodged questions about the actual breakdown between BB7 and BB10 sell-through, which makes you wonder just how weak the mix might be. Positive news would be shouted from the rooftops, after all.
Subscribers to BlackBerry services declined by 5% during the quarter, and management will no longer report this metric. Free cash flows are still positive, but down 21% year over year, to $471 million. Most of the cash haul was then spent on intangible assets, also known as license payments, for other companies' intellectual property. Counting that line item as a capital expense, free cash flows plunged 56% year over year. Still positive, though, if you're looking for a silver lining.
Those silver linings are few and far between. BlackBerry's turnaround story is off to a terrible start, and I don't see any reason to expect improvements down the road. If CEO Thorsten Heins is serious about saving his company, he'd better start thinking about radical solutions. Retire the hardware business to refocus on services and software. Follow the footsteps of Nokia, which retired its in-house Symbian software in favor of a third-party platform. Not that Nokia's turnaround story is working out any better than BlackBerry's, but at least the Finns gave it the old college try.
The smartphone market is running out of high-growth steam, and it's already time to start thinking about the next paradigm shift. BlackBerry is still looking for the last one, with brand new handsets only matching last year's competitors. It's a shame, because more competition is always better for the market, for consumers, and for the surviving rivals.
