Monday, May 13, 2013

BlackBerry Undervalued: Investors Ignorant of Q10, Z10 Brand Strengths (bbry unit sales, smartphone market share)

         While BlackBerry has yet to release a low-end, more affordable BB10 phone to compete with Nokia's $99 Asha 501, I don't see that as being a major problem for the company going forward;  1) Its core customer base is still the high end corporate market 2) The market for high-end phones in key international markets is growing (Indonesia, South Africa, India), one reason for that is the modernization of mobile infrastructure capable of handling more data / 4G.  BlackBerry is the top smartphone brand in Indonesia, South Africa, Argentina and a top three player in India behind Samsung and Nokia.
more...   that doesn't mean however that Research In Motion does not need to eventually introduce a more affordable product.  BlackBerry 7 devices (Torch, Bold, Curve) remain popular in the East and with RIM scaling back production of that line, at least one of the newest phones (running on OS10) will need to be introduced to fill in the gap. 

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BlackBerry Detractors Already Admitting Defeat
One of BlackBerry's harshest critics, an analyst at Cannacord which had slashed its sales estimate for BB10 phones earlier this year, is already calling the estimate wrong, off by at least half a million units per month. 
Early indicators suggest sales of the both the keypad (Q10) and candybar (Z10) phones are strong however it should be noted that those statistics don't take into account most international markets where the devices have yet to be launched.

Nearly 60% of RIM's 2012 revenue originated outside the US, UK and Canada.  In the Middle East where BlackBerry holds the leading share of the market for new phones at 35%, sales of the Z10 phone though not overwhelming remain promising at a rate of just over 250,000 units a month in Saudi Arabia and the UAE.  The figure doesn't include the Q10, something that has to be taken into account given that the keyboard remains popular among clients in the Gulf region.

Over the past year, Nokia introduced many of its key new smartphones while BlackBerry released nothing new (no full quarters reported on yet).  Despite this, BlackBerry somehow managed to sell the same number of smartphones as Nokia in the most recent quarter (4q2013).  The 6 million unit figure represents just under 3.0% of the global smartphone market, not bad considering BB10 was out for only a month in limited capacity (not available in the US) and that the phones have received rave reviews since being launched in the United States in April 2013.  Altogether, RIM sold 28.1 million smartphones in fiscal 2013 (March to March). 
Last month (April 15 to May 10) Research In Motion stock was up +14% making it one of the best performing tech stocks.

Battery life:  Can't go wrong with the Q10 ! 


The Q10 battery is larger and longer lasting when compared to OS7 phones.  The result ?  10-12 hours of device use on a single charge, more than double what the competitors have to offer.  This is just one reason why I'm optimistic about corporate clients remaining with BlackBerry.  Canadian Tire which has over 3,000 corporate users is one of several major companies already committed to the BlackBerry 10 models.

More reasons to buy Research In Motion:  23 of the 25 leading mobile carriers in the US, EU5 and Canada carry BlackBerry's newest Z10 smartphone compared to only 14 for the Nokia Lumia 920 meaning that RIM is poised to eventually outstrip Nokia in smartphone sales.  Not bad for a company with a market capitalization 40-70% lower.
RIM is succeeding in the high end market whereas Nokia is making a push for the low end market.  I don't expect sales at Nokia to best BlackBerry anytime soon, with Nokia's devices being low-end their margins are quite limited.  Even BlackBerry 7 phones are more profitable than Nokia's newest, and profit from one Z10 equals profit from three Lumias.

Which markets does RIM rely on the most ?  Using the last fiscal year as the base, Canada accounts for approximately 18.4% of RIM's sales in the West slightly ahead of the United Kingdom's 1.2 million (4% share).  If the Z10 and Q10 make any appreciable growth into the US market then BlackBerry is set for a major turnaround !   of the four major US carriers, only Sprint has yet to offer the Z10.

blackberry sales by qtr 2013:  4q 6.0m, 3q 6.9m, 2q 7.4m, 1q 7.8m
subscribers by qtr:  4q 76m, 3q 79m 2q 80m,
revenue breakdown est:  60% hardware, 36% services
blackberry appworld has over 90,000 applications available
subscriber base has grown everywhere except in North America

Now consider the Middle East where BB has a 12-22% market share (overall is 13.5X as much as it is in the West).  As you can imagine, email security and device encryption (payment transactions/sensitive information) is extremely important for users in this region.  RIM's enterprise server, though not perfect, has a better reputation than those used by its peers. 
Maintaining and even growing market share in RIM's most important regional market there is the United Arab Emirates, and that's a strong selling point right there !  The size of the smartphone market in the UAE is estimated to grow from 6.75m in 2013 to 10.4m in 2016.  Maintaining share in that country will not be difficult for RIM considering the country's large high end user base and propensity to buy BlackBerry (22% market share, the highest).  A doubling in the size of Saudi Arabia's market is great news for RIM:  the size of the market could reach the size of Canada's, which is notable since BB's market share in SA is the same as it is in Canada.


Though the UK government has yet to approve BlackBerry's newest devices, its approval of BB7 devices makes the brand stand out among competitors.  Also note:  The British report also suggests that BB10 devices are well poised to eventually receive the go-ahead.  Nato and the German government have already committed to BB10 suggesting that Blackberry's newest devices are winning over security experts.

In conclusion, it is of my opinion that BlackBerry's prospects are as high as they've ever been.  Even bearish analysts have quarterly sales in  3 to 4 million range, to at the least be maintained into fiscal 2015 with estimates higher later on when promotions start kicking in, emerging market gaining access to the newest phones.
While relying on the sales of the previous models last quarter RIM was able to record a profit for the first time in over a year.  The $98m was an improvement over the -$125m q2q and $9m qoq.
BlackBerry also has a high beta value stemming from the unusually large number of investors who have shorted the stock, meaning BlackBerry BBRY will respond more positively to positive news coming out of the tech sector.
other notes
Playbook sales at 370,000 units up from 260,000 units in quarter ended March 2012,  255,000 units 3q2013, 130,000 units 2Q2013, 260,000 units 1q2013.
revenue from outside of North America and Asia reached a high in 4Q2013 at $1.227 billion or 45.8% of total revenue.
subscribers down to 76 million from 80 million two quarters ago.
RIM's largest investor is Prem Watsa who owns 10% of the company.  In April 2013 he reiterated his confidence in the company.

sincerly, Seraphim Blentzas

1 comment:

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