Following up on last fall’s post, RIM: A Phoenix in Rebirth Emerging, yesterday’s report show the initial signs, yet baby steps, of BlackBerry’s emergence once again as a player of note in the smartphone market space. At least we can move from ad hoc reports of visits to retail locations by overly eager analysts to some confirmed numbers about initial sales, especially in the U.K. and Canada.
- Sales of one million Z10’s are only up to the quarter end, March 2, 2013. They do not include any shipments from the “one million unit” order or provide any indication of U.S. sales where the Z10 just launched this past week.
- 55% of carrier sales to end users were to customers who mostly migrated from other devices (according to a Bloomberg interview with Heins this was roughly an even split between iOS and Android). A real surprise; can it continue? Twitter comments and some reviews seem to suggest “yes”.
- Gross margins rose to 40%: a positive indicator but the real gross margin on BlackBerry 10 devices will not become fully apparent until next quarter’s report. However this increase is testament not only to a contribution from Z10 sales but also to the internal restructuring of manufacturing and supplier relationships.
- Cash remains strong at $2.9B; combined with clearing up their income tax situation, it points to strong financial (and inventory) management.
- 350,000 PlayBooks were sold with little, if any, marketing. (And I still use mine as a larger display email and web browser device; it will be a significant advance when it simply gets its version of the BB10 operating system)
- While revenue was essentially the same as last quarter, subscriber base dropped during what was really the first transitional quarter to the new BB10 devices. With any degree of success for both the Z10 and Q10, this should be the low point in the subscriber base.
- And, most surprisingly, BlackBerry reported a profit. They were break even on operations with the profit coming from resolving income tax issues.
Based on my own past experience with a similar but less complex recovery several years ago, I would also note:
- Focus: the new management team triaged and defined the priorities with the result that, at the moment, there is total focus on the Z10 and Q10 launch. Yes there is no BB10 for PlayBook but that is not the recovery generating product. Mention has been made of new products later this year but one expects R& D efforts to continue in order to remain competitive.
- Culture: CEO Heins said it best when he stated: “We’re seeing a new attitude and cultural shift in the company where we look to innovate faster and [ask] how to operate more efficiently”. In my own limited dealings with BlackBerry personnel I have noticed a significant shift in attitude; gone is the arrogance; there is a much less hesitance and a much more confident and proactive “how can we help you?” attitude.
- Employees and managers now have defined responsibilities and goals. An important component of the cultural change. Been there; experienced that in the past.
- Introducing product methodically, in measured steps: The gradual worldwide rollout of BlackBerry 10 was a very smart move. Launch first in a market where there was not significant loss of market share (U.K); do the second launch in the Canadian market which can serve as a proxy for a U.S. launch as much as to deliver to the home country market; launch in east Asian markets where BlackBerry remains a major player. This progression provides time and feedback to get the initial hiccups out of the system, gather customer experience reactions and fine tune manufacturing, distribution and support operations prior to both the U.S. launch and the Q10 launch.
- Initially launching a device with the Z10’s unique touch keyboard experience was often pictured as a negative but this was a risk taken that has largely been a success. While everyone wants to think the traditional BlackBerry market only wants a physical keyboard, using the touch keyboard has created many converts who realize that a uniquely new touch keyboard user experience overcomes preconceptions and changes the game, especially for a device whose primary function is “text-based.” communications.
- Ramp up manufacturing; it appears that demand has outstripped supply but that also indicates prudent management of inventory and the distribution channel. Determining initial build volumes had to be one of the more difficult challenges of the launch process; wrong guesses can play havoc with the balance sheet. Pre-orders by carriers had to help as one indicator. But until you actually experience real consumer demand, it’s a crap shoot.
- Managing the channel inventory. I have seen too many instances of “pushing” product out the door on the last day of a quarter resulting in mismatch of end user demand and distributor channel inventory. All in an effort to meet stock market expectations. In all cases it was counter-productive and came back to bite. In BlackBerry’s case inventory levels and sell through reports seem to indicate that there was only enough product sitting on retailers’ shelves at quarter end to meet end user demand over the ensuing few weeks1. As a former sales executive it would be interesting to know their backlog but that’s not required public information.
- Taking control of the message. For several quarters the company formerly known as RIM had let the media take control of the message, often sounding a death knell. But following the Annual General Meeting last July, CEO Thorsten Heins, accompanied by a his new Chief Marketing Officer, commenced reaching out to provide interviews with the media demonstrating both candor and reality with respect to BlackBerry’s position as a company and the current market environment. He set expectations and restored credibility. Eventually media got the message that BlackBerry was sticking to the QNX Operating System and preparing a mobile computing device that would provide a new user experience.
- Applications: BlackBerry Z10 launched with 70,000 applications, increasing to 100,000 in time for the U.S. launch. We continue to see more of the popular apps arriving; last week we were told to watch for CNN, The Daily Show Headlines, eMusic, Maxim, MTV News, Pageonce, PGA, Rdio, Skype, Soundhound and Viber amongst others. Kindle, Wall Street Journal, eBay, MLB.com at Bat 2013, CBS Sports and WhatsApp are recent arrivals. It will take the combination of user adoption and developer recognition of the unique features of the BB10 OS and its toolkits, with onging support from BlackBerry’s developer evangelism program, to build on this base. In six months to a year there I expect will be few complaints about the apps available.
A key point made yesterday; this is only the beginning. QNX and the BB10 OS provide a unique platform for a variety of new mobile computing experiences, not only for smartphones, but also for a range of other devices in the automotive, healthcare and other markets. The next quarter will continue to be a transitional quarter but provide a better picture of BlackBerry’s turnaround. The track record of the new executive team bodes well to date for turning around and managing the overall business but some interesting challenges remain.
Der Speigel started out its report on the earnings with “Totgesagte leben länger” or “the ‘said to be dead’ lives longer”. With this earnings report BlackBerry is now demonstrating that it has a long life expectancy. Credit must be given to all the employees who maintained their optimism and enthusiasm through the “worst of times”, the loyalty of the BlackBerry fan base and, finally, the new executive team for its leadership in making it all happen.
As for those shorting their BlackBerry shares, have a good weekend. And analysts will continue to be all over the map for revenue forecasts; there simply is not enough history to be able to make accurate forecasts.
Check out CrackBerry.com’s Chris Umiastowski’s more detailed thoughts on the results: Thorsten Heins brings BlackBerry back in black.
1One of my most memorable occasions was when I could tell our somewhat feisty production manager he could go home at five o’clock on the last day of a quarter as we had shipped to our internal goals. Previous quarters meant he was working until midnight on the last day.
Full disclosure: the author has a small holding of BlackBerry shares. But he also has iOS and Android devices in order to experience a cross section of the smartphone and tablet market. These observations are based on publicly available information combined with his own past business experience at senior management levels in high technology markets. His main interest is in seeing several thousand jobs maintained in not only the Canadian economy but also in BlackBerry organizations around the world.
Given that RIM stock has been somewhat volatile for the past few months since I started drafting this series I can only say check with your investment advisor before taking any action. These posts are for information purposes only.
- ‘We have now increased our production capacity.’ – BlackBerry CEO, Thorsten Heins (crackberry.com)
- Kevin O’Leary dumps his iPhone for the BlackBerry Z10 (crackberry.com)