BlackBerry worries not over as customer loyalty erodes

Friday 29 March 2013 | 12:00 CET | Market Commentary

BlackBerry has surprised with a small profit in its latest quarter and a good start with the new Z10 smartphone. However, the Canadian company's worries are far from over, as its loyal subscriber base is starting to the desert the group.

Given the problems with the components supply chain and relatively late launch of the Z10 in the US, the company did alright in the latest quarter. It managed to ship 1 million units of its new flagship phone, introduced at the end of January, in a relatively short period of time.

In the three months to 02 March, BlackBerry shipped in total 6 million smartphones, down from 6.9 million in the previous quarter and 11.1 million in the same quarter a year earlier. As the graphs below show, quarterly shipments were less than 10 million throughout 2012, and the company's revenues have nearly halved in the past year. 

Source: RIM IR. 

The share of revenues from hardware has also fallen sharply in the past year. In fiscal Q4 2012, Blackberry generated 68 percent of revenues from hardware, and this has now fallen to 61 percent. Hardware's share was still at 81 percent in Q4 2011 and 80 percent in Q4 2010. 

Given the company hardly launched any new products last year, this is not that surprising. BlackBerry laid the groundwork for its current portfolio in the past year, while its older BlackBerry OS 7 phones had to stand up against Android smartphones and Apple’s iPhone. 

The share of revenues from services has increased as a result. Services are now 36 percent of total revenues, versus 27 percent a year ago and just 16 percent in fiscal Q4 2011. 

While the importance of services is increasing for BlackBerry, its subscriber base has been shrinking for two quarters now. In fiscal Q3, the subscriber base fell by 1 million to 79 million, and the group lost another 3 million in the latest quarter. The question is whether the drop in subscribers can be compensated by increasing volumes of the new BlackBerry 10 devices. The addressable market of existing customers likely to upgrade to BlackBerry 10 is nevertheless shrinking. 

BlackBerry also continues to lose ground on the important North American market. The region accounted for almost 22 percent of revenues in the past quarter versus 28 percent at  the start of last year. Growth came mainly in Europe, the Middle East and Africa, which grew to 45.8 percent of sales from 36.6 percent in fiscal Q1. Asia's share of sales was stable at around 14 percent. BlackBerry may not be able to compensate for the decline in mature markets with growth in emerging markets, where margins are also usually lower.  

It will be interesting to see to what extent Blackberry adjusts its strategy to this challenge. The Z10 is a top-of-the-range phone that won't meet all segments of the market. While mobile users in emerging markets are quickly upgrading from feature phones to smartphones, price remains a key determinant in these regions. 

In the coming quarters, the focus will be on how BlackBerry performs in the US, where the Z10 has just gone on sale, as well as the impact of the Q10, the sister device to the Z10 with a qwerty keyboard.

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