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Smartphone sales: BlackBerry move from consumer unlikely to stem red ink

Smartphone sales for BlackBerry will shift from the consumer to business and government sectors after the company announced layoffs late last week. Blackberry hopes this shift in smartphone sales will provide a boost.

By Alastair SharpReuters / September 23, 2013

A man is silhouetted against a video screen with the Blackberry logo as he poses with a Blackberry Q10 in the central Bosnian town of Zenica in this September 21, 2013 file photo illustration.

Dado Ruvic/REUTERS/File

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Toronto

BlackBerry Ltd's plan to retreat from the consumer market in favor of its traditional strength serving businesses and governments is widely seen as a desperate move that industry watchers warn will only accelerate its downward spiral.

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The strategic shift and dramatic restructuring are fueling fears about BlackBerry's long-term viability. The uncertainty created could easily push more of its telecom partners, business customers and consumers to abandon the platform.

"Perception is nine tenths of reality and if customer and supplier confidence continues to fall it doesn't matter how much cash they have on the balance sheet. Things could get worse," said GMP Securities analyst Deepak Kaushal.

At least nine brokerages slashed their price targets on the company's stock, to as low as $5. BlackBerry's shares, which fell 17 percent on the Nasdaq on Friday, fell another 5.6 percent to $8.23 before the bell on Monday.

The Canadian smartphone maker, once the leader in wireless email, announced the change in focus on Friday afternoon when it also said it will report a quarterly loss of close to $1 billion and slash more than a third of its workforce.

"We have been steadfast in our position that BlackBerry should downsize and focus on the enterprise, a strategy the company will now pursue. Our view now is that any recovery is very unlikely," National Bank Financial analysts wrote in a research note, cutting their share price target to $5 from $8.

BRING YOUR OWN DEVICE

In response to queries about its future sales strategy BlackBerry said on Sunday it would provide more detail when it announces quarterly earnings on Sept. 27.

On Friday, Chief Executive Thorsten Heins said the strategic shift to focus on so-called enterprise customers would play to the company's strengths in security and reliability.

"Security matters and enterprises know the gold standard in enterprise mobility is BlackBerry," he said in a statement.

BlackBerry still has a substantial subscriber base - 72 million users globally at the end of June, though that did decline from 76 million three months earlier.

The company has struggled ever since Apple Inc's iPhone and Samsung Electronics Co Ltd's Galaxy phones, using Google's Android software, grew to dominate a market that was previously BlackBerry's and had once made it highly profitable.

BlackBerry bet heavily that its Z10 touch-screen smartphone - the first powered by its new BlackBerry 10 operating system - would help it recoup some of the luster it enjoyed when users of these devices were mostly lawyers, bankers and politicians.

The bet has not paid off. GMP's Kaushal estimates as many as 3 million of the latest BlackBerry 10 phones are gathering dust with distributors who have been unable to sell them. For the second quarter, the company said it expects to have sold about 3.7 million BlackBerry smartphones to end users.

Ross Healy, a portfolio manager with MacNicol & Associates, whose clients own BlackBerry shares, said he didn't understand why BlackBerry thought it should pursue the consumer, given the fact that Apple and Samsung were so strong in that area.

A shift back to corporate customers is no clear fix. Many big organizations are already handling rival devices on their internal networks and employees are increasingly allowed to choose their preferred device, blurring the boundary between business and consumer markets.

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