We have seen the results —a return to profitability in ‘12Q4, 22 cents per share against a street (Bloomberg) predicted loss of about 30 cents— and heard all sorts of BlackBerry numbers that warrant review. But what company President and CEO Thorsten Heins said during the March 28 earnings call went beyond just the numbers.
Heins set the stage with a standard statement, “BlackBerry has gone through a major and exciting transformation this year. And it has been exciting. It was a year for change and we delivered significant, positive change.”
The “change,” by the numbers, looks like this:
BlackBerry is taking the tortoise’s role, and as Heins pointed out, this is only the beginning. “We have made great progress, and we are proud of it, but we are also well grounded. Everyone at BlackBerry understands there is more work to do. Delivering BB10 and getting back to a profitable quarter is just our starting line, not the finish line,” he said, echoing the point he made at the January 30 launch. With only a few weeks availability and in only a few countries, Heins believes BlackBerry 10 has made a strong entry.
- 6 million smartphones shipped
- 100,000 BlackBerry 10 apps (up from 70,000 at launch)
- 55% of Z10 users globally are coming from another platform
- 8,400 professionals in 17 cities attended BlackBerry Experience Forums
- 4,600 companies in North America registered for the BlackBerry Ready Program
- 2,300 companies already completed the three training programs.
The second stage of transition this year will focus on leveraging all the changes made last year. “We are running a business,” he said, noting that means managing short term goals without compromising longer term strategies.
Keyboard is Key
that many BlackBerry diehards are waiting for the QWERTY version of the device, Heins spoke to its [delayed] release saying that Q10 is testing with over 40 carriers in 20 countries and the initial global demand for Q10 “has been better than anticipated.”
U.S. launch is slated for some time in April, and the future BlackBerry 10 plan includes a phased rollout over the next several quarters, with various devices at all the major carriers. Lower cost versions, yet to be described, will also be launched later this year.
Heins explained that existing service fees are in an area of “gradual transition,” and that it’s an “evolutionary process.”
While expected to decline in Q1, he emphasized, “I want to be clear that our existing base of business, as well as any new BlackBerry 7 business, continues to generate service fees. And we are still selling BlackBerry 7 in many markets, and plan to launch new BlackBerry 7 products in certain market segments outside of the U.S. And those sales will also generate service revenue.”
When it comes to BlackBerry 10, as businesses migrate to it, there is already talk of new offerings and enhancements and additional enterprise services as well.
There’s been a lot of hearsay about a possible buyout of BlackBerry, mainly referring to the hardware side of the business, and while Heins did not address that specifically, he made sure to point out the following: “Make no mistake about it. We plan to stay in the services business, and we’re actively building and implementing strategies to support these initiatives in the future. “
This idea was further sustained by the reintroduction of his vision in which BlackBerry is a leader in mobile computing. “This is not a one- or two-quarter opportunity. It is an opportunity for the next five or 10 years, and our vision is to expand from being a smartphone company to being a leader in the new world of mobile computing,” he said.
How does this vision get supported internally? Heins talked a bit about a strategic review that ran in parallel with the launch of Blackberry 10 and the company’s “CORE restructuring.” The CORE program focused on financials, and of the review, he said, “We felt it was appropriate to test all options in terms of what our business model could look like with BlackBerry 10.”
As already noted, the restructuring enabled what Heins calls a “significant transformation” resulting in a “healthy balance sheet,” but the strategic review initiatives “will be intensifying their focus on opportunities in mobile computing verticals such as automotive, industrial, networking, healthcare, security, and defense, leveraging our secure network infrastructures for uses beyond those currently deployed by Blackberry and potential licensing opportunities.”
Furthermore, he said that a “thorough planning process” has been implemented and is being rolled out to BlackBerry employees. It details “long-term strategy and objectives in all of these areas.”
This is the first, in recent time, that Heins specifically referenced an internal strategy beyond the obvious needs and logistics and vision of BlackBerry 10.
He has repeatedly thanked employees, but never provided much of a peek into getting their buy in.
A play for the vertical markets, some outside the typical corporate operations, is in line with the strategy of at least one of the other mobile market leaders, and it’s interesting to see BlackBerry moving in this direction as well.
Brian Bidulka, the chief financial officer, presented detailed financial results, some highlights of which included: Geographic revenue figures with Canada seeing an increase of 62% sequentially and the U.S. a decline; EMEA (the market-share leader) represents 46% of revenue compared with 43% in Q3; hardware is 61% of revenue, and service is 36%; total subscribers are down to 76 million, versus 79 million in Q3; and the company is increasing its marketing investment in the global launch of Blackberry 10 during the Q1 by approximately 50%.
Beyond the Numbers
There are several interesting facts here, two of which are worth calling out. The paradox of profit with a loss of subscribers is getting a lot of attention, along with the huge increase in marketing spend, but Heins easily spoke to both.
When it comes to subscribers, Peter Misek from Jefferies and Ehud Gelblum of Morgan Stanley both made inquiries. Misek, noting the 3 million loss, asked “How has the adoption of your mobile device management (MDM) strategy been working?”
Heins attributed the enterprise loss (citing BlackBerry data), to the pre-paid segment, but noted there is still strong interest from corporate customers “in maintaining the BES installed base” because it means security and reliability to them, he noted.
That wasn’t quite enough for Gelblum who, under the impression that subscriber numbers were a “decent” part of the BB10 launch, wondered how this is trending for BlackBerry. “Are the pre-paid markets falling despite the launch of BB10? I would have thought we would have seen a bit more of a stable platform over there.”
Heins didn’t seem fazed over the shortfall, spelling it out simply: “Regarding the subscriber number, I think actually what is really important is the dollar value generated out of that base. Have in mind that we are innovating and developing new services as we speak. At the end of the day, it’s about the dollar number that is being created.”
He added that on the BB10 side, there is a “strong uptake” with both consumers and in enterprises and reiterated that there is a changing services model going on. He said, “The split between what is registered as a subscriber or not is changing, and we know it’s changing; that’s why we are adapting our business model.”
The issue of marketing strategy has been on the mind of many throughout the BlackBerry 10 launch — mainly because of what seems to be a lack thereof, particularly to consumers.
“And just one clarifying point," Bidulka said. "The 50% that we commented on for Q1 [regarding marketing spend], that’s always been in our forecast to support the global launch.” Still, this appeared to be new information to all present and was evident by the questions.
Miscek asked for a better understanding of the marketing number. “No doubt that we have to market BlackBerry 10 strong, and that’s what we will be doing," Heins replied. "This is a very meaningful investment of ours to bring BlackBerry 10 to market. And we’re actually fully supportive of those expenses, and we see good feedback on that one.”
Throughout many conversations around the Z10 launch, BlackBerry had said that some of the marketing would be carrier dependent. They are obviously the ones on the front line with the consumer. Typically there are big campaigns and special promotions from carriers when a key device becomes available.
Mark Sue of RBC Capital Markets alluded to the dearth of such for the Z10, which was also been anecdotally reported by various outlets during the recent U.S. debut.
Sue said, “I’m trying to get a sense of how the split between the carriers and BlackBerry all trend over the next several quarters as you move on to this global launch. Because clearly it seems that BlackBerry has shouldered the bulk of the early expenses. And we’re not seeing a lot of commitment thus far in some of the important markets in the U.S. in terms of carriers’ commitment to spend. So what’s your sense of what they might be waiting for or how that trend might look in the upcoming quarters?”
Heins, having praised the carrier partners all along, said, “We see strong carrier support…[there are] collateral marketing activities with carriers all over the place. And it varies from promotion to promotion, so there’s not just one size fits all kind of an approach. We are still in early days in the U.S. We see strong marketing support from them.”
The “early days” means, according to Heins, that it’s too soon to talk about what kind of promotions they are going to run in future, but he confirmed they’ll be doing it “together — with the carriers; part on our own. And we will execute on them in Q1. ”
Somewhat contradicting Bidulka’s confirmation of ‘this was the plan all along,’ Heins added, “That’s why we also have a 50% increase in our own marketing spend.”
Of course, Q1 for the company is now two days old, so despite the accomplishments here told, the market is impatient, and the waiting for BlackBerry begins again.