BlackBerry on Huawei’s Radar

For a while now, BlackBerry (Nasdaq:BBRY) had been counting on its much-awaited BB10 phone releases to help pick it up from a financial mess. But the wait seems to have been in vain. Last week, the company reported disappointing quarter results driven by lackluster sales of its smartphones. The results sent the stock plummeting 28% in a day, making it the worst day in nearly ten years.

BlackBerry’s Financials
BlackBerry’s Q1 revenues grew 15% over the quarter to $3.1 billion, missing the Street’s targeted revenues of $3.4 billion. The company ended the quarter with a loss of $0.16 per share compared with the profit of $0.07 per share anticipated by the market.

By region, North America revenue grew 30% over the year, and revenues from Asia Pacific reported 35% growth. EMEA markets saw a modest revenue increase of 9%. Due to the Venezuelan currency devaluation, overall Latin American markets saw revenues fall 6% over the year.

During the quarter, BlackBerry shipped 6.8 million smartphones globally. It earned 71% revenues for the quarter from sales of hardware, 26% from services, and 3% from software and other sources.

BB10’s Miss
BlackBerry’s weak results were attributed to the depressed sales of its new products on BB10 – the Z10 phone and the QWERTY keyboard–based model Q10. The Z10 model was launched at the beginning of this year and Q10 was released in April 2013. Analysts were expecting BlackBerry to ship 3 milion-4 million BB10 phones during the quarter. However, BlackBerry reported a comparatively meager shipment of 2.7 million phones.

BlackBerry does not divulge a breakdown of sales of phones by model. Thus it is difficult to assess if the weakening sales were hurting Q10, Z10 or both. In any case, the failure of any of those phones to revive the market does not necessarily signify that the products were weak. Z10 had received stellar reviews from the market, and loyal BlackBerry fans were eagerly waiting for the keyboard version in Q10. Unfortunately for BlackBerry, it was a case of the phone’s release being too little too late.

According to a recent comScore report, Apple remained the leading smartphone seller in the U.S., with 39.2% market share. Samsung was the second largest seller with 23% market share. Within the operating systems, Google’s Android was the leading platform with 52.4% market share, followed by the iOS at 39.2% share. BlackBerry was a distant third with 4.8% of the market. BlackBerry has clearly lost the race in the smartphone market to the leaders Apple and Samsung, and the new OS is not helping much. Analysts believe that a bulk of the BB10 phones being shipped are piling into stock inventory as overall BB7 inventory is declining while BB10’s is increasing. In fact, analysts at Pacific Crest believe that the demand for BB10 phones globally is less than 500,000 units per month.

After the disappointing results, the stock is trading at $9.70 with a market capitalization of $5 billion. It touched a 52-week high of $18.32 in January 2013.

BlackBerry’s continued weak performance has made many analysts wonder if the company is finally on its way out. Chinese telecommunications giant, Huawei, is said to be looking at BlackBerry as a potential acquisition target. Huawei is the third-largest smartphone manufacturer in the world, following Apple and Samsung, but it still has to establish its presence in the U.S. market. BlackBerry’s acquisition may help it get BlackBerry’s share of the market.