Planned obsolescence has been a tech strategy for decades. These turnaround tech companies hope to get back to the future.
BlackBerry (BBRY) stock gyrated wildly the day it reported quarterly results. After rallying pre-market, shares closed down 7.2% on the day. Investors taking a short-term view on the company were right to sell shares, but a closer look suggests BlackBerry’s turnaround is on the right path. In the first place, cost cuts at the phone maker were a quarter ahead of schedule.
More importantly, BlackBerry and companies like Nuance Communications (NUAN) are moving towards becoming niche players in the embedded market. Investors are not a patient bunch: they would rather sell now. But wise investors know the difference between short-term gains and long-term viability.
Let’s look first at BlackBerry.
Old BlackBerry re-launched
BlackBerry’s plan to re-launch BlackBerry 7 (“BB7”) Bold devices broke with established precedent. The company’s decision speaks volumes: BB10 is, for now, a failure relative to BB7. BB10 only has Q5 and Q10 keyboard models on the market. Future BB10 devices will need to have physical keyboards, a bigger screen and a trackpad to gain traction.
Profitability on horizon
Chen, BlackBerry’s CEO, re-affirmed the company will be profitable in fiscal 2016 (ending February 2016). As investors fret over worldwide market share loss in smartphones, BlackBerry simply needs to sell more BlackBerry devices at a lower cost but with a positive profit margin. Current BlackBerry devices sell at prices on par with premium Android and Apple iPhones. This is unsustainable at the consumer level. BlackBerry does not have the same app support from developers to justify the current pricing model. BlackBerry will probably need to lower initial prices of future premium devices to accelerate adoption of the devices at both the consumer and enterprise level.
Mixed success in Z30 key to future
BlackBerry’s Z30 tells much about the mixed drivers for BB10. The Z30 has a five inch screen, a solid build and a long battery life. It lacks adequate carrier support, however. BlackBerry is spending little on advertising to boost Z30 sales. A proper balance in budgeting for advertising in the consumer space might help drive adoption for BB10, however.
Turnaround plays punished
Nokia (NOK) is well on its way to focusing on the networking market, patents, and maps. Its shares turned around. Nokia is outperforming even Apple (AAPL). Nuance and BlackBerry are down for the year.
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BlackBerry’s quarterly loss was a major event for the stock, but it was expected. The company sees itself as being on a track to profitability. Monetizing BBM remains of secondary importance, but it will happen as competitors like Facebook’s (FB) WhatsApp also look to monetize through advertising.
Disclosure: Author holds shares in BlackBerry
Written by Chris Lau.
1. Research In Motion Limited (BBRY, Earnings, Analysts, Financials): provides wireless communications solutions worldwide, a wireless communications platform solution, which includes the sale of BlackBerry handheld devices, and the provision of data communication, and compression and security infrastructure services. Market cap at $5.15B, most recent closing price at $9.83.
2. Nuance Communications, Inc. (NUAN, Earnings, Analysts, Financials): Provides voice and language solutions for businesses and consumers worldwide. Market cap at $4.82B, most recent closing price at $15.30.
4. Apple Inc. (AAPL, Earnings, Analysts, Financials): Designs, manufactures, and markets personal computers, mobile communication and media devices, portable digital music players, related software, services, third-party digital content and applications worldwide. Market cap at $472.72B, most recent closing price at $527.55.
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