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Looking back at the incredible pace of change at BlackBerry in CEO John Chen's first six months

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Bert Nordberg stepping down from BlackBerry board next month

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Prominent investment group Kahn Brothers increase stake in BlackBerry by 80%

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My thoughts on the BlackBerry Q2 results released this morning

By Chris Umiastowski on 27 Sep 2013 01:41 pm EDT
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This morning BlackBerry published its Q2 fiscal 2014 financial results by way of press release. They’ve made what I believe is a horrible decision to skip the usual conference call. My understanding is their SEC filing with management discussion and analysis (MD&A) will be out next week. This leaves me with less information than I’d like to base my analysis on. As usual, I’m going to tell it how I see it. No sugar coating. Just balanced commentary.

First of all, the published numbers are worse than they indicated last Friday, the date of their layoff announcement. The pre-announcement was certainly truthful by saying the GAAP loss was close to a billion dollars. What they didn’t tell us until this morning is that the pre-tax loss was actually $1.44 billion. I’m not a tax expert, so when I looked at last week’s pre-announcement I thought that, excluding the Z10 inventory write down, they were pretty close to break even. That’s not the case. They are bleeding badly.

With revenue of $1.6 billion, they had adjusted gross margin of 36%, or $570 million. That’s what is left to fund all expenses. Unfortunately operating expenses amounted to $1.06 billion, so they’re losing loads of cash.

They went from having $3.1 billion in cash last quarter to $2.6 billion now

This is, of course, confirmed on the cash flow statement. They went from having $3.1 billion in cash last quarter to $2.6 billion now. That’s $2 billion annualized, folks. Hopefully this paints you a crystal clear picture of exactly why they had to cut 4500 jobs last week. It’s sad, but it’s a no brainer. This company can’t survive without the cuts.

Operating expenses consist mostly of R&D and Selling, General and Administrative (SG&A), as most of you who pay attention to financials already know. The company spent almost $900 million on these two line items in Q2. If they are successful in cutting 50% of their operating expenses and hold revenues in place, they should get back to break even.

Let’s now talk about shipments and sell-through. As most of you already understand, the company sells hardware to carriers and other partners, who then sell it to end users. This quarter they recognized revenue on 3.7 million BlackBerry devices, although end customers actually took possession of 5.9 million devices. For comparison, last quarter they shipped 6.8 million devices and sell-through was also 6.8 million.

I’ve always felt that sell-through was the more important metric. Sell-through tells you what actual customers are doing, as opposed to sell-in, which tells you how carriers are behaving. Sell-through is down by 13%, which doesn’t seem horrible but it is. BlackBerry 10 is now in full force, and it only produced one solid quarter of growth (Q1), and is now in decline. This is a very bad sign.

What about the 3.7 million “shipments” this quarter?  The company explained in the press release (and the pre-announcement) that actual shipments were higher, but they could only recognize revenue on 3.7 million units. Have they changed their accounting policy?  No, they have not. I confirmed this with the company myself just today. I will offer my explanation on things. BlackBerry 10 sales are declining. BlackBerry 7 sales are declining. This is causing the company to be more conservative in recognizing revenue on product that can be returned by carriers if it doesn’t sell. The revenue recognition rules have not changed. What has changed is the risk around the shipments, therefore causing BlackBerry to use these existing rules as best it can to accurately report sales. After all, a device that gets returned to BlackBerry by the channel should never have been counted as revenue.

Another bad sign for the company is the consistent weakness across all geographical regions. Let’s look at some numbers:

  • North America sales are down 46% from last quarter. 
  • Europe, Middle East and Africa (EMEA) sales are down 49% from last quarter
  • Latin American sales are down 56% from last quarter.
  • Asia Pacific sales are down 47% from last quarter. 

That’s a very consistent drop in sales!

Of course all of this is relative to three month ago, and I’ll repeat myself here because it’s important: This is probably a reflection of the difference in management’s perception between Q1 and Q2 of how realistic it is that a shipment becomes an end customer sale. Sell-through numbers are down 13%, which is very different form the near-50% drop in reported revenue. I believe sell-through is a more important metric in terms of understanding the business trend.

I’d also like to point out that on the cashflow statement this company is still spending a lot of money on intangible asset purchases. The total was $268  million in Q2 and $335 million in Q1. My understanding is that this spending reflects upfront patent licensing expenses. Obviously this is not sustainable. BlackBerry can’t be doing $771 million in quarterly hardware sales while paying a huge portion of this out for licensing. This would make it impossible to continue in the hardware business. So either these licensing fees will drop proportionately with shipments, or BlackBerry has an impossibly unprofitable hardware business that nobody will ever buy, and will get shut down. I think the former argument is more likely at this point.

The only real good news is the growth in BES 10. Since July they’ve taken the installed base of servers from 19,000 to 25,000. This is pretty much the only part of their business that is growing. They absolutely need to keep this momentum going, just as they need to get the cross platform BBM launched, and grow that user base.

Although the sell-through decline isn’t as horrible, it’s still bad, and it has put the company in a very precarious position

All in all, the Q2 results look very scary because of the sequential revenue decline. Although the sell-through decline isn’t as horrible, it’s still bad, and it has put the company in a very precarious position. They need to swiftly execute the job cuts and decide whether or not they can remain in the smartphone business (actually making phones) or move to just software and services. They need to figure it out pretty fast, because they’re bleeding cash in a way that might accelerate as BB7 users transition off the platform or move to BB10.

Next week I’ll have a chance to look through the company’s SEC filings with full MD&A, so I’m sure I’ll be back with more at that time.

Topics: BBRY Editorial

460 comments

tw1g_007

Provided it's from Chris I don't mind. I like his insights.

via CB10 (BB Z10 : BLK : OS 10.1) [ Channel @ C0012477B for BB News, MMA & Tech Updates ]

bintheredundat

Ditto

Posted via CB10 on my Z10 Oreo

GRojasHruska

Triple =) this man is good at explaining their financial situation in a proper manner, many people gloss over facets and make over simplifications, glad he takes the time to do his research and explain his learnings and perspective (aka THANKS MAN!)

jic999

Chris gave us a key call Nov. 2012 @$7 bucks i got in and road the shares and LEAP option calls to March/April 2013 @$15 to $18. From there i was holding some shares and was trading the stock with weekly option Puts & Calls with some success. But the main thing I was doing is never trying to promote the stock but promote the companies product.

Posted via CB10

mikeycollins13

Ditto he's articulate and it's an easy read.

Posted via CB10

BionicKris

It sure is

Posted via CB10

Yasch22

And of course big chunks of this article are embarrassingly wrong. How can sales go down by more than 50% when you're comparing sell-through numbers? Q1 sell-through was 6.8m. Sell-through in Q2 was 5.9m. That's an overall drop of 9.5%!
Revenue in Q1 was booked on the shipment of 2.7 m BB10s, but only 500K sold-through. The oddity in the numbers was due to the fact that fro the 6th quarter in a row BlackBerry sold through a lot more BB7s than it shipped, which is in large part due to the fact that they successfully stuffed carrier channels with millions more BB7s than they were able to sell in the first couple of quarters after launch.
Basically, sales of sold-through BB10s looks like this:
Q4/2013: 665,000
Q1/2014 (March 2 to June 1): 500,000 (This was the truly scandalous month where BB reported shipments of 2.7m BB10s but failed to tell us they had only sold through 500K)
Q2/2014: 2,400,000. This is actually very encouraging, in a strange way, and indicates why Statcounter numbers were way up for this quarter. Because the number of BB10s in actual customers' hands more than doubled from Q1 to Q2.

Yasch22

And of course a chunk of my own math is embarrassingly wrong. The drop in sell-through sales was 13.2%, not 9.5%.

br14

Worth remembering Q2 is traditionally a lower sales quarter. Admittedly they're just post launch, but we should be comparing the decline after discounting the prior years Q2 decline versus Q1.

And they're valuing the sales differently because they just wrote off everything sitting in the carriers warehouse!

Looks like they've focused all the bad news in this quarter.

Either way they're not doing great, and those of us holding BBRY have a decision to make. Accept $9 and get burned (in most cases); or reject $9 and take the chance we lose even more - because one way or another BlackBerry won't survive as a public company.

TabletsRUs

Not doing great? Thats an understatement. I read all sorts of storys in Appy Geek this morning on Blackberry, where normally its all iPhone and Android, but it was all bad news. Blackberry lost 945 million in Q2, cut 4500 of its work force, sold only 3.5 million z10 handsets (compared to Apples 9 million iPhone 5s and 5c in only 3 days), and Heins has openly admitted BB10 was a mistake.

I even wrote that clown Heins over a year ago when he was ins the decesion making process of deciding to go Android or develop BB10, and told him to go Android. In retrospect hes kicking himself in the butt big time.

Well this company is doing horribly and all I can say is I hope going private with Fairfax and cutting 4500 workers will help save them. If not then we're all stuck with a bunch of expensive bricks. Happy I went Samsung back in April. as Blackberry has turned into a horror show.

Anonymous2039

If BlackBerry had gone the Android route they would probably be in an even worse position than they are now, in my opinion.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

seascape

Exactly. No one competes with Samsung on Android. Not successfully, anyway.

thedustytaco

Tbh I dont really see samsung any special compared to other android devices. All devices are unique in their own way. Its just that samsungs name has brought itself so high, its gotten to be popular. Same for apple. Apple has brought the iphone name so high, yet there are many other devices that could arguably be better than iphone, but people buy it anyways.

In my opnion blackberry could have done better with releasing phones throughout major markets simutaneously, and rollout updates the same too. Marketing is a major factor in which needs to be improved upon, and may I sugest open sourced bb10?

jic999

Today anybody buying a Z10 Q10 or Q5 with the 10.1MR OS + the App sélection in B-World, updated BlackBerry Link and Bridge is getting a great phone period. The 10.2 OS Will make the experience even better. The Z10 at launch with the buggy 10.0 OS was a mistake. The world was waiting for the Q10 period. THOR took the risk there and failed. Was the OS ready for Q10 ? Who knows. One thing I do know is the marketing and awareness for thé Q10 would of required less of an adoption curve with immediate sales. Keep the Z10 in thé lime light as the next phone to come but the Q10 should of been the phone to launch first period. Plus and a big plus the Q10 should of had a virtual Track pad that could of been turned on or off by the user. That's what I am hearing from professional Q10 users. Also a slightly bigger screen on the Q10 eg. 3.65 to 3.80 inch screen with a track pad would of been a hit out of the park. If BlackBerry can make thru thus transition this Z30 with the 10.2 OS + the great APP sélections in B-World, Link and Bridge, BlackBerry has a great consumer and professional device with the Z30. Now just add some polished marketing to the Z30 !

Anyway this BlackBerry user is not given up and I hope the Canadian government is listening we need a mobile computing technology champion for thé next big technology stage ahead !

Posted via CB10

YourMobileGuru

Agreed. I never understood why they launched the Z10 first. BlackBerry literally owns the physical qwerty market. Ask any general consumer to describe a portrait qwerty and 9 out of 10 will call it a BlackBerry. There.is an old saying about leading with the best foot forward and the didn't do that. They gambled that they could steal some touch screen users from the competitive and they list.

Posted via CB10

TabletsRUs

@chaz95. If you think Blackberry would be in the same mess if they adopted Android then you are one of those ''RIMTards'' who think all is well in Blackberry land no matter how bad it really is. Why do you think everyone is trying to sideload Android apps? Because BB10 has no apps and sucks in that area.

And if Blackberry went Android theyd be 100% successful today as theyd have a 750,000 app eco system behind them, and anyone who adopts Android is successful. Blackberry is in this mess because BB10 has no apps and sucks.

br14

But he did go Android. Running on top of BB10. It doesn't seem to have helped.

And see the comments on HTC.

As it happens they would be much WORSE off with Android. Because all those enterprises moving to BB10 would have dropped it because of security issues.

You can't secure Android without rewriting the core OS. At which point it ceases to be Android.

Crmn011519

What a lot of people don't realize is that QNX, the OS that underpins BB10, is a variant of Linux, and Android is also a variant of Linux. So while a re-written Android core would for all practical intents and purposes cease to be Android in its truest sense, but still essentially the same OS.

DonHB

Actually, QNX is a microkernel architecture while Linux is monolithic with some driver model changes. QNX has had APIs to make porting "unix" code easier.

Assuming BB10 is based on the newest OS from QNX it is very different from Android and most Linux derivatives as well as iOS. Mach ceased being a micro-kernel OS before Next adopted it.

That QNX is not *nix is why I chose BB10 in addition to it having a good and maturing UX.

TabletsRUs

@br14. I don't think I'm making myself clear here. I'm not talking about running Android under BB10. 90% of people out there don't want to have to hack their phone to run Android. I'm saying get rid of BB10 and replace it with Android. And who cares if Blackberry loses some of the Blackberry diehard grandpas who use Blackberry as a secure communication tool. Blackberry needs to take its head out of its a$$ and go FULL ANDROID and open themselves up to millions of new young Android customers. If Blackberry went full Android it would be successful as BB10 is a massive failure...believe it.

dmacne

I won't dispute any of the business factors behind what you are saying, but I will say that I'm very very thankful that blackberry took a shot with their mobile os 10.2. I've had my z10 since launch and I still can barely put it down. My androids newness latest maybe 2 or three, and the newest android incarnations don't bring me to a place where I'd buy one. Well see what happens with BlackBerry but at the very worst I have an awesome phone for the next few years

Posted via CB10

Doughtt

If blackberry went android I would never have bought my Z10 .
That's the truth

Posted via CB10

Adolfo Redillo

Are you kidding me about the android apps I have 8 apps that are android ports out of 55 and the only ones that are side loaded of course is Instagram, Vine, and Netflix which to be honest I hardly use. The app argument is mute at this point. The only thing hurting BlackBerry is out right marketing and ignorant people drinking the cool aid.

Posted via CB10

arfin

All I can say is thank god he did not go android, I love my Z10 and it's thanks to BB10

castano22

Of course he's going to say going BlackBerry 10 is a mistake. They're loosing a lot of money but the only mistake is how they're going about putting their product out there. All my friends that I let try my Z10 love the phone, but the only thing stopping them from buying the phone is the apps. They don't want to have to port apps in order to get what they want.

The whole mindset of the company and their execution was a mistake not the product.

Posted via CB10

inspectrheck

+1000

Posted via Z10 | BB10.2~1743

jbmcunanan

They have good products but have no idea how to sell them.

Posted via CB10

jic999

If BlackBerry is going on a ship to request for consumer phones they should provide a service to side load apps for you for a fee before they ship it out, I would pay for that !!

Posted via CB10

Sandeep Jain1

I probably missed this part, when did Heins admit that BB10 was a mistak..?

jackwaldon

Where did Heins admin BB10 was a mistake?

stevobbm

Im sorry if this sounds selfish, if BlackBerry went android, we would not have BB10 and that would be a real shame. I just hope they can turn this around somehow, there is a lot of work to do in all areas, let alone PR.

Posted via CB10

swtnotZ10

I have my SGS3 Just in case. I don't kiss any corporate ass. If they start to fail me, i kick them to the curb as i would anyone else.

Posted via CB10 on my white Z10

RP Singh

Bricks? Explain.

Sent from my iPuh-lease-as-IF

Xader

Not only is Q2 a low sales quarter, but I maintain that the real story will be told in Q4. Holiday buying, plus the expiration of the 2-yr contracts from the release of the 9900 should paint a very different picture.

Playbook007

I agree as long as they can add some kind of positive news that BlackBerry will be around in the future and is solid. I will be buying the z30 as soon as it is released and do my part. Hope others do the same. We can't lose BlackBerry

BlackBerry will survive in the Corporate and Government Sectors! My Z10 is so much better than an iphone!

Jonathan Lebeuf

I Dropped my iPhone for a Z10 and im really satisfied with it!

Posted via CB10

JCardan

Right before selling the company...

Drmoe

I think they wanted to keep the numbers as low as possible to drive down the cost per share and make it easier for the take over bid.

Posted via the best phone ever. The white Z10.

Drmoe

As well they new Fairfax wanted the numbers low and they also new Fairfax was counting on them dropping to make their offer seem more attractive. Just my two thoughts though...

Posted via the best phone ever. The white Z10.

br14

With or without the write off they had a bad quarter.

Nothing they did would have prevented the price drop. It may have dropped a little slower perhaps.

slurms

As an accountant, the write down and change in rev rec are both judgement calls and both significantly impacted the bottom line this Q. It is suspicious to say the least because they could have just as easily kept arguing the same points as in prior Qs and the auditors would likely have signed off on fair presentation.

In addition to that, the massive write down was issued in a "surprise" statement which would have more of a negative impact and cause an over reaction? Where was the surprise announcement in last year's q3 write down of playbooks by half a billion? I remember a write down at year end as well that was similarly not announced in the same way.

So, yes, bbry is sucking regardless of how you look at it, but the question is why have they all of a sudden changed the way they were doing things? Given it would have taken time for Fairfax to come up with the $9 offer, it sure looks like bbry had a price point to strive for with their recent behaviour.

Posted via CB10

br14

"why have they all of a sudden changed the way they were doing things"

Because all of a sudden their sales dropped 40%!

As Chris suggested they've had to take urgent action to stem the bleeding.

By the way, there's a good chance Fairfax knew of the downturn but for obvious reasons waited till the information was public before making an offer. Ironically the legal requirements around insider trading have probably worked to his advantage.

castano22

But isn't that something to expect? Your company has a negative image in the consumer market and people are very reluctant to buy your product because of that. Shouldn't they have known that they would eventually loose money from the beginning?

Posted via CB10

Xader

If he had been asking why they're changing their operating policies, sure. I would buy that. But he seems to be asking why they're changing their reporting methods.

But, I'm also an accountant. And in my experience, no company suddenly changes the way they recognize and report inventory and sales without a very specific reason, generally to spin the bottom line (or market price?) to suit their goals. So this raises some red flags for me.

Many said that their botched releases were a conspiracy to drop the market price. I'm usually not part of the tinfoil crowd, so I didn't think much of it. But this sudden change in reporting has me wondering...

thisiscjay

No tin foil hat needed. You aren't alone in this thought process by a long shot..

TDSWIM

+1 Xader

Posted via CB10

br14

"no company suddenly changes the way they recognize and report inventory"

BlackBerry is under considerable scrutiny and had a bad quarter.

If they hadn't have changed this metric, they could have been liable to investigation for over stating inventory. Since Heins took over they've been improving their accounting practice (removing questionable goodwill for example).

dguy123

Their sales dropped by 13%. Their reporting dropped by 40%.

And a 13% drop in a quarter where they basically said, "don't buy our phones!", is actually pretty good.

Posted via CB10

nuldahtal

Then again, these "future sales" would have a value encompassed in their current stock value.
I wish BlackBerry my very best and I just hope they dont manipulate their revenue for any purpose

Drmoe

+1

Posted via the best phone ever. The white Z10.

Drmoe

I also think that the bbm delay also had something to do with all of this. With bbm coming out on time could have lifted the stock price. Just a thought though but makes all the sense in the world.

Posted via the best phone ever. The white Z10.

fast666

I agree and it looks very suspicious. Very obvious attempt to make bad results worse. On all previous reports they always attempted to sugar coat things.

ChannelX C000D3759 We feature top channels

jic999

Sure looks that way

Posted via CB10

Ribes Nigrum

Thanks Chris!

It's a beautiful stock price red Q5! Buy one! Help us go green!

SurrealCivic

Great post like always Chris!

I agree with the sell-through decline not being as bad. However, they did recognize only $1.6B on 3.7M devices. But is it not all about margins in this game?

BlackBerry has had declining margins on their hadnset business for almost two years now, not counting last quarter where gross margins ticked up due to the introduction of BB10 devices with higher ASP. But that ASP declined quickly as we saw with the Z10. The introduction of the Q10 tried to sustain those margins but we are not seeing that.

The truth is that their business model of making handsets has been deteriorating fairly quickly. Quicker than most have anticipated. They had an option of opening up their services business (Balsilie plan) they even had an option of exiting the hardware business (SurrealCivic plan :)) but now it is too late.

Here on CrackBerry, and Twitter, I called for an exit out of hardware a year and a half ago. Now this business is worthless, it is a cost in the valuation of the company at this moment. It is the reason why a such a low ball offer of $9 was put on the table.

BlackBerry will survive, focusing on Software and Services with QNX at the core. A leader in mobile to mobile communication. But it will be a tough road because of the baggage that they are carrying. The baggage of their money losing hardware business. Finding a buyer today will difficult, a lot more difficult than when they were selling 8M devices a quarter and bringing in north of $4B of revenue.

The exit out of the hardware business is inevitable. It is just unfortunate that it is so late in the game that the valuation on that business has deteriorated so quickly.

It will be a tough road ahead for BlackBerry, trying to find a buyer for their handset business (hopefully with a BlackBerry 10 license), the transition to a SAS (software and services) model and the focus on the enterprise market. BlackBerry will survive.

Thanks
SurrealCivic

for more analysis on BlackBerry follow me on Twitter
http://twitter.com/SurrealCivic

br14

They'll make handsets or die. But given the recent news from Jabil - where they make the handsets could change.

If you listen to Prem Watsa he wants to turn things around.

They have 2 million phones to give away and the Z30 is a competitive phone if it can ever get a fair comparison.

TDSWIM

Jabil? Where is that?

Posted via CB10

br14

They're a contract manufacturer. Recently announced they were negotiating with BlackBerry over terminating their relationship.

danprown

Good call on the Jim B. plan -- they should have done something with the NOC years ago. Cant let it sit there servicing only antiquated BBOS7 devices for which the writing is on the wall.

Chris Umiastowski

yup - I always thought Jim's plan made sense.  They screwed up bigtime not listening to him.

birdman_38

He didn't catch the attention of not only the National Hockey League's board of directors, but his own.

castano22

The problem was that they created such a large inventory with the expectations that people would flock to buy their products, once again not understanding the mentality of the consumer market.

Posted via CB10

ankush77

its totally gone case

mandony

Bad last quarter. (Loss!)
TM is dropping in-store BB retail sales (Loss!)
BB says they have many new 'trial' BES. How many will become cash flow positive? (Loss?)
Who will buy consumer BB if they feel the company will not be able to support it in the future?
BBM? No cash flow plan is proposed (Loss?).
PB? Past history (Loss!)

Regret. Forget about BB.
I hold BB shares. I had a positive feeling for the prospects when I purchased them last year.
So be it. I will not break even, but I planned for a possible loss and in the end will not lose what I could not afford.

musical1806

I will buy BlackBerry hardwhere as long

Posted via CB10

musical1806

(try again). I will buy BlackBerry hardware as long as I can get a qwerty keyboard. My alternative is a candy bar style handset.

Posted via CB10

mandony

Regret, there are not enough Q10 (hard KB) buyers like you. Otherwise, BB would now be successful.

elicash

Lazaridis has been very quiet...the May 1st exit from the board indicates he likely did so to blow out his shares. getting this deal done before year end prevents him from having to report that to the public. is this one of the greatest corporate governance fiascos in Canadian history?

jay_men

Or maybe he did not blow out his share's and just lost a lot of money too due to the current state of affairs with his stake in BlackBerry.

br14

Or maybe he's just waiting to see what happens and will join his friend Prem Watsa in the consortium as we get closer to the close. (As I expect).

jay_men

Agreed. I hope Lazaridis comes back because at the end of the day he's very smart man technically and who knows what BlackBerry can do with his current love of quantum computing.

ARWestenberger

QNX + Quantum Computing = World Domination

Posted via Microwave Oven

elicash

We've already seen qnx in action, and its anything but world domination. The board's decision to dump Balsillie and go with Lazaridis and Heins to pursue the hardware dream was a miscue. Now they are going to take it private and try to do what Balsillie told them to do two years ago.

Anonymous2039

Yeah, but mix QNX in with quantum computing and we've got world domination. However, the world is not anywhere near to being able to use quantum computing. I predict a few decades away at least, and let's see if BlackBerry is still around (or has a monopoly on the market--we'll see!).

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

Etios

Dude come out of your dream world, Blackberry is getting sold and soon it will be broken up and the pieces will be sold to the highest bidders. And here you are dreaming about monopoly on the market!!

Gatmyer

Thanks Chris. I respect the fact you don't sugarcoat the news. Its a tough day but we knew this was coming.

randall2580

This was really the first quarter of sales of the Q10 in the USA and to see their numbers fall like that in North America, see all the metrics as they stand, and you understand what lit the fire underneath the BOD to get a deal done.

The analysts who said cash burn was half a billion were spot on and it didn't stop the day they announced the deal with Prem.

This company is in trouble. They better hope this deal with Fairfax goes through from what I read above.

dreamgreed

Really wish they would do what Google does with their os. Let other companies make phones for them.

Love the hub! (owner of Z10, Q10, iPhone 5)

danfrancisco

+1,000! I love the Z10 and Q10 hardware (and eventually Z30)! So licensing out BB10 to other hardware manufacturers will keep the OS alive! Great article, Chris!

Jerry A

Haven't they been trying to license BB10 and no one is biting?

dreamgreed

As far as I know they haven't been licensing out their os for other companies. I wish they did, so sony and Samsung, htc could give it a go. However they would need to add japanese to this phone before sony would even consider it.

Love the hub! (owner of Z10, Q10, iPhone 5)

br14

So far as I know they're not in the business of selling our private data or bombarding us with ads. So they're not likely to operate the same as Google.

ARWestenberger

They may have released the bad news early to drop the stock price, but the bleeding is not intentional. This is very scary news folks. Fairfax is not going to keep a company that is bleeding this badly. If they can turn it around, and fast. If they don't Prem is going to let the body die and harvest the organs. I hope not, but I like the BlackBerry software and hardware combo. I don't think I would want BB10 on a Samsung. They need to be proactive, and fix this. Even if they are taken private, a loss this fast is going to make it hard to convince Prem keep them in one piece.

Posted via Microwave Oven

scalemaster34

Agree the core problems at BlackBerry have nothing to do with the Fairfax "offer".

I appreciate Chis's analysis of the situation!

NotGoodIMO

I would change my mind that the earnings were not manipulated if stable version of BBM is released with next week or so. So far, Blackberry management is showing that it wants Blackberry to die. Price the damn handsets low enough for people to buy. Heinz said that he doesn't want to make the same mistake as Playbook launch but he is doing the same thing over and over again. Overpricing the products at the launch and then writing them off once they are not sold. What a freaking idi*t.

ARWestenberger

I think the prices are fair for the Z10 and Q10, the interest just wasn't there. The Z10 is worth every penny I paid for it, but people don't find it cool. It hasn't moved even with a steep price decrease, so I don't think pricing on those was the issue.

Posted via Microwave Oven

Darlaten

"They need to swiftly execute the job cuts and decide whether or not they can remain in the smartphone business (actually making phones) or move to just software and services"

I think that they will extricate themselves, eventually (sooner than later truth be told), from the smartphone market in terms of actually making phones. The writing has been the wall for some time and the numbers being reported certainly back up the notion that the public - regardless of where they are in the world - by and large does not want Blackberry phones. It's time to throw in the towel and shift gears entirely. The days of Blackberry producing phones is over.

br14

" the public - regardless of where they are in the world - by and large does not want Blackberry phones"

Not strictly true. And anyway, at least in the US, have you even had a choice to buy BB?

castano22

BlackBerry has been releasing cap products for years now. I did like the 9900 but for professional use. Consumer wise their products aren't even worth considering since BlackBerry never gave anything to the consumer that's really worth drooling over a BlackBerry product. They failed to understand the consumer mentality.

Posted via CB10

z10 rocks

Someone will have to answer all these allegations, the truth eventually comes out, and if Heinz is on it for the bonus than I think the share holders, which are others apart from fairfax pw, will have to put a law suit against the board,
I'm a stock holder and very disepointed, at this point in time don't even know who to trust no more, the media or the blackberry board, no one makes sense,
Thanks for writing Chris,

Posted via CB10

mobilesync

Me too a share holder. I am trying to find out how to stop these criminals Heins etc. destroying BB and share older values. I hope other big share holders can lead us to fight against Watsa and Heins. Obviously, they are committing a fraud. As long as there is one big share holder stand out, I will join. Otherwise, we may need to take our own action.

ARWestenberger

Fraud or not, are you willing to lose the rest if your investment if the coup is successful? If this deal falls through people will be lucky to see $9 again. Just because their plan doesn't work doesn't mean the company has a better chance of rebounding. I love BlackBerry phones, and want them to stay around however possible.

Posted via Microwave Oven

Mike Wadas

I am also a stockholder, and I do not want this $9/share buyout to go through, because the chances of Thor getting his severance checks would be greater, and he wouldn't have to answer to BBRY investors. I'm hoping this deal was only to stop the bleeding in share value, to give Blackberry more time to get on their feet. But I do not see a recovery any time soon unless they learn how to properly market their products. I think they need a new spokesman, to ignite new excitement into the brand. Keep Thor as CEO until the contract ends, but have someone else do the talking. For those who want to keep BBRY as a publicly traded company, I suggest buying one share, and a BB10 smartphone. With that share your voice will be heard during the vote, to deny Prem Watsa from running away with the deed to the gold mine.

fast666

When Friday they pre-announced the results and literally said they are almost selling no BB10 I was shocked that why are they spinning the results negatively. Then on Saturday they suddenly and unexpectedly stopped BBM. Monday we got Fairfax low offer. These three events are very strange. You won't hear about BBM again any time soon. I've sold BBRY now at a loss as I've lost all confidence in this Board and Management.

ChannelX C000D3759 We feature top channels

malluco

Chris, you need to work on BlackBerry ... the company needs a jober how you !!

playbookster

I really hope this is the bottom.

Posted via CB10

Anonymous2039

They already reached the bottom when their stock price was at $6. They're on their way up now.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

Anonymous2039

Slowly but surely.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

PhilipDZ

Bye BlackBerry :-(

Posted via CB10

Mathias1

It is so frustrating that they can't even get mediocre sales numbers to at least break even on their costs. They honestly do have a great product that I believe should appeal to a niche crowd.
I'm so confused as to how things could have gotten this bad across the globe. I know that the company has huge hurdles in the states but now it seems like it has become a world wide problem.

Is the board really allowed to keep stock holders in the dark like this by canceling the conference call? Aren't there rules against things like this? Especially when shareholders deserve answers to some hard questions?

Posted via CB10

Andy321

no one is buying (corporate wise) as long as there is a huge cloud over the company. in my opinion, corporations, never eager to incur unnecessary upgrade costs in the first place, are taking a 'wait and see' approach to upgrading, hence, expected demand has not materialized. In my opinion, 5.8M sold through with the huge black clouds overhead 24-7 is actually decent and once BB goes private with a well capitalized group, the wait-and-see-ers will become buyers.

mandony

"It is so frustrating that they can't even get mediocre sales numbers to at least break even on their costs. They honestly do have a great product that I believe should appeal to a niche crowd."

Amen. You said everything right.
But ... it should have appealed to a mass market. If it were not for "Apple Hype", Z10 and Q10 would have done better.

solitude1984

It's funny, I loved bb phones at one point in time and have been following bb since. That being said, I have had an iPhone for the past 2 years, not because of the "apple hype" but because Blackberry wasn't meeting my needs. I played around with the phones in-store and I didn't see anything special. Now I'm upgrading to an iPhone 5s. Again, not because of the "Apple Hype." Don't blame other people for what Blacberry failed to do -- sell the product to people who had previously loved it.

Anonymous2039

What part of BlackBerry didn't meet your needs? In my opinion, BlackBerry is on par with all other high-end phones, including iphone, in all departments except applications--and that can be solved by sideloading.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

mandony

I agree that OS10 is great. I never owned of used an iApple or AnyDroid.
I purchased a Z10 and PB both on US release date.
Somehow Z10 did not get momentum.
Whereas, the first day of the new iPhone sales out sold more than the whole OS10 phone sales. Why?

PB was a failure for many reasons due to BB not meeting competition.

solitude1984

Except it's not really solved by sideloading, as has been discussed in the forums. Sideloaded apps don't work as well as they do on the OS they were made for, or they don't work at all. Apps are a huge part of the experience, and only blackberry can be blamed for that failure. They were simply too slow. I don't have company loyalty -- I buy what suits me. I already know that I will not stay with Apple forever. If something better comes, that's where I'm going. That's what happened with Blackberry ... had they shown me that they had what I needed, I would have gladly gone back. They didn't.

Pearl63

I'm sorry but I would rate my Z10 over any Apple product or Samsung for that matter. I don't consider apps important at all, I only value a few apps and all of these are easily sideloaded which is a lot simpler process then I initially thought. I like to think I will never abandon BlackBerry just because they don't 'suit my needs' they have been nothing but good to their customers although they have delays. Samsung is also far superior to Apple because they do what BlackBerry attempted and that is have a large range of products so I'm not sure if why you are with Apple but I'm sure you have reasons which I hope isn't just applications.

Posted via CB10

solitude1984

1) Love how their phones look and feel.
2) Excellent customer support. Best I've ever had.
3) Apps.

My husband and I both used blackberries (I got him to switch to bb) but we both ended up unhappy. I switched to apple, he switched to samsung a year later -- I didn't tell him to, he made that decision himself. I looked at many types of phones before I chose the iPhone, and I would look at many different phones again if Apple no longer met my needs.

I don't personally think blackberry has been all that good to their customers. They are pretty clueless if you ask me. I also don't think most people share your view of apps being unimportant. I'm sad that bb is dying only because they are a Canadian company.

BBZ10wannabe

The one other bright side is that they appear to have fully paid for the licencing fees on the written down inventory essentially making them pure margin with no cost other than shipping to the end customer. How can they best use this "free" inventory to stabilize the business? This could provide some comfort for the new owners to offset some of, if not all of, the cost of paying severances etc. to get to a new profitable model more quickly. Unfortunately having written down the Z10 stock means that they can't make any more as an asset (inventory for value). Therefore the Z10 line is dead until they can prove they can profitably sell it again. I'd be interested in your thoughts on this Chris.

timmy t

They have a lot of property. How much is that worth? Can they start to sell that as they downsize. I know it is just a one time infusion of cash but it might help.
I guess we are all hoping that they can reach some agreement within some other vertical to increase their revenue stream.
Now is the time for the Canadian or Ontario governments to step up and lease some of the NOC capacity for secure electronic health care records transmissions or something similar.
It could be seen as a great advertisement for the company and a nice infusion of revenue.
It might end the concerns about BBRY's long term viability.

craigdh1

Life will go on... As long as I can get a Z30... and updates I'm good to go. I would rather NOT be one of the sheep and using what everyone else is because the media tell them they need one!!!

Tumacana

You may be SOL if you get another Blackberry smartphone. If they exit the hardware business (which they may have no choice in doing..we'll see what happens with this deal first) that means Bye Bye software updates for any Blackberry smartphone that's already been released.

ARWestenberger

Not necessarily

Posted via Microwave Oven

Tumacana

How fast some people forget the Playbook fiasco. I guess we shall see soon enough.

Nicholas Kathrein

Another playbook.. Meaning no updates

Tumacana

That's right Nicholas. How fast some people forget the Playbook fiasco.

solitude1984

Right ... sheep ... anyone who buys a popular phone is a sheep right? Blackberry phones were very popular at one point. Were you a sheep when you bought one? To me a sheep is someone who follows a company even when they are not providing them with what they need, NOT someone who chooses to go with a company that DOES provide what they need, popular or not. If you are happy with bb then great - but many people weren't, including me. Sorry.

Anonymous2039

A sheep is someone who follows the masses, all lead by the "shepherd" of some very successful marketing.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

Etios

Absolutely, you nailed it, Blacksheep following the famous "Tools not Toys" marketing is the perfect example.

jic999

That's the difference ! I SHEEP is just that a heard of isheep

Posted via CB10

New_Z10

Such a ridiculous statement. The iPhone is an exceptional product. Mature with an amazing ecosystem. I am very focused on a business phone and I find my Z10 falls short. 10.1 is rough around the edges and does not support so many useful and valuable business tools.

Posted via CB10

craigdh1

Lol... iPhone + NSA monitoring device... Complete with finger prints now!

MrJohnyBoy

Well I'll enjoy my Z10 for the next 3 years. It is definitely the best phone I've ever owned, after that who knows...windows phone?

Posted via CB10

ARWestenberger

As will I, although probably only for 2. US contracts aren't as scary as Canadian ones. If there is another BlackBerry when it's up that I am interested in I will keep going with them. I like everything BB10 has to offer. Hoping going private will help them pick up the pieces even if they are only a niche player. I don't mind being part of the minority, as long as the product is as great as BlackBerry 10.

Posted via Microwave Oven

quizm

Good solid analysis. To me it is clear that bb10 has not won back customers nor enticed new ones. Why? Apps? Bad news/press? Putting up for sale signs? Noncompetitive platform? The reasons are important. I still think bb10 is solid. Phones are good. BlackBerry has a place. It does need time and maturity to find an equilibrium. Too bad a company like Amazon or Google does not buy it. Merge bb10 with Android but keep the good parts for a niche business.

Posted via CB10

elicash

the inventory level over $900 million is still staggeringly high, given the company cannot sell any phones.

muker1515

How many users did they lose?

Posted via CB10

R Field

They said they weren't going to report that in this quarter.

CB10 - Z10 -10.2.0.1725

Arny cua

We already knew what's the missing part of BlackBerry but it seems like they don't care..and now its happening to them.

Posted via CB10

Jimmy Fong1

Gotta get worse before it gets better. Hopefully BlackBerry has hit rock bottom. And can start over soon!

Posted via CB10

Anonymous2039

They'll start moving up the other side of the parabola as soon as Watsa takes the company ... hopefully.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

Anonymous2039

takes the company *private.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

Orange UK

Just like BB, consumers are dropping their BISness elsewhere as well BB no longer offers anything a hardware vendor or software operating system do in many more products.

FOCUS on your strength is security in itself.

PLAYBOOK/BIS were market leading products, now we have mobile phones like any vendor. It's common sense not to destroy your bread and butter or unique offering, not rocket science.

masque2

Before BB10, PlayBook was probably the biggest flop in the company's history. Don't get me wrong, I love the PlayBook, but still, there was NO demand either!

Orange UK

Well the product was never released finished, promised to finish and confirmed by CEO never to be finished, any product life in any company handled in such unprofessional manner will never take off/cause financial because that's not how you treat consumers or manage business. BB are not the first or last to do this or be bought out/fold after such a fiasco of a product, it creates damage to the brand no matter how good it once was. PLAYBOOK did not kill BlackBerry, BlackBerry management killed BlackBerry, trust, share price, consumer sales, BBOS7, BIS and the Playbook all for 3 BB10 handsets that are bleeding the last of the companies assets to death, if you put all your eggs in one basket the likelihood of risk and failure is high, management knew the risk, took the risk and failed.

BlackBerry killed BlackBerry, not anything else, BB10 delivers nothing OS7 did and could have continued too, and OS7 did uniquely to market.

njrPTA9273

So true

Posted via CB10 from my Z10 or PlayBook!

experiment 626

Thank God someone else can speak the truth about the real costs of BB10. BB10 will soon be joining WebOS, HD DVD, and Betamax.

R Field

Great article once again Chris. Thanks for breaking down the numbers.

CB10 - Z10 -10.2.0.1725

GV2012

As a former shareholder (finally sold my last ownership after the buyout announcement). It seems the only thing they have been consistent at has been declining revenue - quoted below. I guess because its the only thing they cant lie about now.
"North America sales are down 46% from last quarter.
Europe, Middle East and Africa (EMEA) sales are down 49% from last quarter"
Latin American sales are down 56% from last quarter.
Asia Pacific sales are down 47% from last quarter.

boss_hog

Does that mean 2.2 million phones were returned?

Posted via CB10

Chris Umiastowski

No, it means a bunch of phones shipped to carriers have not been sold.  if they are sold they will trigger revenue recognition.  If they do not sell, they could be returned and never generate any revenue.

BTW - the phones that sit in carrier stores unsold and unrecognized as revenue are classified as inventory.  That's why inventory is $900M.

br14

And that inventory is now valued at $0.

Which means the carriers holding the inventory are about to get a loss leader. Just in time for the fall season.

You can see why they've taken the write down at this point rather than waiting.

Chris Umiastowski

Until we see the SEC filing we don't actually know how much they've written down the book value of inventory to. All we know is the amount. Write downs are done to reflect that the revenue potential is lower than the cost. That doesn't mean they wrote off the inventory to zero. Most people don't understand this.

br14

Of course you're right. I'm just playing ball park numbers and proposing that 2 million devices at around $500 each represents the volume of inventory they've written off.

In practice I'd guess around $4 million devices reduced in value by $250 given inventory at end August 2013 is close to the amount written off. (Looks like they just halved the value of inventory).

I can't believe they'd let inventory get any further out of control. And even 4 million seems excessive since I believe it represents two months full manufacturing and the devices have been released for 6 months.

Either way, there's a lot of hardware that will sell for large discounts to carriers.

quizm

Inventory valuation is not straightforward. Too bad we can't get a handle in the numbers. The question becomes what is the new market price of the product. Certainly not zero. In economics we have the concept of price elasticity. I will bet that lowering the price of the Z10 would generate a lot of sales. We saw this for the PlayBook. With such an over saturation of the market, the age of th Z10 now, bad press etc, the market price of the Z10 has fallen drastically. Even the presentation of the Z30 lowers the market price of Z10! So BlackBerry made too many but it should drastically loss leader the product and promote bb10. Do anything to get people into the platform. Do it fast.

Posted via CB10

ARWestenberger

Always seems those who understand the least talk the most. Excellent write up Chris, I love learning about this stuff.

Posted via Microwave Oven

wincyUt

I'm still SMH as to why common sense does not prevail with this BlackBerry management because the Inventory Turnover ratio would have clearly indicated that things were not really moving and if they were proactive and not egotistical, should have aggressively offered some sort of rebate programs or deep discounts or price cuts. The writing was on the wall from the first quarter.
Chris, are the phones being sold on consignment to the carriers or vendors?

the_sleuth

Even after almost $1B inventory writedown, I see inventory balance went up by 56% to $941 Mil. Does this mean another inventory writedown could be telegraphed in the next quarter?

trsbbs

Great insight! Thanks!

Posted via CB10 on my Verizon Z10. 10.2.0.1725

Kevin Denmark

Interesting +1

Posted via CB10

JakeTheCat

Very. +2. Too little to late for Apple?

Adva_

Apple had Jobs. What about BlackBerry? T.H. failed, company failed to change due to two previous CEO's. That leaves no one. BB doesn't have a guy/gal with a vision.

JakeTheCat

1) Re-read the article. No mention of Jobs.
2) Look around you. There are countless passionate community members on this site. You don't think a single one of them has vision? I mean, even you? Don't you have a vision of how BlackBerry could thrive and the steps it would need to take to get there?

Adva_

Um, you didn't get what I said. Apple had Steve Jobs, not jobs job haha. BlackBerry doesn't have someone like him in their ranks.

JakeTheCat

Yes, I understand - capital J. Re-read the article: no Steve.

BuffaloMadMan

Although I understand where you are coming from in order for apple to come back it basically made a whole new product category and I just don't see blackberry doing that in a already very competitive market. It would take blackberry to come up with a whole new product and then absolutely nail it. Way different times and if bb sells it will def close the hardware side down completely

hajmuntz

I will have to go back to a touch screen smartphone that doesn't meet any of my requirements. And get laughed at by my colleagues for the nonsense that auto correct creates out of my typos...

Posted via CB10

marksthespot60

What did they spend roughly 300m on under intangible assets?

Posted via CB10

Notcho

This is Unfuckingbelievable. BlackBerry 10 is the best. How can't they sell.

Sent from The Legendary Zed10

jay2s

The price of the phones hurt their sales.. i have a z10 and I try to convince my friends that it's a great phone but they always say for the price of bb10 phones they would rather buy Samsung or iphones.. i paid for my z10 almost 700 dollars when it came out.. had they priced it at 300-400 range they could have gotten a lot of people to consider buying it then maybe app developers would have develop apps for BlackBerry

Posted via CB10

Tumacana

When you are trying to gain market share you don't have the luxury of charging premium prices. Look at what Amazon is doing...selling hardware at COST. That's how you defeat the iBehemoth. Or at the very lease steal some market share from them. Blackberry should be giving away those writte-off Z10's. The software is great and the hardware is decent. People are just not going spend money on an ecosystem that may or may not be there for them in the near future.

ARWestenberger

I agree with giving them away. They already count as a loss. Include 10 with every client who signs up for BES. This will get the numbers up to a respectable level without creating more loss. Plus, they generate a good real of revenue from their enterprise business. This could be a total win-win. If they decide to finally stop crying and start fighting.

Posted via Microwave Oven

dblcup

Here are my thoughts.... BlackBerry management sucks and has no idea what they're doing!

Posted via CB10

Anonymous2039

Yeah, and let's see YOU lead the company. It'd be dead in two days.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

MAJ009

I'm so disappointed, such an awesome OS and doing so bad. All the negative news ain't helping much either. Couple of days back one of my friends using BB device told me that he's shifting to another platform along with his family. This perception is killing BlackBerry and unless a miraculous set of moves are orchestrated in a proper way, future doesn't look bright. I have been using BlackBerry devices for the past 5 years now and absolutely LOVE my Z10, want to get my hands on the Z30 and buy my wife one too, but am just ever so confused.
I tried my level best to convince my friends to buy Z10 and succeeded as well, but all this bad news is so disappointing.
I wish all the best to BlackBerry and wish this gets turned around ASAP.
Love you Z10 and LOVE you Z30 even more!!!

Posted via CB10

Kevstra

Thanks for explaining it to the common man, Chris, as always.

Drew Oswalt

They forgot to add, "Our marketing team is horrible and may have contributed to the major decline in hardware sales. But we will stand by them and not include them in the latest round of announced layoffs."

Posted via CB10

crackedup77

Roflcopter on this.

Posted via CB10

ARWestenberger

Can I catch a ride on your roflcopter? My lolplane is out of gas...

Posted via Microwave Oven

newcollector

It seems the Bear analysts views were unfortunately spot on. To one extent it does feel like the company blew the initial sales impressions out of proportion.

I am disappointed but not surprised. The fiasco of the cross BBM launch got thru this thick scull of mine. It helped me realize just how deep seated the problems are at BlackBerry.

I hope Blackberry does reinvent itself, but the cards they have dealt themselves are stacked against them.

Posted via CB10 via my Z10

Andy321

re: the bear analysts, Yes and no. When your future is constantly being called into question in article after article after article it becomes a self fulfilling prophecy. People read that the company is going to go down the toilet, so they decide not to buy so the company goes down the toilet.

wincyUt

I don't totally agree. BlackBerry could have minimized the downward spiral if only they were not too egotistical and slashed the phone prices aggressively. Heins was over confident that Q10 would sell in the tens of millions.

BuffaloMadMan

Yes but that was blackberry's fault to begin with. It was too slow to adapt to a better os that was touch capable and can have a good developer base. It was been what 5 years for apple and android to build up their ecosystem in a market that wasn't crowded. Than BB delayed and delayed bb10 should of been out three years ago they wrote their own death wish. As soon as they realized touch was the future they should of dropped all support and anyone working on bb 7 and put on their efforts into the new is. Then they should of had hardware partners from the beginning to release more than 3 phones. Let's face it blackberry was just way to slow and way to late.

bitek

@Chris. Let's face it. It is fraud long time in the making. There is clear collusion and conflict of interest. National Post article is a great read. I am disgusted. Thorsten never had Blackberry best interest in mind with his reward for selling this company.

Posted via CB10

br14

"Thorsten never had Blackberry best interest in mind with his reward for selling this company"

1. Who says he won't stay as CEO? In which case he gets nothing.
2. LIke most CEO's his remuneration is based on share price. When the price drops so does his "reward". Even if he was let go he wouldn't be getting anywhere near the reported amounts, and he would be unemployable.

timmy t

How long does he have to stay for before he gets nothing? Is there a time limit the new company has to keep him for before the let him go and not have to pay him the $55 million

br14

Don't think there's a limit. But his remuneration will no doubt have to be adjusted if the company is taken private because the share price will not be public.

Chris Umiastowski

br14 - if he stays as CEO his restricted stock units will still vest.  He still gets paid.  Just takes longer.  On point #2 you're absolutely right.  Well spotted.  Most people don't realize this.

br14

I'll take your word for it :-) Certainly not my field of expertise.

Although when I read this I assumed he'd just roll into an equivalent plan : ...following a Change of Control... "the Company or a successor issuer in the Change of Control has not assumed or replaced on substantially similar terms the participant’s existing Awards... then all Awards will immediately vest."

dejanh

CEO unemployable? You must be from a different planet 'cause on Earth that does not exist, and that I mean literally. If anything, on Earth we tend to reward failed CEOs so that they may continue to provide us wonderful non-service.

Posted via CB10

Anonymous2039

I think some people underestimate the difficulty of being a CEO. For what it's worth, Research In Motion was already in very rough shape when Ketchup took the reins, so I wouldn't really blame him for the whole company's problems.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

SirSpanky

BlackBerry management shouldn't give up so soon on the hardware business. They have a lot phones they could be selling, if they get out there and do some good advertising. the z10 is a great phone with a lot of nice features. Good luck BB.

Posted via CB10

chadnichols

YUMiastowski hurt my tummy...that was a hard pill to swallow!

Posted via CB10

RonBro66

Somebody needs to pull the plug on Blackberries life support. This company would never rise again like the Phoenix.

My S4 is so much better than your Z10.

crackedup77

Cool story, Bro.

Don't tell it again.

Posted via CB10

B_Eazy

Chris, I think you should start making an article or 2 about the bad mangement and how they lied to shareholders as well as customers on how much effort they did put to bring the company back to profitability. Their bad PR job, horrendous marketing strategy, deteriorated brand image they produced over time are all stuff people needs to be aware as well as the management getting "Golden parachutes" once they were put in place.

PS: Let's not forget the horrendous choice of pricing and bad execution as well as poor follow-ups and extremely bad training for sales rep and sales people in stores of carriers. And there's more but I think I will stop there cause the people who are not blind will see what im talking about
Im a BB fan but we have been mislead for far too long about this company and the guilty peopole needs to be exposed!! BIG TIME!

br14

When have they lied? They're broken one or two promises (Playbook comes to mind but that was a technical issue), but I don't remember them lying. If anything they've been fairly downbeat while idiots on blogs were over bullish (usually because they had long positions).

As for pricing etc. That's not easy. If you lower the price, you lower your revenues and margins. You can also damage the revenue from other products you have in the market. And remember, the price we pay in the store is governed usually by carriers - not by BlackBerry.

BlackBerrys problems are simple enough to define. They grew too fat too quickly and ended up with 20,000 employees - clearly many of whom were part of middle management empire building bloat. (Since they seem to be doing ok with half that number).

And when you get fat you get slow. So they've responded slowly to market changes.

Not difficult to understand. But difficult to fix.

B_Eazy

I have to disagree with you. To me they lied because when Mr. Ketchup man came to become the CEO, they had this planned all along. They lied about they effort made in marketing to bring BB10 and sale those devices. Ketchup man even said that he didnt think the Z10 launch in the US was a disaster when IT WAS. He lied about BB10 on playbook and im sure we will never know whats the truth cause it goes on behind the curtains. Dont be naive! We all know the tricks in this business when you lie: Make it look real! So its obvious that with the lack of marketing they wouldnt sale much BB devices and stock price would go down. As well as poor training, etc. Bringing an unfinish OS (compared to BBOS7) and delaying release of these are damaging the brands.

And please, stop with the Blackberry does not dictate prices and only carriers do. Thats a load of BS. BB sales it to carriers at a certain price and they put their margins on top of that. So if BB gives them High price to buy or suggests them that its an High end device, they will price it accordingly. And knowing that their brand was so damaged and they had an eco-system problem due to big developpers telling them you need more users for us to bring our app, than reducing your margin to take a temporary hit and bring up your brand image and value would have been THE decision to take. But NOOOO! Management decided to go with profit margins to, most probably, make their minimum numbers and collect their stupid bonuses.

For the rest on how they grew , I agree with you. And yes, idiots on blogs and media bashed them bad! But thats because even PR never try to defend them selves. I dont know for you but if im a kid in the play ground and somebody hits me in the face repetitively, I will not just stand there and say nothing! I will either answer him or give him a big enough swing to shut him up! Unless you are a soft boy, than your a$$ does not belong in this business!

br14

BB10 failed in the US because carriers didn't push the device. They didn't push the device because they were caught in a trap with penalties on Apple contracts they couldn't sell. Those are now expired and no doubt the inventory has cleared the channel. Apple effectively destroyed the BB10 launch because the carriers underestimated the drop off in sales of the iPhone 5 but were caught having to sell them anyway.

If they'd spent every penny they'd had on marketing in the USA it would not have made a difference because the carriers wouldn't sell the devices. What they need is there own stores, but that is a major expense they can't afford and it takes time to set up.

BB10 on Playbook was never going to happen because the Playbook has only 1gb of memory and BB10 needs more. You might have been able to run it (slowly) but you wouldn't have been able to load any apps. I wish they'd release it just to shut people up. Seriously it's not like you get a lot more with BB10 than on the Playbook. Looks better perhaps but otherwise?

It doesn't matter what price BlackBerry sells to carriers, the carriers will set at the price they want. If they want to push BlackBerry, they'll sell it cheap. If they want to sell iPhones instead - they'll price the BB device higher. They're in total control. Always were. Apple screwed them over with the initial iPhone but only because they were in a unique position of power over AT&T. That position has gone. They may have done ok with iPhone 5S but my bet is Apple will have problems selling phones this fall.

BlackBerry is legally bound to observe rules around what it says about it's products. They cannot just come out and "shut him up" or they face repercussions. On the other hand hedge funds and the like can seemingly manipulate at will without the SEC raising a finger (although that seems to be changing).

Had they reduced margins on BB10 they'd have burned through cash more quickly and we wouldn't be deciding whether $9 is enough. We'd have been wondering if 9c was enough.

Heins has been pretty straight and transparent throughout. He has apologized for the Playbook issues but explained why.

B_Eazy

br14 - Thanks for all this explanation but for the sales price, I believe if Android phones were able to sell for lower priced during that same period, BBRY could of asked the carriers to do so. And regarding lower margin and burning through cash, again that would of been temporary cause the point was to put as many devices into peoples hand to stimulate the eco-system to bring more big apps and than maybe they could of brought out the Z30 at the full price they wanted it to be at. I find this strategy to be better balanced risks and most probably would have retained more value of the company since they would of had a bigger user base for BB10.

On the brand image side, what BBRY never understood is that people who left the platform still have the same image of the BB phones with old BBOS. Even when you tell them its a brand new OS and its not the same, people still think that you still have battery pulls to do after installing apps, you still have the hourglass icon when the phone gets slow, etc. They never did anything to break away from this old mentality and that's what marketing was suppose to do which they didn't. I didn't suggest to spend every penny in marketing for the US but to spend that money in more efficient ways and to reach the audience in a better way.

Im also afraid that they dont get that the "Enterprise" they knew before has changed. They can not be viewed as a complete entity anymore when it comes to mobile phones. They have to be viewed as "A group of consumers which compose the Enterprise". Because before being an enterprise worker, you are a consumer first. Which explains part of the reason why BBRY was draged into the consumer world even tho they focused on enterprises at first.

For the playbook fiasco, I say they still should of released it and let people complain afterwards. F*** it. At least they still brought it. Or at least give us the necessary missing pieces that would of made the tablet a true BB product (still no BBM for PB).

They could of still come out and "shut them up" by threatning to sue on defamatory comments or articles that might damage their image further. I guess they didn't do it because what media was saying was true perhaps... but I honestly believe they could of done something on that front to clarify certain news and misleading information spread by the media. (ex: BBRY going bankrupt! Thats just ridiculous since they have no debt and had 3.1 billion in the bank)

Oh and one more thing, this write down of devices unsold is too big! somebody didnt do their homework cause BBRY should of known that they wouldnt of sold 30 million devices with the brand image they had which was damaged badly already! They didnt gauge this at all and thought they had the same luxury status they use to have! typical arrogant BBRY! reminds me what they said when the first iphone came out...

jackwaldon

If I hear you right, you are saying that the carriers were in a contract with Apple to sell a certain number of iPhones? If they didn't, they would have to pay Apple more money?

Or, are you saying that, because they had to subsidize the iPhone, they were incented to sell it more?

Or maybe something else? Do you have any documentation to back that up? I am not challenging whether it's true, I am just curious to learn more.

br14

Here you go...

http://www.bloomberg.com/news/2013-07-10/verizon-seen-owing-apple-up-to-...

I guess they didn't bother to research the market properly.

The sales contract for $23.5 billion in iPhones for 2013 is probably around 50 million phones, or one sixth of the US population. Hard to believe Verizon could be so dumb. The math is simple enough!

Those deals with Verizon (and probably AT&T) have skewed the market in the US ever since and are probably the single biggest reason BlackBerry 10 failed to succeed - so far.

AtInsider

Contracts like this should be illegal, it completely messed up BB10 sales. Especially for people looking for the best smart phone. By selling an iPhone claiming its the best is untrue.

And this explains why Apple has massive North American market share. Manipulation. BlackBerry offers a better experience and product, and the only people that realize this are the people that are tech savvy.

Thank you Apple, I fortify my conclusion and hate you even more.

jackwaldon

Very good thanks, I just like to read the article before I repeat it.

This supports what has been said about how the carriers want a viable 3rd platform. Which also supports that I think there is still a market opportunity.

The question is... when are the carriers going to get it? When are they going to stop selling themselves to Apple? I would think that by now they would have said "enough is enough".

At the end of the day, it's the consumer's decision what they want though.

It seems to me that the problem isn't so much that they (BlackBerry) made the wrong device (the Z10), but that they built too many of them. They should have built 10% of what they did, sold them out, then left people hungry for the Z30. Having said that, they probably would have to charge more per device, but we are talking about the BB faithful, so we probably would have spent a bit more. Then they would have people saying, "they aren't confident in the product." but hey...
(granted it's always easy to say shoulda and coulda, I am just playing armchair quarterback for the fun of it).

Nicholas Kathrein

You know what they say. "A lie told often enough becomes the truth."
Vladimir Lenin

I think this is what they where hoping for. It doesn't work most of the time. Esp if your marking sucks. I work for a big company and they are like politicians.

Alphax45

They (BlackBerry) should park a truck downtown Toronto in the finical districts & at major urban centers & universities/colleges and hand out Z10's. At least then they can get SOME $$ from app store purchases and service revenue.

SMCNI1968

How could sell through have been 6.8mm last Quarter?

Posted via CB10

Gunner24

I think because shipments were at 6.8 and inventory didn't increase.

Posted from my Q10 on the West Coast

os30

R&D into what exactly? The "future of mobile computing" yes yet to materialise. So what exactly are they doing R&D into?

National Rail Times App for BB10 (Native Q10 and Z10) - http://appworld.blackberry.com/webstore/content/20352963

br14

They demo'd BBM on the desktop yesterday at BlackBerry Jam Asia.

Don't have to be a rocket scientist to see where this is going. You'll just plug your phone into a docking station and use as a PC/laptop. The laptop/PC market is dead.

And BlackBerry could be there first if they can get their act together.

Anonymous2039

The PC market is not dead. Until they can make phones as powerful as computers (and keep in mind that computers are getting more powerful by the year), that docking station will never work for everybody. I really like the idea though, but it looks like Microsoft is catching that rope first with their Surface 2 and what looks like an excellent docking system.

--Q10 and Canadian all the way! Posted via CB10 on 10.2.0.1443. #IChooseBlackBerry10

br14

Ubuntu Edge was meant to be the first system that used a phone. But I believe they didn't raise enough cash. They did have a cool demo though.

Of course PC's will continue for specialized use (like development) as you say. But for most people I'd guess the phone is it. Why carry a laptop when you have an octa core CPU phone capable of doing the same job.

You walk in the room and your phone magically connects to the TV, internet "radio" and computer docking station. Do you really need a laptop?

Crmn011519

Motorola already tried this with their Atrix phone, which had a docking station and also a laptop-style keyboard and screen that the phone could be slotted into. It didn't do very well, even though it is still being sold. One reason why it didn't do well is simply this: why pay $700+ for a phone and laptop dock that can do what a netbook does, when you can get a netbook for less than half the price?

dannykavs

hahah the laptop/pc market is dead?

Thor? is that you?

nerdydaddyo

How much of this is related to Heins?

I used my Z10 to create this CrackBerry madness!

anon5129477

They are commuted to the long term plan of growing the business. Its not going to happen soon but will eventually happen!

Posted via CB10

cgk

"The only real good news is the growth in BES 10. Since July they’ve taken the installed base of servers from 19,000 to 25,000."

Your starter for ten points - what percentage of this is test servers?

Nicholas Kathrein

If i was desperate I would beg companies to take my FREE test servers hoping they might like it and buy it.

Gunner24

Chris you somewhat contradict yourself in this analysis, but at least you FINALLY say what I have been saying since Friday in the forums about sell-through. I can only imagine why BlackBerry is making this seem worse than it is... (perhaps to sink their stock price to make the takeover possible at $9)... The fact is though by changing their revenue recognition method (this is an accounting change give me a break) they are significantly distoring their results in a way most accounts should recognition but mass media does not.

But you don't go far enough in exposing this. While you unraveled the sell-through number you didn't digest the revenue number like you should. 1.6 billion is a purely accounting figure. It means nothing. For comparative purposes, which is the primary reason for quartlery earnings reports, it is meaningless. Because we don't have a meaningful revenue stat for shipments this quarter either. We thus turn to devices "sold though" statistic. This was down 13% quarter over quarter. If we apply this to revenue, realizing this creates an estimate not a purely accurate number, we get 2.7 billion (3.1 - (3.1*.13) which is on par with year over year numbers. If this result was released the stock price would not have slid the full 16% and this needs to be explained to Crackberry readers.

Posted from my Q10 on the West Coast

Kevin Clough

Gunner74 - I completely agree with you. Their sell-through has only declined 13% and they responded by doing the big write-off and not recognizing revenue on any BB10 phones shipped this quarter which created a huge accounting sales hit for this one quarter. Most companies would try to put a positive spin on this or better explain this to their shareholders to prevent panic, but BBRY seems to want the big drop in stock price.

trwrt

If the carriers and other retailers drop the price of the phone, does that propagate back to BlackBerry or does the carrier eat the discount? Falling prices could explain the revenue/sell-through difference.

SamirSaxena

Is it not that an accounting change should happen retrospectively? And will that make any difference anyway?

Posted via CB10

Chris Umiastowski

Gunner - you are flat out wrong on your first comment. Sorry dude, but they did not change their revenue recognition policy this quarter. I checked, and I'm 110% confident in this. What changed is the risk surrounding their ability to sell devices to end customers. That risk always had to be evaluated, and this quarter things are different, so we get a different result. Gotta run to dinner, so will read the 2nd part of your comment and reply again later.

the_sleuth

Part of this evaluation is the performance obligation criteria according to FASB rules on revenue recognition. If the criteria is not met, then deferred revenue to future quarters.

Gunner24

Chris, I will say first and foremost though I appreciate your response and a good-hearted discussion on this - I'm an annoyed BB shareholder and recent finance grad and look forward to the remainder of your thoughts. I also hope your looking at this critically and not taking someone at BB's word on this. This is what doesn't make sense. How did they recognize hardware revenue before? It is my understanding they recognised it when devices were shipped? It clearly isn't the final sell-through to end consumers. In any case I assume their recognition policy had been consistent over the past couple quarters. ANYTHING other than recognising hardware revenue at point of shipping or final sale is absolute BS that is going to seriously mess with the accounting figures. This was not laid out in their Q2 results like it should have been. You have to agree there is NO WAY as a SHAREHOLDER to adequately compared financial results over the past two quarters. To me this is an accounting change. You are saying it is because a change in risk? That is BS. That may be the excuse they are using, but that is BS. The risk to the mobile market has not changed substantially over the last four months, the basic market principals are the same. They are accounting for that risk differently and have inadequately explained to shareholders the effect that is having on their financial results (motives for this are unclear). The remainder of my first post explains the rest.

Chris Umiastowski

Read the FASB rules. They are using the same rule this quarter as last.

Posted via CB10

Gunner24

wow... nice cop out. Kind of sad to not get some truth spoken around here about the absolute sham of this takeover and the murky details surrounding it.

koool1

I'm worried that BB10 handsets could eventually go away if sales don't pick up. It's not going to happen soon but it could happen in a year or two.

Really love my Z10. Really hope they boys in Waterloo can get corporate upgrades in gear!

Posted via CB10

Nicholas Kathrein

A week or two. Try the next 6 months if something drastic doesn't change.

MiFrich

Damn! What is the % that BB will leave HW? I guess it is preatty high right now :( I don't like that one bit! There is no other choice for me! BB stuff has personality. Everything else looks so generic . . .

David Murray1

This world has a nasty habit of killing everything that is truly beautiful and unique.

undone

Really its not a surprise. Would anyone even know BB still makes phones? I cant say I have ever seen any marketing for the devices.

I think the pet rock had more marketing...

battleax78

Phone has been out for 8 months and I still get "That's a BlackBerry?".

solitude1984

The only marketing I have ever seen was at a Baseball game ... there was some game you could play to win a Z10, but you needed a BB to play. I think it would have been more effective if non-blackberry users could have won the phone.

True CANADIAN EH

Great I locked I to a 3 year contract on a brick lol. Should have gone android

Posted via CB10

jackwaldon

How is it a brick? Even if the company goes away, you still have a working phone, right? Maybe I am missing something...

Loc22

In my opinion they have succeeded in killing BlackBerry. It seems like they have chosen to do all the wrong things intentionally.

No PR to do damage control like how Apple did it... last week Wednesday BGR reported on Bloomberg that the pre-orders for iPhone 5S & 5C is down as compared to the previous model by something like 17%. Then 4 days later they were sold out globally with 9 million units sold in 3 days.

Early announcements of products & services that makes consumers wait an awful long time & then add in a delay or 2.

Early announcements of intention to seek for a strategic partnership. This makes many potential purchasers to shy away.

And the list goes on...

The announcement of taking BlackBerry private will cause BlackBerry to dissappear off the radar. This I predict will cause more people to shy away from the product. The reason being that they believe that the company no longer exists.

Posted via CB10

solitude1984

The 5S was not available for pre-order, only the 5C was.

Toone007

No MARKETING = No SELL !!

bob_tn

Yep, they can't say high marketing costs contributed to the losses.
I wonder what they list for marketing expenses?

This is heading to be a textbook case study for business courses. "How to collapse a multi billion $$ company and still make millions yourself"

Posted via CB10

NotGoodIMO

There is one main reason for this decrease in shipment for BB10. They are rediculously priced. The Blackberry management has no brains. They priced Q5 very high, especially in the emerging markets. What are these idi*ts thinking? They need users on board so that app developers come and develop apps, otherwiese no matter how high the margins are, BB10 is not going to survive. I am telling you a team of chimps can run this company better these morons. The management is worried that if Q5 price is low then they will lose service revenue from BBOS devices. Guess what, people are moving in droves to Android. Blackberry is behaving as if they are still the leader in this space and running business in vacuum.

Toone007

Tottally agree !
380 euro for my Q5 is too much for other people...

Xano

A totally disgrace, sales drops almost 50% everywhere with BB10 on sale.
Total disgrace.

bbryaddict_85

Thanks for explaining Umi. Really puts it into perspective how bad things really are. :(

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