BlackBerry subscriber bleed turns into an arterial gush

BlackBerry Subscriber Loss

BlackBerry’s (BBRY) fourth-quarter earnings were a bundle of such extreme opposites that they literally stunned Wall Street. Many expected huge price swings, but as of 10:27 a.m. on Thursday, the share price is up 1.8%. Investors are having trouble figuring out whether to giggle with glee over the big Z10 shipment number or shriek with horror over the massive subscriber loss.

This quarter crystallized the theme we wrote about last week: the low-end product range of BlackBerry is collapsing. Despite shipping 1 million Z10 devices —many analysts expected shipments in the 300,000 to 500,000 range — the overall device volume was just 6 million, or 900,000 units below consensus. At the same time, the subscriber base situation is worse than practically anyone expected: 2 million subscribers were added in the August quarter, 1 million subscribers were lost in the November quarter and 3 million subscribers were lost in the February quarter.

The trend is clear. And dreadful. It implies that the emerging market softness is deepening rapidly. The $200 Android QWERTY models from Samsung (005930), Huawei, ZTE and other Asian vendors are tearing into the connective tissue of BlackBerry’s global empire. BlackBerry is now losing about 3.8% of its sub base over a three-month period. The entire ecosystem in countries like South Africa and Philippines is built on high market penetration; that is the lifeblood of BBM. Allowing Android and iOS platforms to gain share means risking a runaway WhatsApp contagion and the loss of relevance in the messaging wars.

BlackBerry turned a surprise profit during the quarter because the ratio of high-end Z10 to low-end Curve phones was much higher than expected. But this happened both because the Z10 shipment was bigger than anticipated, while the low-end device volume was smaller than expected. This does not need to be a problem if BlackBerry starts shipping sub-$300 devices in a month or two.

But if the company is six months from shipping the new Curve line the blood could really flow over this summer. The same happens if the price of the new Curve devices is too high: Markets from Brazil to Nigeria to Malaysia are clearly transitioning to smartphones that are priced at $250 or under. If BlackBerry miscalculates the premium it can command in emerging markets, it’s lights out in Waterloo.

What about the May quarter? The combination of 1 million unit Z10 shipment and 3 million unit subscriber loss was a chilling demonstration of how hard it is for BlackBerry to succeed with luxury devices alone. BlackBerry may not need the U.S. market anymore, but getting cheap new devices to emerging markets is absolutely vital. Global smartphone sales grew at roughly 35% annualized pace during the February quarter, yet BlackBerry’s sales volume is still shrinking faster than even the bearish Wall Street consensus expected.

This is coming down to a race between how fast the BlackBerry subscriber base is eroding and when the new low-end models finally launch.

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