BlackBerry’s bold bet failed: Now what?

BlackBerry Earnings Preview

BlackBerry has had a rough of 2013, to put it mildly. The company has lost billions in market cap, it has a new CEO, and there’s speculation seemingly everyday about what the company can do to save itself, or even if can be saved at all. BlackBerry is scheduled to report fiscal third-quarter earnings before the market open on Friday, and no one is expecting much, if anything, in CEO John Chen’s first foray with investors and analysts. Societe Generale analyst Andy Perkins, who rates shares hold with a $6 price target, notes the situation has gotten worse since BlackBerry last reported, due to the failed acquisition by Fairfax Financial, and a continued loss of market share.

“Under these circumstances, we consider it unlikely that the company will be able to continue in its current form,” Perkins wrote in his note.

BlackBerry has continued to lose clients, with the Department of Defense reportedly moving away and Pfizer moving away from BlackBerry devices, prompting the company to have 3.6% of the market, way behind Apple’s iOS and Google’s Android operating systems, according to Perkins.

BlackBerry is the only handset provider with “the ‘Authority to Operate’ on the U.S. Department of Defense’s (DoD) internal networks,” due largely to its exceptional security and network intelligence. However, there’s been speculation that the DoD, which has almost 500,000 smartphones in use, could look to iOS or Android as an alternative. Pfizer has more than 90,000 employees, so potentially losing these two customers would be a major blow.

Analysts surveyed by Thomson Reuters are looking for a loss of 44 cents per share on $1.596 billion in sales for the fiscal third quarter.

There’s been plenty of speculation that BlackBerry would stop selling handsets, and even went so far as to announce under former CEO Thorsten Heins that it would cease to do so. Chen has since reversed this measure, but the company, which has roughly 75 million subscribers, may not be able to do so for much longer, given the lack of success of its flagship Z10 phone, and the flop of the Q-series, BlackBerry’s smartphones with a physical keyboard.

With all of the distractions going on around the company and uncertainty swirling like a funnel cloud, subscribers and corporations have been leaving BlackBerry in droves. Raymond James analyst Steven Li noted, “[b]ased on Gartner’s C3Q13 smartphone data, BBRY’s sell-through decline accelerated sequentially (-23% Q/Q in NA, -26% Q/Q in Europe and -31% Q/Q in Emerging Markets).”

One area of strength for BlackBerry has been its messaging service, BBM. The company reportedly met with Facebook to discuss a potential partnership, though it was unclear if the talks centered about the app, which is now available on iOS and Android.

Raymond James analyst Li, who rates BlackBerry market perform, notes that BBM now has around 80 million users, with 20 million of them coming in the first week of the cross platform launch, which happened on Oct. 21. “A survey by Distimo since BBM went cross-platform also shows BBM leading Whatsapp on iOS in the US, UK, and India, while Whatsapp (which has ~350 million users worldwide) held the edge in Brazil and South Africa,” Li wrote in the report. “That’s good news for BBM’s valuation if they can continue to add users.”

It’s highly unlikely that BlackBerry shows any kind of improved performance during its results, as the bleeding has yet to stop in Waterloo. Chen will continue to assess the company over the next several months, and BlackBerry’s future is uncertain.

This much is known, though: Nothing is getting better anytime soon.

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