A few days ago, I had written about the possibility of old emperors, like Nokia Corporation (ADR) (NYSE:NOK) and Research In Motion Ltd (NASDAQ:BBRY), striking back in the smartphone war. Well, to everyone’s surprise, BlackBerry’s recent earnings report showed signs of the company’s resuscitation after a long period of dull performance.
However, the company reported a net loss of $646 million for the full fiscal year. It had initiated a cost-cutting program for the fourth quarter, which included laying off 5,000 employees to save $1 billion, which is one of the reasons for the quarterly profit.
The subscriber-base decreased to 76 million. However, I believe the company could well be entering a transitional phase, reasons for which include the following.
Strong financial performance
Even though the company doesn’t currently pay dividends to its shareholders, Research In Motion Ltd (NASDAQ:BBRY)’s strong balance sheet has been acting as a cushion for investors. With negligible current long-term debt, the company also has $2.9 billion in cash, cash equivalents and marketable investments–which represents around 36% of the company’s total market capitalization of $8.1 billion.
Future plans
With the recent launch of Research In Motion Ltd (NASDAQ:BBRY)’s Z10 smartphones, the company has plans to launch a series of smartphones to cater the needs of all types of consumers. It has also has plans to release a tablet in the fall. In an interview with The Canadian Press, BlackBerry chief executive Thorsten Heins said: “In order to stay relevant, we have to build a portfolio.”
The smartphones, which have yet to be released, will have three tiers: devices for high-end users as well as variations on those products with mid-and-entry level prices to cater to the needs of low-budget consumers.
With the introduction of low-priced smartphones, which will also use the BlackBerry 10 operating software, the company aims to gain market share in countries like India and is encouraging its customers to shift to its new operating software at affordable prices. It’s also working on introducing new features in addition to its world famous BlackBerry Messenger (BBM), which could also increase its revenue.
Stock performance
After seeing a low of $6 per share in September 2012 and rallying around that price range for quite sometime, Research In Motion Ltd (NASDAQ:BBRY)’s shares have at least bounced back to a double- digit figures. Shares have recently been trading at about $15.12 per share. Even though the shares are nowhere close to the $90 per share-high the stock had attained , the double-digit share price is definitely a sign of a comeback. The following chart shows the stock performance.
Source- www.ycharts.com
Even though there are reasons for investors to cheer, there are a few concerns about this company, as well. One of the main reasons for worry has been Research In Motion Ltd (NASDAQ:BBRY)’s declining sales. Fourth quarter revenue was approximately $2.6 billion vs. a $2.7 billion in the same period a year ago. Annual revenue declined by 40% to $11 billion vs. $18.4 billion a year earlier. The declining sales have been a huge worry for the company and the hits continue. After ruling the smartphone market for quite sometime, BlackBerry has been losing its market share to both Apple Inc. (NASDAQ:AAPL) and Samsung.
The following table shows the operating-system share in the smartphone market:
Source- Kantar WorldPanel
Google Inc (NASDAQ:GOOG)‘s Android, with a 51.2% market share, owns more than half of the smartphone sales in the U.S. Android can be used with all types of phones, unlike Apple’s operating system.
Even though the IOS market share has declined, Apple’s mobile offerings are the strongest with the two largest U.S. carriers, AT&T and Verizon Communications Inc. (NYSE:VZ). With plans of releasing smartphones for all types of consumers, BlackBerry could take advantage of that event and regain its market share — primarily because an iPhone doesn’t come cheap.
The Chinese market has been attractive for all the tech giants. It’s believed that at present, the Chinese market is one of the biggest mobile-phone markets in the world. What is surprising is that 90% of this market is dominated by Google’s Android operating system.
The Chinese government is worried about Google’s dominant position there and could soon introduce regulations regarding the use of Android to ensure that the mobile devices use an operating system developed by the domestic companies. This could be a big worry for Google.
There have also been rumors about Apple announcing a China Mobile deal sometime this year, and there is a possibility of a low-cost phone, also. This could help Apple increase it revenue and help its poorly-performing shares- which are at present 38% below the highs they have seen.
Because at present Apple caters to the high-end market and there are worries for Google in China, BlackBerry could take advantage and enter the Chinese market. As they already have plans to introduce low-cost smartphones, a dominant position there would add to the revenue and make it more profitable.
Even though BlackBerry faces stiff competition, with a positive earnings report and the stock’s rebound to a double-digit number, it has entered a transitional phase. I am definitely long BlackBerry. It certainly has great upside potential and will add value to investors’ portfolios in the long run.
usha patodia has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple and Google.
