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Turnaround? What turnaround? BlackBerry shares in freefall

The popular wisdom is that BlackBerry’s new models have turned the company around. The share market doesn’t think so.

Share in BlackBerry fell a massive 27% on Wall St on Friday after the company said it has sold many fewer Z10 and Q10 models than analysts had predicted. (All $ values in this article in USD).

Shares had risen sharply on the back of the new model releases, and many analysts had talked the company up. Between October last year and February this shares in the company formerly know as Research in Motion almost trebled, from $6.22 to $18.32. Now they have dropped back to $10.46., losing more than $3 in a single day’s trading. The shares are back to where they were late last year.

The share price plunge came after BlackBerry announced disappointing first quarter financial results and shipment figures. BlackBerry shipped 6.8 million smartphones in the quarter, well below what had been predicted. Only 2.7 million of these were Q10s and Z10s. BlackBerry lost $84 million in the quarter, on revenues of $3.1 billion. That was up 15% from the previous quarter, but was way below analyst’s predictions.

As you would expect, BlackBerry CEO Thorsten Heins is putting as positive a spin as possible on the figures. “During the first quarter, we continued to focus our efforts on the global roll out of the BlackBerry 10 platform,” he said. “We are still in the early stages of this launch, but already, the BlackBerry 10 platform and BlackBerry Enterprise Service 10 are proving themselves to customers to be very secure, flexible and dynamic mobile computing solutions.

“Over the next three quarters, we will be increasing our investments to support the roll out of new products and services, and to demonstrate that BlackBerry has established itself as a leading and vibrant player in next generation mobile computing solutions for both consumer and enterprise customers.”

Heins said the smartphone market remains highly competitive, making it difficult to estimate units, revenue and levels of profitability. “Throughout the remainder of fiscal 2014, we will invest in BlackBerry 10 smartphone launches, and the roll out of BlackBerry Enterprise Service 10, to continue to establish the new BlackBerry 10 platform in the marketplace.

“We will also invest resources to evolve  BlackBerry Messenger into a leading cross platform mobile social messaging application, and launch other revenue initiatives associated with new services and emerging mobile computing opportunities. Based on the competitive market dynamics and these investments, the company anticipates it will generate an operating loss in the second quarter. The company will also continue to implement the cost savings and process-improving initiatives it started last year, in order to drive greater efficiency throughout the company, and redirect capital from these savings to areas of investment that will drive future revenue growth.”

In other words, it will take a while. The market, and analysts are not impressed. "I can't imagine anyone is happy with BlackBerry performance except maybe BlackBerry competitors," said independent industry analyst Jeff Kagan, quoted by AFP. "Can BlackBerry turn things around with their new Q10, the keyboard device that just launched? Hopefully yes, but to tell you the truth hopes are dimmed by this first quarter performance.”

Others were more pessimistic. "There were three metrics investors were looking at," said Anil Doradla, an analyst at William Blair, quoted by CNBC. “They were subscribers, gross margins and BlackBerry 10 sales. All three were very disappointing. For many investors going into the earnings, people thought this was the end of the beginning. Now it appears this is the beginning of the end.”


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Graeme Philipson

Graeme Philipson is senior associate editor at iTWire and editor of sister publication CommsWire. He is also founder and Research Director of Connection Research, a market research and analysis firm specialising in the convergence of sustainable, digital and environmental technologies. He has been in the high tech industry for more than 30 years, most of that time as a market researcher, analyst and journalist. He was founding editor of MIS magazine, and is a former editor of Computerworld Australia. He was a research director for Gartner Asia Pacific and research manager for the Yankee Group Australia. He was a long time IT columnist in The Age and The Sydney Morning Herald, and is a recipient of the Kester Award for lifetime achievement in IT journalism.