Wednesday, June 29, 2016

BlackBerry Ltd (BBRY): No, Seriously. Get Out of Phones NOW!

The announcement is expected to come by September

Last week, BlackBerry Ltd (BBRY) released earnings results for its first quarter of fiscal year 2017, and while the figures were essentially flat they were still better than analyst expectations.

Since January, BlackBerry stock is down more than 30%, and revenue during the first quarter of fiscal year 2017 fell 39% to $400 million primarily due to plunging handset sales.

Total handset sales for BBRY’s first fiscal quarter barely reached 500,000, down 16.7% from Q4 2016’s total of 600,000 which itself was down 14.3% from Q3 2016’s total of 700,000.

To put it another way, BlackBerry’s phone sales have tanked 28.6% over the past three quarters. Even the company’s most recent device, the Priv — which has been called “the best BlackBerry in a decade” and sports Android and a touchscreen that slides up to reveal the iconic BlackBerry QWERTY keyboard — couldn’t boost sales figures.

CEO John Chen has apparently indicated that the final decision regarding BlackBerry’s possible exit from the hardware arena will be made later this year. At the company’s annual shareholder meeting, Chen stated, “The device business must be profitable, because we don’t want to run a business that drags onto the bottom line.”

This statement mirrors his comment to Reuters two years ago when he said, “If I cannot make money on handsets, I will not be in the handset business.”

0.8% Just Won’t Cut It for BBRY

Considering the abysmal shrinkage of BlackBerry’s handset sales, it’s unlikely that the company will be able to reverse such losses, even if Chen can successfully push out a cheaper Android device (sans keyboard).

This doesn’t mean the end of BBRY, but it does mean the end of BBRY’s most prominent consumer-facing division.

According to comScore’s most recent 2016 U.S. Smartphone Subscriber Market Share report, BlackBerry represents only 0.8% of the entire market, compared with 52.7% for Alphabet Inc’s (GOOGL, GOOG) Android OS and 43.9% for Apple Inc.’s (AAPL) iOS.

BlackBerry market share has never come close to rivaling Android or iOS, and has shrunk from 1.8% to the current 0.8% over the past 12 months.

While one percentage point isn’t usually a big deal, for a struggling device maker on the brink of extinction and competing with the likes of Google, Apple, Samsung Electronics (SSNLF) and even Microsoft Corporation (MSFT), the loss of that one point could quite literally be the death of the BBRY handset, especially considering the rate at which BlackBerry’s handset sales have declined.

What This Means for BlackBerry Stock

Last year, I touched on this very subject and opined that it’s time for BlackBerry to stop selling phones. As expected, considering the immense loyalty of the traditional BlackBerry device owner, that editorial was met with a rash of criticism, anger and outright hostility from diehard fans.

However, since the publication of my earlier article, BlackBerry stock has declined over 40%, revenue is down 40%, and net income has tanked by 1,085%.

Simply put, something has to give. Otherwise, BBRY stock will continue to tumble.

Fortunately for BlackBerry stock, the company has value beyond just handsets. In fact, BBRY software sales have grown 131% year over year. Eliminating the hardware division entirely would allow Chen to focus the entirety of his company’s resources on software and security, the only things that have kept BlackBerry from disappearing completely.

The writing has been on the wall for a long time, and even though there are still a few loyalists remaining who will, quite literally, go to any length to continue using their BlackBerry handsets, the numbers speak for themselves and it’s clear that, “Barring some sort of huge miracle, BlackBerry will never sell hardware in quantities that will be statistically significant.”

Expect BlackBerry stock to continue its downward spiral for the next several months until CEO John Chen finally confirms the decision to stop making phones. When that announcement is made, though, BBRY stock could actually see a bump upward as analysts and investors examine the prospects of that software-only existence.

Article originally appeared on InvestorPlace (06/29/2016)

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