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Does BlackBerry have a future in smartphones?
It is a worrying time for Canadian smartphone manufacturer Blackberry Ltd. (BlackBerry) at a time when its largest rivals seem to be going from strength to strength. Apple Inc. (Apple) has seen huge consumer enthusiasm for its latest flagship, the iPhone 5S, with demand far outstripping supply at launch. Additionally, manufacturers offering products on Google Inc.’s (Google) Android operating system, such as Samsung Electronics Co., Ltd. (Samsung) have enjoyed significant sales figures over the past few months. The news that BlackBerry has had to cut 4,500 jobs (40% of its total workforce) to ameliorate huge losses, has accepted a takeover bid at a much lower value than it held just a few years ago, and has been dropped from T-Mobile retail stores in the US is nothing short of catastrophic.
In fact, Fairfax Financial’s (Fairfax) $4.7bn takeover bid represents a huge decline in value for a company that had a market capitalization of almost $85bn in June 2008. Crucially, consumer interest in BlackBerry devices has waned in recent years, with many opting for one of Apple’s iPhone variants, or the wide range of devices available on the Android operating system. A sharp fall in demand has severely impacted the company’s scale of operations, dramatically reducing profitability to the point where it has reported a loss of $965m in Q2 2013. The recently announced mass job cuts are therefore an attempt to drastically reduce its operating costs in an attempt to regain some degree of profitability.
However, whether the company can continue to operate as a smartphone manufacturer remains to be seen. Despite unveiling the new Z30 smartphone last week, the vast majority of media focus has been on the iPhone 5S or BlackBerry’s sad financial position. There is now little value in BlackBerry’s smartphone offering, which is reflected in Fairfax’s takeover bid price. Furthermore, mobile operator T-Mobile has now announced that it will no longer stock BlackBerry devices in its retail stores, with consumers looking to purchase one needing to wait for it to be shipped to them. Crucially, T-Mobile has cited a lack of consumer demand as the driver behind the decision.
With its core business struggling, the key to BlackBerry’s current value is firmly related to the patents that it holds, one of the major areas of dispute in the smartphone industry, which has seen multiple patent lawsuits in recent years. However, evolving technology has drastically reduced the value of BlackBerry’s patents, which have been valued at around $2.8bn by Raymond James Financial Inc.
If BlackBerry is to have a future in smartphones, it will almost certainly be limited to the corporate sector. Whether it will manage to turn its fortunes around remains to be seen, but it is likely that its catastrophic losses will continue into the next couple of years as the company struggles to reduce operating costs. Unfortunately for BlackBerry it is very difficult to be optimistic about its future at this moment in time.
For more updates on the technology and telecoms sectors, follow me on Twitter:@Matt_MarketLine
Read more in our case study, BlackBerry: Losing the Battle Against Apple and Google available now