Why BlackBerry should pull the plug on its phones

The company's best hope is to become a seller of services, not handsets.

By InvestorPlace Apr 10, 2014 2:26PM

Caption: A BlackBerry smartphone
Credit: © Serge Pouzet/SIPA/Rex FeaturesBy Dan Burrows

If BlackBerry (BBRY) has any hope of surviving as a company, it's as a seller of services, not BlackBerry phones -- a reality that is quickly closing in on the company and anyone still holding BlackBerry stock.

CEO John Chen says he won't wait long to pull the plug on BlackBerry phones if it doesn't return to profitability in fairly short order.

BlackBerry shareholders had better hope he's sincere.

BlackBerry stock enjoyed a brief pop after its late-March earnings report when BBRY showed faint signs of life, but it's still stuck in a nasty downtrend.

Indeed, BlackBerry stock is off more than 4 percent since the earnings report. Take a look farther back, and the carnage is worse.

True, BlackBerry is up 8 percent this year on some optimism that the handset maker might survive after all, but pretty much every other time frame you care to look at is gruesome:

  • Over the past 52 weeks, the stock is down 46 percent.
  • Over the past five years, it has lost 88 percent.
  • And since its all-time high of $148 set in 2008, BlackBerry has tumbled 95 percent.

There's no way around it: Apple's (AAPL) iPhone and smartphones running Google's (GOOG) Android operating system have all-but destroyed BlackBerry. No one wants phones with keyboards anymore -- certainly not BlackBerry phones -- and the idea that the company can reverse that is almost laughable.

At its peak, BlackBerry shipped more than 52 million phones in 2011, helped by huge demand from emerging markets. But even that is waning now. For the most recent quarter, it shipped fewer than 2 million phones. That caused quarterly sales to fall below $1 billion for the first time since 2007.

As it is, BlackBerry phones barely have a toehold with consumers. A few years ago, the company had 20 percent of the global smartphone market. Today, it holds less than 1 percent.

No upside from the phone business

For BlackBerry stock to have a future, the company needs to reverse the top-line slide and become profitable soon. It doesn't have years to stanch the red ink.

Which is why it's good that BlackBerry CEO John Chen admits he's willing to evacuate the BlackBerry phones business should it not become profitable once again, and in a hurry.

Because it's hard to see how it will.

Chen said in an interview with CNBC that it should be possible to become profitable on BlackBerry phone shipments of as little as 10 million a year. The problem is that the company is on pace to ship less than 8 million devices this year, and the odds of a new hit phone reversing that trend are low.

As we've noted before, between Apple and Samsung (SSNLF), the market is locked up. Heck, HTC boasts what is widely considered to be the best Android smartphone, but it can’t get any traction in a market dominated by Samsung.

The BlackBerry 10 launched last year, and it was a dud.

BlackBerry is wisely focusing on its services business, which makes mobile devices secure from hackers for governments and corporate clients. Security has been the closest thing to a moat for the company throughout its existence. Selling software and services (like BlackBerry Messenger) is a stretch to get BlackBerry back on its feet, but it has no other choice.

Bottom line

It's understandable that BlackBerry wants one last Hail Mary with its handset business, but it's probably not in the best interest of anyone holding the stock.

If there's any sustained upside to be found in BlackBerry stock, it's almost certainly in services -- not coming from shipments of BlackBerry phones.

More from InvestorPlace

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.



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