When BlackBerry began taking preorders for its all-new, square-shared Passport smartphones on Sept. 24, the first 200,000 preorders sold out quickly, exhausting initial supplies of the devices.
But that good news about the potential popularity of the devices also has a downside, according to Michael Walkley, a communications technology analyst with Canaccord Genuity. Walkley recently lowered his financial estimates for BlackBerry through fiscal year 2015 due to the sales delays that will be caused by tight supplies of the new Passport smartphones.
“Given the limited initial supply of the Passport combined with slightly longer-than typical component procurement and manufacturing cycle time for this unique form factor device, combined with Blackberry recognizing hardware revenue on a sell-through basis versus shipments into the channel, we lower our Q3/F’15 and 2H (second half)/F’15 BB10 (BlackBerry 10) hardware revenue estimates,” wrote Walkley in his report.
By 2016, however, BlackBerry is expected to recover from the tight supplies of Passport smartphones and will see more of a financial turnaround, wrote Walkley. “Despite our updated expectations for lower sales levels for the lower margin hardware business in Q3/F’15 and beyond, we anticipate gradually improving trends following the BES12 (BlackBerry Enterprise Server 12) launch in November with growing Software sales in F’16 and believe BlackBerry could achieve non-GAAP profitability in 2H/F’16.”
Walkley wrote in his report that his estimates are predicated on the fact that Canaccord Genuity’s wireless surveys “indicated limited global availability” of the new Passport phones, which are a centerpiece in the company’s plans to again become relevant in the enterprise.
BlackBerry’s fall from dominating the enterprise smartphone market has been swift and stunning. BlackBerry spent much of 2012 and 2013 trying to shake off the image that it was finished, especially compared with its presence five years earlier when its devices were the “enterprise gold standard” for mobile business communications. In early 2006, half of all smartphones sold were BlackBerry models. By 2009, though, its share of the global smartphone market was down to 20 percent.
Asked why BlackBerry only prepared for 200,000 Passport preorders, Walkley told eWEEK that the company’s more recent experiences with a tepid response to its previous BlackBerry 10 mobile devices kept its preorder inventory estimates this time on the low side.
“I think BlackBerry overestimated demand so much for the BB10 devices that they have very conservative estimates for new devices going forward,” he wrote in an email reply. “The company is still working through some BB10 devices in the channel from more than 6 months ago. Also, to conserve cash flow and meet year-end cash flow break even targets, BlackBerry has taken a more cautious stance on building new inventory for devices.”
In the meantime, though, that shortage of Passport smartphones can hurt the company just as it is trying to gain new traction with a new device, he said. “I agree that the lack of supply for a potentially popular device (at least among BlackBerry loyal customers) creates risk for customers and IT departments to continue to switch to other smartphone ecosystems,” wrote Walkley. “One final thing to consider as BlackBerry attempts to meet its cash flow break-even targets is that if it ramps BB7 subscribers to the Passport too quickly it accelerates the decline in their services revenue, so this is also part of BlackBerry’s potentially limited supply for the Passport at launch.”
BlackBerry’s Passport phones sold out within six hours after their announcement on BlackBerry’s own Website and within 10 hours on Amazon.com after they went on sale in September, according to an earlier eWEEK report. That successful preorder news for the Passport phones was a positive sign for BlackBerry, which also announced on Sept. 26 that its revenue dropped to $916 million in the second quarter of fiscal 2015, down from $966 million in the first quarter. The company also posted a GAAP net loss of $207 million for the second quarter, which ended Aug. 30, compared with a $965 million loss in the same quarter of 2013, according to a financial statement released by BlackBerry on Sept. 26. Those figures compare to a modest net profit of $23 million earned in the first fiscal quarter of 2015, which ended May 31.
The BlackBerry of a year ago was an entirely different company, a larger, less laser-focused enterprise run by a different executive team, according to an earlier eWEEK report. BlackBerry CEO John Chen has trimmed his staff, sold off real estate and arranged partnerships—such as a deal announced June 18 with Amazon—to prevent his team’s energies from being spread out or diluted.
The new BlackBerry Passport smartphones for enterprise users sell for $599 and include a full HD display that is 4.5 inches square, which will allow 60 characters to be typed across its screen, compared with about 40 for a typical smartphone, according to BlackBerry.