BlackBerry lays bare its decline, challenges in filing

BlackBerry (NASDAQ:BBRY) it still a public company, and though it declined to hold a conference call to discuss its weak quarterly results last week, the company exposed the depth of its problems and challenges in a regulatory filing. The filing lays bare that the company is struggling in emerging markets, especially against smartphones running Google's (NASDAQ:GOOG) Android software, where it once found growth and success.

"The intense competition impacting the company's financial and operational results that previously affected demand in the United States market is now being experienced globally, including in international markets where the company has historically experienced rapid growth," BlackBerry said in a filing with the Securities and Exchange Commission.

The company said the increase in competition in international markets comes from not only competitors offering high-end devices that compete with its new BlackBerry 10 devices, but also "other competitors targeting those markets with lower end Android-based devices that compete with the company's lower-cost devices."

In addition to continuing difficulties in countering the bring-your-own-device trend in the enterprise market, BlackBerry pinned the decline in its revenues on "consumer preferences for devices with access to the broadest number of applications, such as those available in the [Apple (NASDAQ:AAPL)] iOS and Android environments."

Last Friday, BlackBerry reported a $965 million loss for its most recent quarter, which came a week after the firm said it would cut 4,500 employees, or 40 percent of its workforce. A consortium led by Fairfax Financial Holdings, BlackBerry's largest investor, has signed a letter of intent to take BlackBerry private in a $9 per share deal that values BlackBerry at $4.7 billion. The companies have until Nov. 4 to conduct due diligence and in the meantime BlackBerry can shop for another buyer. BlackBerry said it "believes that uncertainty surrounding its ongoing strategic review process may have negatively impacted demand for the company's products in the second quarter of fiscal 2014."

BlackBerry had sales of $1.57 billion in its most recent quarter, down from $2.86 billion in the year-ago quarter. Ahead of a recent profit warning, analysts had expected revenue of twice what the company wound up reporting. 

As AllThingsD notes, BlackBerry said in the filing it can't really forecast how much it will have to discount BlackBerry 10 smartphones already sold to carriers in order to get the smartphones sold to end customers. The company said it is also experiencing slower adoption of its BlackBerry Enterprise Service 10 platform than it expected.

"During the second quarter of fiscal 2014, the company shipped devices to its carrier and distributor partners to support new and continuing product launches and meet expected levels of end customer demand," the firm said. "However, the sell-through levels for BlackBerry 10 smartphones decreased during the second quarter of fiscal 2014 due to the maturing smartphone market and very intense competition. Additionally, delays in the launch of certain functionality of the BES 10 platform and alternative competitor products in the market have resulted in a slower than anticipated rate of adoption of the BES 10 platform by enterprise customers, many of which look to deploy BlackBerry 10 hardware and software simultaneously to optimize security through the integrated BlackBerry end-to-end solution."

BlackBerry has announced plans to transition its future smartphone portfolio from six devices to four. The portfolio will focus on enterprise and "prosumer-centric" targeted devices, including two high-end devices and two entry-level devices in all-touch and Qwerty-keyboard models. The shift likely indicates BlackBerry has largely given up on the core consumer smartphone market.

Additionally, BlackBerry said it expects to record charges of $400 million through the rest of the fiscal year and into the first quarter of its next fiscal year, up from $100 million, as part of a broad cost-cutting plan. 

In a spot of bright news, the company said BlackBerry 10 and BES 10 won NATO security clearance. They were approved for "restricted" NATO communications, which is NATO's fourth and lowest security category, according to AllThingsD, but the acceptance means but the devices can be used by NATO employees in all 28 member states.

For more:
- see this SEC filing
- see this NYT article
- see this WSJ article (sub. req.)
- see this AllThingsD article
- see this CNET article
- see this separate AllThingsD article

Related Articles:
BlackBerry pushes back on Gartner report, talks up enterprise future
Report: Board splits, product missteps led to BlackBerry's undoing
BlackBerry confirms bleak quarterly results, including $965M loss
Fairfax's Watsa says BlackBerry 'will be successful again'
BlackBerry strikes $4.7B deal to go private via Fairfax bid
Can BlackBerry survive as a services company? I doubt it.

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