Curated by Stuart Fogarty stuart@admaticallycom for AFAO'Meara Advertising, Streamabout The Video Agency and Admatic Ireland.
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Uh oh, the Blackberry Sale has fallen through. And its shares are tanking. Again. It had hoped to sell itself to its biggest shareholder (holding 10%), Fairfax, whom were rumoured to have found difficulty in raising the finance for it. Blackberry is now looking to raise 1 billion usd elsewhere and CEO Thorsten Heins has stepped aside. Although Fairfax have structured a financial 7 year deal to support the company, it won't be seen as enough. Blackberry have already planned to cut 4,500 jobs, 40% of their work force. Last month they reported a quarterly loss of nearly 1 billion usd but are sitting on cash of more than 1 billion which will get them through...for a while (another quarter loss like last quarter will do it). One would expect though, that shares will plummet tomorrow. And this is now, probably the start of what last year was termed, The Blackberry Death Spiral.
So Wow, they were able to sell Blackberry..for a 9 dollar a share price bringing in 4.7 billion us dollars. Extraordinary. The buyer is Fairfax financial, a Canadian Insurance fund (Blackberry is Canadian too) who were also Blackberry's largest shareholder. Blackberry was, Canada's greatest star. It has come after a weekend of speculation, notably by the excellent UK 'Telegraph', when Blackberry announced losses of almost 1 billion usd in Q2 and planned to slash 4,500 jobs with shares slumping by -24% on Friday last. Shares were trading at circa 8 dollars and I remember them at 138 dollars. It had officially put itself up for sale last month having hired PWC to help. Amazon and Microsoft had considered buying it previously but Microsoft's Nokia deal put paid to that. The BBM (Blackberry messaging service) is the golden egg with 60 million users although the once dominant company has really struggled against Apple, HTC and Samsung since 2007. Blackberry once controlled half of the US market (!), now that's under 3%. The BBM service had one great advantage - as London rioters and drug dealers knew - it was hard to intercept. Hence it became popular with drug sellers and became known as 'Crackberry'. It only shipped 2.7m of its latest Z10 phones out of a planned 6.8m although it sold 5.9m smartphones in Q2, well below expectations. Apple, for example, sold 37m and the Iphone 5S sold out online.... in 5 minutes. Blackberry had slashed phone prices so effectively, they couldn't give them away. Its losses reflected a big write-down on this stock of unsold phones. The story of the downfall of Blackberry (if you call a sale of billions a downfall) is that they stuck with a corporate market and a keyboard, largely ignoring connectivity to the internet as having value. When they realised their mistake, it was too little, too late. Keyboards had their day, internet connectivity was king and the corporate market became a personal market. Executives choose their own phone for business and personal use, rather than a company bought phone. It's a sad story in one way but ultimately a good story in that they've done well to attain a good price now. Or lucky to have a shareholder like Fairfax, prepared to protect their investment and obviously being cash-rich enough to do so. Still. A once dominant brand like Nokia, bit the dust. Or has it?
You would think that of all the smartphone makers, Samsung is the one with the least problems on its mind. And it's not. Since March, about 20 billion usd has been wiped off its value and recent warnings that profits will be lower than expected are causing market issues. That warning is, I kid you not, 8.3 billion usd profit in the second quarter and up a staggering +47% on last year. But it's not enough. Shares have declined circa -18% in the last month. It has a 33% market dominant mobile phone share and smartphones account for about 74% of profit. The main issue here is market saturation. Mobile phone sales are slowing - well, doesn't everyone have one - and more and more they need bigger advertising/marketing pushes which cost more and more money. So the investor confidence and outlook in the mobile phone sector is declining. Blackberry's problems typify this and HTC profits declined over -80% year on year. Samsung are now reliant on mobile phones with their household entertainment products under more threat through reductions in consumer spending (recession) and major price competition. Samsung have been and continue to be a hugely successful, massively profitable company. Their new Galaxy phone recently sold 10m units within a month of launch and yet, their faced with a serious decline. Purely and simply because they're now in a market which has reached saturation and they can't show that they're able to move it along. Very reminiscent of Microsoft - a great company once that dominated the wrong space. Interesting. Inspiration and Innovation required. Remember Nokia.
Blackberry (or Crackberry as it was known), I've been keeping an eye on and blogged about before. In July 2012 I thought they were in a death spiral then and this might give you background - http://streamabout.blogspot.ie/2012/07/blackberry-death-spiral-possible-end.html. The appointment of Alicia Keys as Global Creative Director was, well, a WTF moment - http://streamabout.blogspot.ie/2013/01/a-wtf-moment-blackberry-10-launches-and.html The smartphone and playbook maker has been struggling for some time.... although poor results have been balanced with an optimism that things well get better. Well they haven't. Today the share is tanking -25% on foot of results from the last quarter and optimism has waned - to say the least. Thorsten Heins the CEO isn't exactly Steve Jobs and I'm not sure anyway, that he's inspiring. Poor English under an accent is never good in the old communication stakes and a more polished spokesperson might have been a better idea.
They lost 84m dollars in Q1 and predicted more losses in Q2 expected. They have also scrapped plans to update their Playbook, an indication that they've given up the ghost on that too. And subscriber numbers were not disclosed either (although rumour has it, they're down by 4 million). Although it has to be said, their Revenue was up +15% and their accumulated cash improved. Blackberry have put their future on their BB10/Z10 smartphone which was late to the market and these results are the first full quarter where the device has been available. They shipped (which is different to "sold") 6.8m smartphones in the quarter which compares with Apple's 37million nevermind Samsung's 60 million-ish. The critical issue here is that these results have disappointed in that they show no sign of a hoped-for turnaround. Blackberry was once a dominant brand in smartphones and simply it has been overtaken by innovation of the Iphone and Samsung and others. Leadership of the company was focused on cost-cutting rather than building better brands and are now paying a price. With market chatter today negatively and the corresponding collapse in share price, will make this a really difficult period for them. Really difficult. Early share price rallies have been wiped out and more at issue has been the wipe-out of confidence. Survival is now the watchword for the once great brand.
Google's core revenue is up and beats analysts expectations. Its shares have increased by +5% and notably its Ad rates, although a slight fall, seem to be "holding". Good news.
A 9.83 billion usd in revenue in the 4th quarter is up from 8.13 billion usd last year, growing both their core business and their margins - the sweetest thing a business can do. A +23% growth in international revenues too with cost-per-click (CPC) rates down only 6% whereas it had previously been on a bigger slide.
The 4th quarter is a critical, a seasonal time for Ad sales (Christmas).
One of the reasons is the growth in mobile search where users access Google by smartphone and those CPC rates are always lower. So if you like, the averages are down because of "blended product". Or in other words, an increase in its lower-cost product brings the overall price down.
But a "hold" on Ad rates is good news for the Ad community - things may be bottoming out. Clearly too, there's increased demand for Google Advertising and so, one might assume, more demand in general. It's clear - more Advertising is going digital.
Equally too, it must be remembered that Google hasn't yet seen the full force of the recent launch of Facebook Search which has to eat into their business. Google's Motorola Mobility acquisition too, hasn't paid dividends showing ongoing losses of 353 million usd in this quarter. But they've indicated that this is now a focus to turnaround. It has already sold the Motorola set-top TV business for just over 2 billion usd.
All in all, encouraging numbers not just for Google, but for the trade itself. They are market leader and so tend to show the trend. And this trend is up.
It came too on the day that RIM who owns Blackberry Crackberry, say that they'll launch their new phone on January 30th. And that, in contrast to Google, is really make or break time.
Samsung are already known for TV Commercials and online video that goes after The Apple user. Now their new campaign targets Blackberry, already struggling.....so this won't help. Although they don't mention Blackberry, they make it clear whom they're talking about, showing clueless employees who persist with out-of-date phones using keyboards. So it's aimed at the business users firstly. It's supposed to be a start-up office launching a game called 'Unicorn Apocalypse' pretentiously enough. Perhaps not the best commercial ever at all but it's hard-hitting enough for Blackberry users to understand. And it's a symbol of Samsung's ongoing attempts to take on all-comers. They recently were the stars of the show at The Consumer Electronics Show in Las Vegas. Samsung are not prepared to stand still. With world domination clearly in their minds, the brand is going from strength to strength and producing unbelievable profits. They are afraid of no one and even prepared to kick a brand like Blackberry, when it's down. Unlike Apple, they pay a little less attention to branding commercials and tend to go aggressively for the jugular. Watch out for Samsung.
Why does every Tech CEO want to do the Steve Jobs style of presentation even when it doesn't suit? Thorsten Heins above, CEO of Blackberry, thinks taking off his tie and wandering around the stage, clapping, is eh, jobs-esque. "Have a great Blackberry world", he says "And let's rock and roll this". Really. Sometimes you're just better off just being you. It's 35 minutes long but you get a sense of Thorsten after 5 minutes.
And if you haven't seen Microsoft's CEO Steve Ballmer, another man under real pressure, go to the other extreme, do it. http://streamabout.blogspot.ie/2012/07/vanity-fair-august-article-to-add-to.html Honestly it's cringe worthy.
But I'll save you the trouble...what the?
Thorsten presides over continued troubles this week at 'Research in Motion' the Canadian public quoted company parent of The 'Blackberry'. A company which a lot of Canadians held up as a "national treasure" because it was the inventor of "mobile mail".
And it's the story of how a one-time market dominant player is struggling.
You have to see parallels between Blackberry and Nokia. Old world dominant brands who have lost their value because they didn't keep up. Online bloggers now are referring to it as 'The Blackberry death spiral'.
The first Blackberry (named by Lexicon branding by the way) appeared in 1999 as a two-way pager in Germany. Today, it retains about 3% (a massive drop from 9% in a year) of the smartphone market competing with Android, Windows and iphones where it has really struggled. Whilst, at the same time, Samsung, Apple and HTC have boomed.
With over 70 million subscribers, the Caribbean and Latin America (yep, you know that) have the highest penetration of Blackberrys.
Although considered as "more secure" as an email sender, it's widely known in the US as "The Crackberry" which indicates its high usage amongst drug dealers because of that security. It was famously used in the London riots by thugs. However another well known "user" is Barrack Obama whom during his 2008 Presidential campaign became dependent on it and it acted almost as a celeb 'endorsement'. Which should have done a great marketing job for Blackberry, but didn't.
The problem is sales.
Up to March 2012, they shipped 11 million Blackberrys which was down 21% on the previous quarter. In its fourth quarter it announced a loss of 125 million usd and plans to save 1 billion usd this year by cutting up to 6,000 jobs out of its staff of 17,000.
Morgan Stanley downgraded the stock and shares have hit an all time low this week, down 94% off their peak value. That's 94%. Which is why its investors are not happy - not one tiny bit - and they're saying it loudly. Employees too are writing letters and posting about how unhappy they are with the company direction.
New CEO German Thorsten Heins (ex Siemens) who took over in January, promised investors he'd transform Blackberry into a "lean mean hunting machine" (I wonder did he mean "fighting machine" and it got lost in translation?) and used real rallying cries of corporate pride. The share price fell a further 5% as he spoke.
As the "new" CEO he says a lot - "Blackberry will be in the top 3 smartphone producers, soon" - but it should be remembered that he's actually been with the company since 2007.
"I have assembled a leadership
team for RIM that's truly capable of taking us into future," he told shareholders but at the same time, pushed back the launch of Blackberry 10 until next year, missing out on the holiday sales at the end of this year. This will allow his competitors to further extend their lead on Blackberry and of course, they'll have to suffer the launch of iphone 5 which might take more Blackberry customers.
Seemingly Thorsten felt that they'd rather postpone their launch until they got the new Blackberry "right". Quality before Speed. Hmmmm, great if you have the time luxury to do that - which this company just doesn't.
Apart from what is considered his "poor" communication skills (one reason perhaps is because he's hard to understand - never a good start in the old communication stakes) and the company's poor R&D (no touchscreen for example), he has an inability to convince staff to remain with the troubled company.
On Wednesday the head of the Australian/New Zealand operations stepped down only months after he was given the job in April. The head of the business in India left in November and a steady stream of senior staff have left too including its head of legal, head of global sales, a CEO and head of software.
It's really extraordinary that Blackberry can't plough on with a base of over 70 million loyal subscribers (they have to be loyal at this stage). But it's become an old world, Nasdaq quoted, middle aged corporate with no right to be involved in the new space. A lot of companies are going to go this way in a lot of sectors.
But perhaps I'm being unfair - maybe they will do it - a lot of people don't think so though.
Think what happened to video stores when Netflix came along and ask yourself, how did they let that happen? Think about major book chains who let ebooks get past them. Think about how mobile carriers (I know this is heresy but it will happen) are going to be decimated by Skype/voip? Think about traditional TV/Press broadcasting compared to online publishers? And it goes on and on.
The Web is the great brand leveller.
Funny really that no one in Blackberry even had the commonsense to see an irony as to where they had chosen to have this weeks investor meeting in Canada.
