“Blackberry would never recover. Everyone knows how the story ends”
Losing the signal by Jacquie McNish and Sean Silcoff
Blackberry, a smartphone device that is designed and marketed by Research In Motion (RIM), was one of the giants in the mobile industry dominating the market share for a very long time. Former RIM co-CEOs Jim Balsllie and Mike Lazaridis introduced Blackberry as
“The official equipment for powered businessmen, as necessary as the pinstriped suit”
In late 2007, the launch of Blackberry 8800 series generated more than 10 million subscribers around the world with hitting its all-time highest estimate worth of £49 billion; the company was claimed to be the most valuable company in Canada. Thus, what exactly went wrong for Blackberry? Why is one of the premier mobile gadget in the world almost on the verge of extinction?
The launch of iPhone in 2007 paved a path for the downfall of the Blackberry smartphone in the TMT industry. Blackberry failed to match up with the innovations and new technologies introduced by Apple and Google. According to the TIME Magazine “Blackberry failed to anticipate that costumers – not business customers – would drive the smartphone revolution.
Using two different approaches will allow us to derive a more complete outlook. The first one, financial statements based, to analyze the firm’s performance by observing the evolution of Revenues and Net Income over the period. As clearly highlighted by the chart, the period 2001-2011 presented a continuous increase in both Revenues and Net Income. On the other hand, Blackberry is experiencing a dramatic performance decline since 2011.
The second approach used is the analysis of share prices. Market based indicators represent a very relevant measure and are easy to understand. Share prices will help us to assess the perception of the company in the market and are a good proxy of Blackberry’s reputation. In order to conduct a smoother analysis, closing prices of the last trading day of the year from 2001 to 2014 are used. The graph below shows an upward trend until 2007, where the firm has been able to well position itself in the market, followed by a drop in 2008. However, the financial crisis may be accountable for such fall. Again, 2011 seems to be a crucial year representing the beginning of the end for Blackberry’s good times.
Since the very beginning of the Smartphone era, Blackberry has consistently lost market share and has seen its stock price plump year after year. In response to its economic downfall, the firm has successfully cut down costs in 2014 – 2015 – thereby enhancing its Gross Profit. Despite this (temporary) success, Blackberry is subject to unparalleled negative profit margins and has constructively underperformed relative to the TMT industry. Sufficient liquidity to cover short-term debt (i.e., a safe WCR) but a low cash conversion as well as a negative Cash Flow from Investing will make it difficult for Blackberry to swiftly respond to anticipated market movements, and potential investment opportunities in the future. The firm is highly exposed to risk and is currently destroying value.
Moreover, its low credit-rating will impair the firm from issuing debt at attractive loan terms. In other words: something has to be done. A reorganization of the firm’s business activity, its core competencies and its industry positioning are unpostponable. The acquisition, rumored in the market, of Blackberry by Samsung, as well as Blackberry’s acquisition of Good Technology, are both solid recommendations – facilitating the firm to structurally reorganize its core business in an efficient manner in order to boost its financial and operating performance. They are bold solutions – ones that do require some courage – but can allow Blackberry to “swing for the fences” and reposition itself back into the TMT market.