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Research In Motion Ltd (BBRY): Blackberry Annual Meeting: Time To Get Serious

 July 05, 2013 01:32 PM
 


BlackBerry's stock has been hammered post-earnings, and with reasonable cause.

Thorsten has a habit of sandbagging that I have repeatedly noted, and which caused me to stop looking for something bad to come when he did it in the last two quarters.  But this time he did it and the news was genuinely worse than expected, missing the lower end of shipment guidance on the BB10 devices by 300,000 units.

The stock got pounded as people entirely ignored or worse, factually misreported, where the cash build came from.

Specifically I can't count the number of research "reports" that have claimed the firm got a "one time" tax benefit from R&D credit.  But this presumes the company was under US tax law, and it's not -- it's a Canadian company.

[Related -Fusion-IO, Inc. (FIO): Can Fusion-IO Q2 Results Cheer Street?]

That credit is recurring, provided the firm continues to invest in R&D, and it always has at a rate double or more that of Samsung or Apple as a percentage of sales.

So no, it's not a "one time" benefit, it's an every quarter benefit, provided I'm reading the law right (and I'm reasonably sure I am.)

But this doesn't change the market's perception.  And it's not helping that the carriers in the United States  are now actively obstructing user perception of the devices, particularly the Z10.

[Related -Google Inc (GOOG): Why Nest Labs Deal Is A Wakeup Call For Apple Inc.?]

I speak specifically of Verizon, although AT&T is responsible for this as well.

BlackBerry restricts software updates to carrier-endorsed things.  Contrast this with Apple, which refuses to allow carriers to "approve" their IOS updates (and thus everyone gets them at once) or Samsung, which has the carriers push OTA updates but makes manual updates available over KIES on a PC if you want them.  

This, incidentally, is how I have official Samsung 4.2 Android firmware on a SGS-II.  I loaded it from my PC.

But Verizon, in particular, still (as of this morning) shows 10.0.9.xx firmware as "official" for the BlackBerry Z10.  This is an outrage -- 10.0.9 was outdated on the day of the launch, with T-Mobile and AT&T both shipping 10.0.10.  AT&T for its part has refused to release a 10.1.x firmware version -- of the major US carriers only T-Mobile has done so.

Why does this matter?  Because 10.0.9 was very nearly an engineering prototype version and was (and is) full of bugs.  10.0.10 had problems too, but less-severe ones.  

10.1 is stable and contains a number of additional features, including remote file access, but 90% of the US market has no official support or availability for it.

The entirety of Canada has it as does nearly all of Europe!

How do you sell into your largest market when the carriers are actively obstructing a rapidly-improving and evolving operating environment?

Now this will be cited, I'm sure, as a reason to dump BlackBerry shares even more than they are now.

It doesn't have to be.

But BlackBerry, unless it intends to abandon the US market, in which case you may as well write them off as a public company in the US market, can and must, right now, hit below the belt.

It can do so in 30 seconds.

All they have to do is change BlackBerry Link so as to permit one to choose a firmware load of either the official carrier version or the latest BlackBerry-approved version at the user's option.

That's it.

A 30 second change they could push right now.

They also need to start diverting attention to the carrier (T-Mobile US) that is supporting them and away from those who are intentionally trashing their reputation (Verizon, specifically, and AT&T as well.)

I know the excuses -- "the carrier wants to make sure the firmware is of high quality."

Ok, I give you that.  But then get it done and put the resources behind it.

Or shut the hell up.

It's not hard for a user to update their device themselves.  But most people won't and nobody should have to.  Especially in a world of subsidized phones where you, as a contract customer, are paying $1,000 or more over 2 years for the device.

The firm is out of time here.  Wall Street has given up and this isn't Wall Street's fault.  It's BlackBerry's. They have refused to get out in front of the market with their strengths, they're running advertising that is "feel good" instead of showcasing the very real and powerful differences that makes the product better than any of their competitors and they're allowing carriers to ship four-plus month old firmware that has been twice superseded with both new features and significant bug fixes.

I said before the earnings "no thanks" on taking a position into earnings as the IV was ridiculous.  That has now collapsed but the skew remains in the options market and it is heavily-weighted on the bearish side.

BlackBerry can be ridiculously successful as the third phone makers serving a "niche" market of ~10% of the marketplace.  They will print money in that position with 10% penetration.  

But they're going to wind up with 0% penetration if they don't get in front of the intentional destruction of their brand now taking place in the US carrier marketplace.

Yes, the company has a large cash hoard and is building it even into their rollout of BB11 but it cannot take 25% stock declines followed by 3, 4 or 5% daily drops for long before developer and end user support disappears.

IF MANAGEMENT DOES NOT IMMEDIATELY, AS IN RIGHT NOW -- TODAY, CUT THE CRAP THEN THE BOARD MUST STEP IN AND DO SO.

The board, given its history, won't.  It sat back while the dual-CEO clusterfuck went on for years.

Note that Sprint faced extinction a couple of years ago in exactly the same sort of way.  They woke the hell up, allowed high-end phones on their prepaid business, and now are both stable and got bought.  They "broke the glass" and got it done and those who bought at the time of the turn were richly rewarded.

BlackBerry has a superior device and technology that nobody knows about and that is being intentionally crippled by two of the largest US cell companies who are not releasing software updates that resolve the known issues and add critical features.  

They either kick those firms in the balls, right here and now and in public or they may as well close their offices and go home.

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(5)
 
7/5/2013 4:09:57 PM
Managing Partner by T. Michael Morrissey
Karl: what a fabulous article. A am a long standing customer of Blackberry and the proud owner of a Z 10. The phone is awesome. I switched from Sprint to Verizon to get this phone and I am so disappointed I can not get updates from Verizon. I knew BB's OS was a work in progress and new there would be regular updates. I never in my wildest dreams believed my carrier would become an impediment to getting them. Keep up your great work here. Blackberry deserves a whole lot better!
Rating: (31) (1)
7/5/2013 4:56:37 PM
Dave H by Dave Hargraves
lol get serious?? i thought they already were. If blackberry does not explore other opportunities pertaining to the remedy of their demise, they wont last much longer.
Rating: (0) (18)
7/5/2013 10:59:21 PM
by On Visa
Great article, im a share holder and i can't make it to the meeting, if i was there i would give them a piece of my mind.I would tell them to GET TUFF against the american carriers,if they don't want to play then delist from the american stock exchange and stop selling to the americans.
Rating: (5) (0)
7/7/2013 12:16:35 PM
Mr by Dick Duff
Absolutely correct. BB needs to get aggressive with their marketing and promoting of BB10 OS, as it truly is a superior device. Unfortunately, the Americans lack the intellect to realise what they are missing. BB should also, as u state, launch a public complaint against the US carriers for deliberate collusion.
Rating: (7) (0)
7/9/2013 7:44:02 AM
Meh by Technomancer
People are free to choose to load an unofficial OS (Read: leaked OS) on their Berry. BB users have been doing this to almost all of their devices. I guess marketing is a part of their failure, but coming out with another 7.1 device is a backward step imo. Killing the update of 10.x.x.xxx on the PlayBook was another mistake on their part. For every step they seem to take, they usually get pushed back three or four. It's too bad. I would like them to succeed, but I see the possibility of that lessen with each passing day.
Rating: (0) (0)
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