Critical Analysis Paper 2

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Analysts: BlackBerry Facing Tough Battle By Joseph Palenchar NEW YORK — BlackBerry, the company formerly known as Research In Motion, has improved the odds that it will survive in the competitive smartphone market with the launch of its BlackBerry 10 OS, most analysts said. But no one is predicting success yet.

President/CEO Thorsten Heins likewise acknowl- edged that his beleaguered company has a long way to go to regain its luster and market share. “Today is the starting line,” he said here during the Z10’s launch event. But he appeared optimistic. “Today is a new day in the history of BlackBerry.”

The old days saw BlackBerry’s mar- ket share in global smartphone ship- ments peak in 2009 at 20 percent and fall to 5 percent in 2012, mark- ing the company’s lowest level since 2003, Strategy Analytics said. The downsized company reported three consecutive quarterly net losses un- til its fiscal third quarter ending Dec. 1, when it posted net income of $9 million — but only as a result of a one- time $226 million income-tax benefit.

With the BlackBerry 10 launch, analysts said the company has narrowed the quality gap with the iPhone and premium Android phones, but more needs to be done for the company to remain viable and achieve a realistic goal of becoming a strong No. 3 operating sys- tem after iOS and Android.

To compete with major smartphone players, “Black-

Berry will need to execute every part of its playbook perfectly during the next 12 months,” said Ian Fogg, senior principal analyst for IHS. “If BlackBerry fails in any phase, it will be ‘game over’ for the company’s comeback story.”

Microsoft’s stumbles in gaining smartphone share, and carriers’ desire to break up the smartphone duopo- ly between Apple and Samsung, will help BlackBerry in

its efforts to become a strong number- three OS, Fogg said.

“The company needs operators to support its marketing efforts and to communicate that BlackBerry 10 is not just another brand, but a genu- inely differentiated product from the scores of Android smartphones,” Fogg contended. Carriers “greatly desire alternatives to the current smartphone market leaders,” he con- tinued. “Further concentration of the smartphone market would weaken the position of operators with those smartphone leaders in negotiations over sourcing devices or in ensuring that operators’ content and communi- cation services products are not by-

passed by smartphone software.” As for Microsoft’s tribulations in the smartphone

market, he said, “Two years after the platform’s big relaunch, Microsoft has repeatedly failed to establish Windows Phone as the third mobile ecosystem that op- erators desire.” In addition, Microsoft hasn’t leveraged

hhgregg Broadening Non-CE Product Lines By Alan Wolf INDIANAPOLIS — hhgregg said it will expand its furniture assortment, further develop the fitness cat- egory, and increase its majap market share in lieu of dwindling TV demand.

The comments came in an analysts’ conference call to discuss the retailer’s soft third quarter results and its game plan for the future.

The chain reported that net earnings declined 22.6 percent to $17.4 million for the three months, ended Dec. 31, 2012, while net sales decreased 3.6 percent to $799.6 million and same-store sales fell 9.7 percent year over year.

The multiregional CE, majap and furniture chain said same-store sales were primarily impacted by a 24.6 percent decline in video category comp sales, reflecting a double-digit decrease in unit volume.

President/CEO Dennis May said that aside from cyclical blips following the introduction of new tech- nology, the prospects for TV growth are slim.

“We don’t expect video to improve,” he told ana- lysts, citing lower demand and top-line pressure as large-screen models wend their way into the mass market and warehouse club channels.

May lauded the rollout of OLED and Ultra High- Definition TV for stimulating replacement sales and bolstering average selling prices (ASPs), but said the new products will have minimal impact in 2013 and predicted video industry declines this year in

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Vivek Bhardwaj, head of BlackBerry’s software portfolio (left), and president/ CEO Thorsten Heins demonstrate the BlackBerry Z10 with BlackBerry 10 OS.

Amazon Q4 Profits Fall As It Boost Investments In Several Businesses By Alan Wolf SEATTLE — Amazon.com reported a 45 percent decline in net income, to $97 million, for the fourth quarter, ended Dec. 31, 2012, and lost $39 million for the full year, as it continued to build distribution centers, invest in fulfillment systems and expand its digital content.

Net sales rose 22 percent during the three-month holiday period, to $21.3 billion, which included $3.1 billion in fees and commissions from third-party sell- ers, a 47 percent increase year over year. The boost helped ease what senior VP and chief financial offi- cer Thomas Szkutak described during a conference call as soft sales of TVs, MP3 players and digital cameras over the holiday quarter.

At the same time, the cost of sales increased nearly 17 percent to $16.1 billion, fulfillment costs rose 36 percent to $2.3 billion, and technology and content expenses skyrocketed 56 percent to $1.3 billion.

Last year Amazon opened 20 new distribution centers and grew its digital library to more than 23 million movies, TV shows, songs, magazines, books, audio books, apps and games — up from 19 million at year-end 2011 — reflecting new licens- ing agreements with Turner Broadcasting, Warner Bros. Domestic Television Distribution and A+E Networks. During the conference call, Szkutak said the company would spend even more on content going forward.

In North America, net sales rose 23 percent to

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Analysts See Dell's Privatization A Positive Step By Doug Olenick ROUND ROCK, TEXAS — Michael Dell’s decision to take his company private will allow it to more closely fo- cus on becoming a solutions-based, enterprise-focused company far away from the prying eyes of stockholders.

Last week Dell signed a definitive merger agreement that will have its founder, chairman and CEO Michael Dell purchase the company for about $24 billion. The deal, expected to close in Dell’s second fiscal quarter, was made in partnership with the technology investment firm Silver Lake. Published reports stated that Microsoft will finance $2 billion of the loan used to make the purchase.

Industry analysts consider the move a positive step for the now struggling, but one-time leading computer manufacturer. For the last several years Dell has strug- gled as it attempts to transition away from being a com- modity PC dealer and expand its enterprise portfolio.

“Going private will allow Dell to more fully concen- trate on moving continuing its transformation away from a transaction-based company towards a solution- based one without having to react to the misplaced de- mands that being public placed upon them,” said Ste- phen Baker, industry analysis VP at The NPD Group.

One of Dell’s more looming issues as a public compa- ny was Wall Street’s laser-like focus on its faltering PC business, said David Daoud, IDC’s research director.

“Ultimately, Dell will be looking at re-engineering itself into a company that offers solutions, software, hardware, etc., and PCs are a subset of that offering,” he said.

The shareholders concern over the PC side of Dell’s business is understandable. Using its innovative con- figure-to-order, direct-mail strategy, Dell was once the

leading PC vendor in the world, but it has since fallen. IDC ranked Dell as the third-largest PC shipper for the fourth quarter in its preliminary report issued in early January, but its market share and shipment numbers are still declining precipitously.

IDC noted that Dell held a 10.6 percent share of the market on 9.5 million units shipped. This marked a 20.8 percent year-over-year decline in units shipped and a 1.9 percent fall in share.

Baker does not see Dell dropping its consumer PC business as it goes private.

“In these days where BYOD (bring your own device) and consumer and enterprise technologies are closely linked, we think that Dell isn’t likely to make drastic changes in its PC selling model since that connection to the consumer is vitally important,” Baker noted.

The analysts did not overlook the hazards involved in Dell’s latest journey. Carter Lusher, chief IT analyst at the research firm Ovum, said Dell corporate custom- ers could cut back on orders in the short term as they check to see how the transition impacts Dell’s ability to meet their needs.

“There will be uncertainty as to what products and services stay, get strengthened, or get eliminated,” Lusher said.

IDC’s Daoud pointed out that Gateway also took it- self private, but the move failed and the company was eventually acquired by Acer.

“But Dell today is not the Gateway of yesterday. It is a massive company with very strong relationships in the enterprise market and has very solid assets that need a much more cohesive strategy,” Daoud said.

22 February 11, 2013 www.twice.com

its strength in enterprise software from its Microsoft Of- fice and server product lines to drive Windows Phone adoption in the enterprise, opening up opportunities for BlackBerry 10, he said.

The new operating system and phones “increase the chances that BlackBerry can regain some of its lost market share during the make-or-break year of 2013,” Fogg said. “However, in order to claim the title as the smartphone market’s third ecosystem after Google and Apple — a distinction now being pursued by a range of competitors — BlackBerry needs to bring its ‘A game’ in all areas. These areas range from differentiating its products to offering compelling and reliable smart- phone devices, to securing broad operator support, to creating a complete software ecosystem.”

BlackBerry “appears to have scored some early points” in differentiating its products with the OS’s communications-centric BlackBerry Flow and Peek user interfaces,” he said. “With BlackBerry 10, apps like LinkedIn, Twitter, Facebook and others are part of a single flowing experience, rather than the separate apps of iPhone or Android,” he explained.

BlackBerry 10 “will appeal to the significant number of consumers that are yet to adopt smartphones be- cause they are unmotivated by current entertainment and Internet apps but are instead communications- centric,” Fogg noted. “This focus on communications also will go a long way to winning back ex-BlackBerry owners,” he added.

These and other features means that “this is the first time in years where someone buying a BlackBerry need not fear ridicule from someone with a Samsung Galaxy whatever,” said Avi Greengart of Current Analysis.

The new phones and those to follow won’t propel BlackBerry back to the No. 1 smartphone share that it

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Source: IHS iSuppli/Screen Digest Research © TWICE 2013

BlackBerry 10: The Juicy Details By Joseph Palenchar NEW YORK — All four national U.S. carriers have agreed to carry BlackBerry 10 phones, and three of them will offer the full-touch Z10 with 4.2-inch display in mid-March, said BlackBerry president/CEO Thorsten Heins.

All models will feature 4G LTE. The Q10, which features a physical QWER-

TY keyboard and a 3.1-inch touchscreen, could be available in the U.S. about eight to 10 weeks later, he said in later press reports.

Verizon Wireless announced a $199 price for the Z10 with two-year contract in black and in an exclusive white version. Verizon also said it would carry the Q10.

AT&T said it would carry both phones, and T-Mobile said it would sell an LTE-equipped Z10.

For its part, Sprint said it would sell the Q10 sometime “later this year” but didn’t dis- close Z10 plans.

Both phones feature 1.5GHz dual-core

processors, 2GB of RAM, 16GB of internal storage and an expandable memory card slot. Both feature a MicroHDMI port for presenta- tions, nearfield communications (NFC) and NFC ability to exchange information by tap- ping phones.

The phones feature all-day battery life, said president/CEO Thorsten Heins, but for power users, the battery is removable so the battery can be replaced by the user with a fresh one.

Key advances of the new OS over the cur- rent BlackBerry OS include BlackBerry Bal- ance, which lets users switch between per- sonal and enterprise profiles at the flick of a finger. The feature will let enterprise users carry one phone instead of separate personal and business phones. The enterprise profile enables users to securely access the enter- prise’s network and emails servers, and the enterprise can restrict the apps used and the web sites accessed. IT departments can also remotely wipe enterprise data from the the phone in case of loss or theft. Apps from the personal and enterprise profiles, however, can run simultaneously.

Also new is BlackBerry Flow, which lets users move seamlessly from app to app and feature to feature by swiping, making it unnec-

once enjoyed, Greengart agreed. What BlackBerry 10 must do for the company is reverse the com- pany’s subscriber declines and return the company to profitable growth as a third smartphone platform next to alongside Apple and Google, he said.

The goal of BlackBerry’s next wave of phones in the second half, said Neil Mawston of Strategy Ana- lytics, “should be to deliver significantly improved devices and services that offer something tangibly different and that have the potential to overtake Apple, Samsung or Nokia’s products.” However, he continued, “even that is going to be an enormous challenge. It may be too late. [BlackBerry] cannot compete with the depth and breadth of Apple and Google’s mature ecosystems, so it needs to con- vince some consumers that the unique communica- tion-and-task-centric philosophy is enough for them to buy a Z10 instead of an iPhone or Android phone. Some of that hinges on [BlackBerry’s] marketing, which I have not seen yet.”

Informa analyst Malik Saadi quantified success for BlackBerry. The company “should aim to sell 1 mil- lion units of the new device in the first quarter af- ter its launch,” he said. “Anything below this would call into question the company’s ability to execute its marketing strategy while anything above 3 million units would be a spectacular performance, which will undoubtedly resurrect both the consumers’ and the investors’ confidence in the BlackBerry brand.”

Jan Dawson, Ovum’s chief telecoms analyst, is pessimistic about BlackBerry’s chances in the long run.

“We believe that much of the installed base in ma- ture markets has delayed upgrading while BlackBer- ry 10 is pending, something that has unfortunately dragged on for far too long, thus lengthening the up- grade cycle and depressing results in the interim,” he said. “If BlackBerry 10 delivers, it should produce a nice fillip in RIM’s results in the first two quarters of 2013 at least as this pent-up demand finally meets supply. Longer term, [BlackBerry] will return to its recent patterns of decline.”

Although the new platform “should have signifi- cant appeal to existing users, we don’t expect it to win significant numbers of converts from other plat- forms,” he explained. “There is little in the new plat- form that suggests it will have the compelling apps, content stores, or the broader ecosystem that con- sumers have come to expect in a competitive smart- phone platform.”

Ovum doesn’t expect a quick end to BlackBerry. “With no debt, 80 million subscribers and profitabil- ity in the black in at least some recent quarters, the company can continue in this vein for years. But its glory days are past, and it is only a matter of time before it reaches a natural end.”

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The BlackBerry Z10 (left) and Q10 will be available from national carriers in March and April, respectively

BlackBerry Global Smartphone Shipment Share

Price $199/16GB $199/16GB $199/16GB (Verizon) $249/32GB $299/32GB $399/64GB

Screen Size 4.2 inches 4.8 inches 4 inches

Resolution 1,280 by 768 1,280 by 720 1,136 by 640 356 ppi 306 ppi 326 ppi

Size (inches) 5.1 x 2.6 x 0.35 5.4 x 2.8 x 0.3 4.87 x 2.31 x 0.3

Weight 4.8 ounces 4.7 ounces 3.95 ounces

Processor 1.5GHz dual-core 1.5GHz dual-core A6

RAM 2GB 2GB NA

4G LTE Yes Yes Yes

Wi-Fi 802.11a/b/g/n 802.11a/b/g/n 802.11a/b/g/n with dual-band n with dual-band n with dual-band n

Bluetooth 4.0 4.0 4.0

NFC Yes Yes Yes

Expandable 64GB MicroSD 64GB MicroSD No

Rear Camera 8MP/1080p 8MP/1080p 8MP/1080p

Front Camera 2MP/720p 1.9MP/720p 1.2MP/720p

Voice Control Yes S Voice Siri

Battery 1,800 mAh 2,100 mAh NA

Apps Available ~ 70,000 ~ 700,000 ~ 775,000 100,000 due March

Global Roaming Yes Yes Yes

HOW BLACKBERRY Z10 STACKS UP AGAINST

GALAXY S III, IPHONE 5

Source: TWICE Market Research © TWICE 2013

Blackberry Z10 Galaxy S III iPhone 5

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