BlackBerry said it ended the quarter with 76 million subscribers, down from 79 million. This is the second consecutive quarter during which the company saw subscriber defections after peaking at 80 million last summer. The service business, which has been BlackBerry's highest-margin segment, has been what has made the difference from Apple and Samsung.
BlackBerry investors were unsure of what to make of the subscriber losses, especially considering that in the fourth quarter of 2012, hardware accounted for 68% of sales, which was down from 79% in the third quarter of that year. In this quarter, however, hardware accounted for 61%, which (obviously) means the company is losing market share.
Then again, this should surprise no one. The service revenue, although steady at 36% of sales, means service revenue generated $972 million. While this sounds like a great number, it's almost 12% lower year over year -- down from $1.1 billion in the 2012 fourth quarter. This is even though service revenue had only accounted for 27% of sales in that period.
The service weakness is even more glaring today since it means the new BlackBerry 10 phones, although much improved, is still not enough to compel subscribers to keep the service. Granted, it's still early. But investors have to realize this company can't survive solely as a hardware vendor. It is not going to out-innovate Apple or Samsung.
What's more, even Microsoft, which has begun to invest more in its Windows Phone in an effort to build its ecosystem, is becoming more of a threat. So, despite the positive signs BlackBerry revealed in this quarter, there are still some underlying fundamental concerns with this company. The company has to effectively answer, what does it want to be? Is it going to focus on hardware or service? As it stands, the company's falling short on both. What of the stock? It's hard to make a bullish case here, especially since the stock has already tripled since bottoming out at $6 last summer. Here, too, investors have to be careful with expectations. While BlackBerry is no longer a "dead company," there are also no signs of long-term robust growth. Nevertheless, I've received a barrage of tweets on Twitter, with investors suggesting BlackBerry does not need to compete with Apple, Samsung, and Microsoft to be considered successful. Then what's the point? I will agree with this if (for instance) Microsoft buys BlackBerry as it should have done several months ago. However, for now, absent "modest" market share growth, BlackBerry's stock will be capped for a while. In fact, if it doesn't drop 15% this should be considered a win. Where the stock goes from here will be determined by U.S. sales for the first quarter. Even if sales are positive, more subscriber losses won't bode well. At the time of publication, the author held no position in any of the stocks mentioned. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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