BlackBerry, in latest crisis, says report of high Z10 returns is 'false'

Latest crisis underscores tentative time in phone maker's recovery

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Total fourth-quarter BlackBerry revenues in the U.S. were 14%, down from 19% the previous quarter, while the areas of Europe, the Middle East and Africa surged to 46% of total revenues in the fourth quarter, up from 43% the prior quarter.

U.S. carriers haven't said when they will ship the Q10, although some Sprint store representatives have told customers that the phone may not arrive until August. Verizon Wireless and AT&T are expected to carry the qwerty device.

Questions on service revenues

Even if BlackBerry does well with sales of the Z10 and Q10, the phone maker still faces serious questions on how much revenue it generates from the services it sells, Egan and other analysts said.

"BlackBerry can be successful selling devices, but in terms of how Wall Street perceives the company, it will be what happens to service revenues," Egan said.

In the past, services revenues were based on what BlackBerry charged for BlackBerry Enterprise Server software, which runs behind corporate firewalls and inside carrier networks to serve consumers, providing management and security capabilities to devices and end users. Going forward, BlackBerry refers to BES as BlackBerry Enterprise Services 10.

In the fourth quarter, 36% of revenues that Blackberry collected were from services. (Hardware revenues were 61%, for new Z10s and older BlackBerry devices. )

Heins said that in the current first quarter, BlackBerry expects to see a single digit decline in service fees, which would bring services to 35% of total revenues.

Egan said it isn't clear how BlackBerry is going to levy service fees, since the Z10 and Q10 can function without the need for BES 10. Also, many enterprises are moving to Exchange ActiveSync, which can be used in place of BES 10, Egan said.

Without BES 10 support from either an IT shop or a carrier, a new Z10 or Q10 won't have important new features such as BlackBerry Balance, a means of separating work and personal data on the device.

"They have been talking at BlackBerry about how they are working on changes to how service revenues are computed and how they are presented to enterprises and carriers and individuals, but that's a big uncertainty," Egan said. "Are hardware sales going to be enough to offset losses on the services side? They haven't disclosed how they will make that up."

Gold tended to agree with Egan. "Service fees is an issue for BlackBerry going forward," he said. "Their percentage of income from services has been falling. This is a result of both BlackBerry devices being abandoned by users, as well as some companies removing the BES installations. The new devices don't have to use BES, but won't have all the features implemented without it. And it remains to be seen if the carriers continue to offer BES and the related services, which remains a good revenue producer for BlackBerry."

Egan said the fact that BlackBerry hasn't been transparent with how it is charging for services could be due to ongoing negotiations with various carriers.

Big quarter underway

BlackBerry's first fiscal quarter is nearly half over and might be the most critical quarter it has faced since Heins joined the company in early 2012.

"The current quarter is extremely important, absolutely critical for a number of reasons," Egan said. He explained that BlackBerry and Heins already have done "nearly everything they can do internally to shrink themselves to greatness."

Recent steps have included layoffs and renegotiations of terms to suppliers and a slowdown in bad device returns, Egan said. "Operationally, they have made themselves pretty efficient internally."

But now the pressure is on BlackBerry to show progress in executing externally -- mainly through sales. "They have to produce and sell great devices, capture service revenue growth and increase their portfolio to try to compete against Samsung, which has its aim on business customers. Meanwhile, Microsoft with Nokia and Apple have continued to execute well," Egan said.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is

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Copyright © 2013 IDG Communications, Inc.

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