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Can BlackBerry Make a Comeback With Its New Models?

Ronald Gruia

NEW YORK ( TheStreet) -- The unveiling of the new BlackBerry models and the subsequent corporate rebranding have apparently reinvigorated the company that sparked the smartphone revolution.

Along the way, the company has lost quite a bit of market cap, as its stock fell from over $61 in Jan. 2010 to under $18 a couple of years later, and dropped even further to $6.30 in Sept. 2012, as its smartphone market share dropped to 5%. Therefore, the BB10 launch was much anticipated, particularly after delays and the need to regain the confidence of CIOs, developers, and an end-user base that still boasts a good number of loyalists.

The introduction of the all-touch Z10 and Qwerty Q10 devices represents only the beginning of BlackBerry's business and brand transformation, as per CEO Thorsten Heins' comments. The new models are a targeted effort to deliver an innovative and differentiated end-user experience rather than the former Research in Motion's previous traditional strong tech-specs focus.

Many pundits expected today's results to be an early indicator of how well the new BB10 models and OS will fare, but it is still early and we will not likely know how well the company is doing for at least a couple of quarters. That said the early signs seem to be encouraging: 19 cents a share versus a loss of 24 cents a year ago; 1 million new BB10 phones sold (roughly 100,000 above most consensus estimates) and a solid number of older handsets sold with good service revenue generation during the transition to the new models.

One thing that BlackBerry has got right this time is its ecosystem. The company recently surpassed 100,000 apps, which is proving to be a pretty fast ramp-up. It has spent many resources in this area, hiring folks such as Alec Saunders (VP, Developer Relations) to get closer to the developer community and encourage programmers to write BB10 applications or at least to port them over from the Android OS.

Of those 100,000 apps, roughly 20% are Android ports, but the company hopes they will follow the example of eBay and Amazon , which initially ported their apps and then later introduced BB10 native versions.

These examples demonstrate that BlackBerry paid close attention to the ecosystem and applications, and provided the fastest possible onboard mechanism to persuade developers to at least get their feet wet with the new OS. At the launch of the new BB10 devices in late January, there were roughly 70,000 apps available, including some which had not been on previous RIM devices (most noticeably Skype and games such as Angry Birds), but there were some, such as Netflix , Hulu, OpenTable , Pandora , Viber, and Waze, which were not yet offered at that point. (Note that Netflix, for instance, still does not have any BB10 plans).

Furthermore, the number, while impressive, still only represents one tenth of iOS and Android apps. Another question is performance. The ported apps might not quite always perform as fast on the BB10 as on Android due to processing being done by the BlackBerry Android Runtime virtual machine.

The Q4 2013 call also did not provide too many clues about BlackBerry's performance in the U.S., where early surveys pointed to an initially underwhelming performance. In order for the company to do well with its BB10 models, it certainly needs better traction in the US, particularly where it is competing for shelf space at Best Buy and AT&T , T-Mobile and Verizon stores.

Early indicators showed lukewarm enthusiasm from sales personnel and buyers in the first two post-launch days. BlackBerry will be fiercely competing for mindshare against Nokia /Microsoft as these U.S. carriers certainly would like to seed a viable third OS option besides Android and iOS.

Finally, the big question remains on what the corporate installed base of BlackBerry users will do. The overall subscriber base diminished from 79 to 76 million this past quarter, after peaking at 80 million last summer. From the 76 million total, we estimate that about 20 million are corporate users, with consumers making up the rest. Enterprise customers received the BB7 devices "for free," being fully subsidized by operators.

However, the price of the BB10 devices doubled to $600, and the carriers will certainly be reluctant to cover all of the difference. Enterprises might contribute some, but the employees will be faced with the decision of whether or not to pay about $200 for a BB10 device versus investing that in another device such as a Galaxy3 from Samsung or an iPhone.

In the past, the same employees got the older RIM device free from their companies (including service) and in return agreed to carry two handsets (the RIM device for work and another model for personal use). In other words, what used to be strictly a corporate IT-based decision (which favored security, encryption, and proprietary system) is turning into a consumer-based decision, in a BYOD world. This illustrates the attention being paid by BlackBerry to applications and the BB10 ecosystem. It will be vital for the company's fortunes to convert as many of those lucrative corporate users to BB10 as possible.

Ronald Gruia is the program leader and principal analyst at Frost & Sullivan covering emerging telecommunications solutions. He is available at rgruia@frost.com.

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