BlackBerry has been reduced to a niche smartphone player (Part 3 of 12)
BlackBerry’s revenues from its hardware segment declined by 24%
In the previous part of this series, we discussed how BlackBerry’s (BBRY) overall revenues declined at a faster rate than many analysts expected. BlackBerry derives about 46% of its revenues from its hardware business. The revenues from its hardware business declined from $476 million in fiscal 3Q14 to $361 million in 3Q15, a decline of about 24%.
Supply constraints and revenue recognition accounting are the main reason for low revenues
This steep decline in hardware revenues was surprising—especially since BlackBerry announced last quarter that it received orders for 200,000 Passport units within the first two days of its launch. The Passport was considered BlackBerry’s main weapon to compete against Apple’s (AAPL) iPhone and Google’s (GOOG)(GOOGL) Android-based smartphones, especially in the enterprise segment.
Management had also mentioned that the Passport sold out within six hours on BlackBerry.com and within ten hours on Amazon’s (AMZN) website. You could also buy the Passport with a two-year contract at a subsidized price from AT&T (T). Read Must-know: Will the Passport help BlackBerry revive its fortunes? for more details.
So why did BlackBerry still declines in its hardware revenue? The problem was that, in the past, BlackBerry had to face inventory write-downs of its smartphones due to weak sales. To overcompensate, BlackBerry may have deliberately manufactured a limited number of Passport smartphones, which resulted in lower order fulfillment. According to the company’s management, due to supply constraints, it was able to fulfill the order backlog of 3Q15 by December 12 only. This was well into Q4.
Plus, BlackBerry has adopted sell-through accounting for recognizing revenues. This means that BlackBerry won’t recognize revenues until the customer has activated the smartphone. BlackBerry mentioned that because of lower order fulfillment due to supply constraints along with its revenue recognition accounting, the company recognized very little revenue from Passport sales. This was one of the reasons for hardware revenues declining so steeply at BlackBerry.
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