Does BlackBerry’s Budget Android Phone Really Matter?


BlackBerry (NASDAQ:BBRY) has launched its second Android handset, dubbed the DTEK50, combining the firm’s industry-leading security features and the expansive Android software ecosystem into a device with a relatively affordable price point of about $300. Early reviews of the device have been quite positive, with critics praising its easy-to-use security features and strong value proposition. Below, we analyze the prospects of BlackBerry’s new device and what it could mean for the company’s stock.

Trefis has a $8 price estimate for BlackBerry, which is roughly in line with the current market price. We estimate that the handset business accounts for about 10% of the stock price.

See our complete analysis for BlackBerry here

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BlackBerry’s Security-Focused Handsets Aren’t Finding Favor In The Market

Privacy and security are becoming important themes in the global technology industry, in the wake of increasing hacking attacks as well as concerns of electronic eavesdropping and data theft. BlackBerry has outlined secure communications as a cornerstone of its turnaround plan, and its focus on cross-platform security software appears to be slowly paying dividends. For instance, the firm’s software sales more than doubled to $494 million over the last fiscal year and growth is projected to be strong this year as well. However, the security narrative doesn’t seem to working as well for BlackBerry in the handset market, where vendors such as Apple have made significant inroads into verticals including highly-regulated enterprises, leveraging the bring-your-own-device trend and increasingly capable cross-platform mobile device management software.

BlackBerry’s first Android device, the high-end Priv ($700 at launch), was unable to reverse this trend – as BlackBerry shipments declined from 700k in Q3 FY’16 to about 500k in Q1 FY’17 – and we believe that the DTEK50’s security on a budget proposition could also face challenges. Users in highly-regulated verticals who value cutting-edge privacy features are unlikely to be particularly price-sensitive, and offering a lower-priced, security-focused device like the DTEK50 is unlikely to change the equation for BlackBerry’s handset business. Moreover, the BlackBerry brand is becoming less and less relevant in the consumer smartphone market, where customers tend to assign greater importance to hardware specs and features over security. That said, the new BlackBerry could find takers in sectors such as fleet operations and some smaller businesses.

DTEK Offers Optionality For BlackBerry 

While BlackBerry has been increasingly relying on third-parties to design and manufacture its devices, the firm appears to have taken this strategy to a new level with the DTEK50, which is essentially a re-branded version of the Alcatel OneTouch Idol 4 handset manufactured by Chinese electronics firm TCL. This should ensure that BlackBerry’s costs are kept to a minimum, with its development responsibilities falling largely in the software and application side. BlackBerry is unlikely to have meaningful financial exposure to the device, given that development, manufacturing and inventory requirements appear to be largely off its balance sheet. If the device clicks with customers, BlackBerry could see a some upside in terms of hardware sales and potentially recurring software revenues. On the other hand, if the device fails in the market place, there probably isn’t much to lose for BlackBerry, given the limited sunk costs.

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