BlackBerry stock declines as the company’s innovation disappoints

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Background

BlackBerry, the Canadian-based smartphone company, was considered a pioneer in the industry for many years. However, in recent years, the company’s fortunes turned and deteriorated rapidly. As entrants such as Apple and Samsung launched innovative technologies that revolutionized the smartphone, BlackBerry seemed to fall behind, quickly losing consumer appeal. Hopes for a turnaround in the troubled company’s prospects have dwindled, as shares now trade around $6 compared to their 2008 peak of roughly $145 per share. BlackBerry’s story provides some useful lessons for investors interested in the cellular handset industry. BlackBerry is a member of the iShares North American Tech-Multimedia Networking ETF (IGN), which tracks the performance of the S&P North American Technology Multimedia Networking Index.

BBRY - tracking the failure (part 1) - handset sales

BlackBerry falls behind

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The chart above shows shipments of handsets that have a BlackBerry operating system. Over the timeframe considered, smartphone unit sales have more than doubled from a rate of less than 500 million per year to over 1 billion per year. However, despite the expanding market, the tide did raise all ships, as BlackBerry’s handset sales have plummeted from approximately 50 million units per year to less than 20 million—a 60% decline.

BlackBerry appeared to suffer from a loss of consumer interest as newer smartphones from competitors such as Apple or Android offered unique experiences, more features, and the expectation for continued innovation. BlackBerry, however, relied too heavily on its email and messaging platform as well as its physical QWERTY keyboard, which many users continue to swear by. The important lesson for investors is that consumer tastes can shift rapidly—especially for tech gadgets. To maintain market share and sales, companies must continually innovate their consumer tech products and sustain their appeal. Plus, smart operators sustain sales by creating switching costs, which make it more complicated for consumers to switch from one device to another. BlackBerry did have limited success in creating switching costs with its proprietary messaging and email systems. But the effort was insufficient to offset the lag in bringing consumers new and exciting devices.

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