BlackBerry Strategic Assessment - Essay Example

? BlackBerry Strategic Assessment BLACKBERRY BUSINESS STRATEGY Global Smartphone Industry Analysis Analysis of BlackBerry’s Position in the Industry While there are few smartphone firms involved in the development of operating systems, such as Apple, Google, RIM, and Nokia, more companies are developing software (Ogunsanwo, 2013: p54). This intensifies rivalry among smartphone manufacturers who possess software capabilities. Smartphone manufacturers are also having to sell its smartphones faster since they depreciate faster, which intensifies the rivalry since all smartphone manufacturers have to sell off their stock quickly. While smartphone brands are differentiated to some extent, majority of other smartphones that fall in the same price range possess similar functions (Ogunsanwo, 2013: p54). This makes the threat of substitute products high. In addition, now consumers can use 3rd party applications and internet based calls. The number of substitute products makes it easier for consumers to move to another product and get similar benefits. Concentration of smartphone customers is low, ensuring that they do not have much influence over smartphone prices, which, in turn, makes the buying power of consumers low. However, some rival producers like Apple have influences that extend to their channels of distribution (Ogunsanwo, 2013: p55). This threat is reduced somewhat since consumers have the ability to buy from other smartphone manufacturers even when they do not necessarily give them better prices or incentives. The high number of substitute products gives smartphone suppliers less leverage over them because of substitute competition. This increased competition has a positive effect on the smartphone manufacturers (Ogunsanwo, 2013: p56). In addition, the increased competition among the suppliers leads to a reduction in price. Finally, supplier bargaining power is reduced by the similarity of input products. Finally, smartphone manufacturers are not under threat when it comes to rival entrants since the smartphone market is difficult to enter. Rival entrants require proprietary knowledge, as well as many patent requirements that continue to embroil even the established smartphone manufacturers like BlackBerry (Ogunsanwo, 2013: p56). The new entrants will also lack brand power that is essential to sales. Strategic Analysis of BlackBerry Shareholder Value: Earnings per Share Year August 2013 2013 2012 2011 2010 2009 2008 BlackBerry -0.60 -0.60 4.20 6.34 4.37 3.43 2.26 Samsung 18.85 15.79 15.02 8.07 10.99 6.89 3.68 Apple 8.26 11.13 8.75 7.03 4.64 4.10 3.60 (BarChart, 2013: p1) From the above figures, it seems that the EPS for BlackBerry has decreased consistently from 2010 to the present, indicating that their earning power is decreasing. This has been in sharp contrast to Samsung and Apple who’s EPS is rising consistently. Samsung’s earnings per share are relatively higher than for both Apple and BlackBerry, indicating that, among the three major smartphone makers, Samsung’s earning power is increasing mostly due to manufacturing the most new models of smartphones, as well as its more diverse electronics range. Price/Earnings Year August 2013 2013 2012 2011 2010 2009 2008 BlackBerry 0.00 -17.85 7.24 9.38 15.34 26.24 0.00 Samsung 7.453 10.39 9.10 8.60 16.10 23.3 8.8 Apple 13.12 11.16 14.61 15.35 21.63 31.73 26.39 (BarChart, 2013: p1) The P/E trend for BlackBerry and other smartphone industry players has been falling since 2009 because of the financial crisis. The current P/E ration level for BlackBerry shows that it is very easy to buy at the moment unlike Apple and BlackBerry who have relatively high P/E ratios, making them more difficult to buy. However, there is a fluctuation of the ratios for both Apple and Samsung, which still seem to be feeling the effects of the financial crisis in 2008/2009 as well. However, it seems BlackBerry was unable to turn its decline around most likely because they failed to introduce any new brands in the period immediately after the crisis. Long Term Debt Structure Year 2013 2012 2011 2010 BlackBerry Long Term Debt $0 $0 $0 $0 Total Equity $9,460,000 $10,1000 $8,938,000 $7,603,000 Samsung Long Term Debt $10,710,000B $5,452,402B $4,962,596 $1,221,719B Total Equity $120.62B $113.36B $87.69B $76.34B Apple Long Term Debt $16,960B $0 $0 $0 Total Equity $123,549B $118,210B $76,615B $46,253B (BarChart, 2013: p1) Leverage for BlackBerry, calculated by dividing the long-term debt by the total equity; would amount to zero because the company has no long-term debt. The gearing ratio is also zero. BlackBerry has low gearing or leverage, meaning that it is less risky as an investment since they do not have too many liabilities and have enough equity. This is the same as for Apple who have also had a trend of no long term debt until this year. However, Samsung has a higher long term debt, rising from its borrowing to expand their smartphone department. This means that out of the three smartphone makers, they at least more vulnerable to business cycle downturns, although their long term debt structure is relatively healthy at 0.08%. Short Term Liquidity Ratios: Current Ratio Ratio 2009 2010 2011 2012 2013 BlackBerry 2.29 2.39 2.063 2.087 2.231 Samsung 1.763 1.543 1.613 1.859 1.967 Apple 2.545 1.846 1.583 1.543 1.679 (BarChart, 2013: p1) BlackBerry’s current ratio has bee rising consistently since 2011, before which it had been falling. The current ratio is usually used for determining the ability of a company to pay its payables and debts with its receivables, inventory, and cash. The increasing current ratio means that BlackBerry is gaining the capability to pay off its debts, although it does not have any real debt as was seen in the long-term debt structure. Its main competitors also have rising current ratios, meaning they are able to pay off their debts with Apple’s position being the best and Samsung’s long term debt enabling its weaker ratio. Profitability 2009 2010 2011 2012 2013 BlackBerry ROE 38.55% 36.38 42.90% 11.94% -6.75 ROA 27.79% 26.67% 30.30% 8.50% -4.96% Samsung ROE 18.7% 19.9% 14.4% 21.4% 22.79% ROA 12.4% 13.1% 9.5% 14.2% 15,26% Apple ROE 20.49% 29.32% 33.83% 35.30% 29.98% ROA 10.59% 18.64% 22.28% 23.70% 17.89% (BarChart, 2013: p1) An ROE of -6.75% is too low since the recommended range is 10 to 30%. Therefore, the ratio shows that BlackBerry is becoming less desirable in terms of dividends to shareholders, unlike its main competitors; especially Apple who’s high ROE shows its high value to investors due to robust sales. ROA has also declined consistently since 2011, which shows that BlackBerry’s ability to generate income from its assets is declining again unlike its main competitors. In this case, Samsung is more efficient at generating income from assets, indicating that they have put their debt into R&D and/or marketing, increasing their income generating ability. BlackBerry’s low ROA indicates that they are asset intensive and require more money in order to make more revenue going forward. Market Share Trend (Reed, 2013: p1) While BlackBerry had a significant share of the market in 2009, this market share has seen a consistent drop since 2010. This drop in market share seems to have resulted from an increase in the market share for Samsung and its Android platform. From the chart, it is clear that Samsung has gained the most market share from both Apple and BlackBerry, mostly because of its lower priced models. For this reason, one can conclude that, without the emergence of the Android system, most of the customers in emerging markets who have taken up the Android system may have stuck with BlackBerry. Cash Reserves Year 2011 Q1 2011 Q2 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 BlackBerry $3.27B $2.03B $2.47B $2.7B $2.87B $1.42B $1.5B $2.11B $2.25B Samsung $14.69B $18.79B Apple $9.815B $10.75B $14.26B (Reuters, 2013: p1) In spite of the many losses that Blackberry has had, its cash reserves have increased consistently since the second quarter of 2012. This can be attributed to the collection of money that was owed to BlackBerry by 3rd parties, slashed costs by laying off workers, and cutting their inventory. However, this activity may not be sustainable over the long term for BlackBerry to become profitable and competitive again. Brand Equity Brand equity is a complex KPI involving multiple elements, such as overall brand value, image, and brand strength. BlackBerry has a strong brand due to the attachment that its customers feel to it (Balakrishnan, 2013: p1). The company’s brand value also elicits a positive reaction from its loyal consumers who have their defined reasons in remaining loyal to BlackBerry. However, BlackBerry has a declining brand image due to its management problems, inability to compete, and consumer perceptions of its unsuccessful stint. The same is true for Apple and Samsung who have high brand equity, although they both have the advantage of a high brand image. Strategic Recommendations RIM should strive to gain back its market share by expanding into emerging markets like China and India (Sweeny, 2013: p61). While the North American market may have served the firm well, it is becoming saturated. Ales in other regions like Australia, Japan, and Europe should also be pursued. A financial issue that faces BlackBerry has to do with its profitability, which has dipped in the last three years as evidenced by declining ROA and ROE ratios. In addition, the shareholder value of the company has been declining as evidenced by declining EPS. While this may have dampened earlier investor enthusiasm, it is not recommendable for BlackBerry to attempt any influence on its share price. It should intensify its investment in Research and Development, while also vigorously protecting its patents (Sweeny, 2013: p61). These actions will allow them to improve their profits and shareholder value. The new BlackBerry 10, therefore, must be marketed vigorously and improved on using feedback from loyal consumers. The recent recession has had a significant effect on the industry as evidenced by its decreasing profitability. However, there are growth opportunities for BlackBerry in the corporate sector, where BlackBerry still enjoys brand loyalty. While the image of their brand has declined, the company should leverage its brand value by producing products that are more innovative and useful to its corporate customer base (Lin & Ye, 2013: p620). They must ensure they do not abandon this base and should ensure that their new products are effective and efficient enough to maintain its brand image in this niche. The new BlackBerry 10 should be marketed to corporate customers who still use BlackBerry, suggesting that the phone has the capability to separate their personal life and work life. The next smartphone should also appeal to young adults who are joining the corporate world to increase their brand loyalty and the eventual increase of market share (Lin & Ye, 2013: p620). References Balakrishnan, R., 2013. Brand Equity's Most Exciting Brands 2013: How Adidas, Nokia and Blackberry have trounced market leaders. Retrieved November 9, 2013, from The Economic Times: http://articles.economictimes.indiatimes.com/2013-01-02/news/36111579_1_reebok-india-brand-social-media BarChart., 2013. Blackberry Limited (BBRY). Retrieved November 9, 2013, from BBRY| Finacial Ratios for BlackBerry Limited: http://www.barchart.com/profile.php?sym=BBRY&view=ratios Lin, F. & Ye, W., 2013. Operating System Battle in the Ecosystem of Smartphone Industry. Information Engineering and Electronic Commerce , 12 (1), 617 - 621. Ogunsanwo, O., 2013. The Changing Competitive Landscape of the Smartphone Industry. Cambridge: Massachusetts Institute of Technology, Sloan School of Management. Reed, B., 2013. Chart shows how Android is more responsible for BlackBerry’s downfall than iPhone. Retrieved November 9, 2013, from BGR: http://bgr.com/2013/09/26/blackberry-downfall-analysis-android/ Reuters., 2013. RIM’s cash position in focus after another tough quarter. Retrieved November 9, 2013, from http://business.financialpost.com/2012/09/25/rims-cash-position-in-focus-after-another-tough-quarter/?__lsa=04b6-47de Sweeny, A., 2013. BlackBerry Planet: The Story of Research in Motion. Hoboken: John Wiley & Sons. Read More