BlackBerry’s Q2 death spiral: A suggestion for Fairfax Financial

Thorsten Heins had nearly a billion reasons for cancelling BlackBerry’s scheduled earnings call on Friday, but there’s only one that matters.

If he had had to face the financial industry analysts and shareholders that would have no doubt clogged the line, the BlackBerry CEO would have eventually had to admit that “phase three” -- the point at which BlackBerry was supposed to begin growing again -- was on an indefinite hold. Instead, BlackBerry reported $965 million on sales of $1.6 billion during its fiscal second quarter. To put it in perspective, Apple probably sold more of its new iPhones in about the first three days than BlackBerry sold in the past three months.

For the past year, Heins has been peddling a kind of stump speech that’s been better rehearsed than that of a politician in an election campaign. First came the belt-tightening, then the new smartphones. After repeatedly asking the market for patience, Heins has been forced by BlackBerry’s board to sit out a process by which Fairfax Holdings Ltd. puts together a consortium to fund its bid for a private takeover.

As the company pursues its planned 40 per cent workforce reduction and sifts through an inventory of unwanted BlackBerry Z10 phones that led to a $934 million write-down, Fairfax and whoever else is interested in BlackBerry will be evaluating its next steps. What’s been officially said so far isn’t encouraging. In pre-announcing the results earlier this week, BlackBerry said it would be refocusing on the “prosumer” market, presumably hoping to indicate it was no longer interested in trying to fight for iOS and Android marketshare with mainstream customers.

The problem is that, from a smartphone perspective, the “prosumer” market doesn’t really exist anymore. Yes, there are high end and low-end phones, but the word prosumer refers to a professional that is buying their own technology for a mix of business and pleasure. That’s now pretty much everyone out there, and price points aside, the expectations are more or less the same. Everyone wants a great camera in their phone. Everyone wants long battery life. Everyone wants the best apps -- an area in which BlackBerry continues to trail miserably behind its competitors.

“We are focused on our targeted markets,” Heins said in a statement, but there’s a difference between being focused and becoming too much of a niche. The only other “prosumers” they could be thinking about are those that get issued a device from their employer, and while BlackBerry has recently issued press releases trumpeting a few organizations in the U.K. that are standardizing on its devices, there are probably many more prepping for iOS 7 and Android Kit Kat.

At this point, Fairfax needs to decide what will make BlackBerry still weaker and what might make them stronger. Considering the 49 percent drop since last quarter, and that Fairfax will saddle a debt-free BlackBerry will at least $3 billion of debt, this is becoming easier to do than it sounds. Continue to focus on elusive “elite” users? Weaker. Split the company into a series of piece parts that have to re-establish themselves against more cohesive competitors? Weaker. Prolong the process? Definitely weaker. Accelerate the close of the deal and mine BlackBerry’s considerable intellectual property until the firm can once again play like it wants to win in the smartphone market as a whole? Stronger. Maybe not strong enough to rebound completely, but stronger.