http://www.businessweek.com/news/2013-03-21/blackberry-s-u-dot-s-dot-debut-marks-biggest-test-of-comeback

Bloomberg News

BlackBerry’s U.S. Debut Marks Biggest Test of Comeback

March 22, 2013

BlackBerry (BBRY)’s new Z10 smartphone goes on sale in the U.S. today, almost two months after its debut in other countries, putting the company’s turnaround plan to the test in its largest market.

Chief Executive Officer Thorsten Heins kicked off U.S. sales of the touch-screen device last night at a theater in New York’s Times Square. The event, which featured performances by rapper Ludacris and R&B singer Janelle Monae, marked the arrival of the Z10 at AT&T Inc. (T) (T) stores today. The phone will be offered by Verizon Wireless on March 28.

A lot of hard work has resulted in the “culmination of selling a fantastic device in the U.S.” Heins told those gathered at the Best Buy Theater.

Heins is trying to reverse BlackBerry’s fortunes in the U.S., where the onetime smartphone leader has lost ground to Apple Inc. (AAPL) (AAPL)’s iPhone and Google Inc.’s Android. Sales in the country fell by almost half to $520 million in the third quarter from a year earlier, through the U.S. still accounts for about a fifth of revenue for Waterloo, Ontario-based BlackBerry.

“There’s no risk of overstating the importance of the U.S. for BlackBerry,” said Ramon Llamas, an analyst with IDC in Framingham, Massachusetts. “It’s such an important bellwether market.”

No Lines

AT&T (T), the second-largest U.S. carrier, will offer the Z10 for $199.99 on a two-year contract, putting it at the same price level as the main iPhone. The phone was first unveiled on Jan. 30, and it’s been available for weeks in the U.K., Canada and other markets. Heins has attributed the U.S. delay to the longer equipment-testing procedures of American carriers.

At an AT&T store in midtown Manhattan this morning, there were no iPhone-style lines of shoppers waiting for the new BlackBerry. Most buyers of the phone will probably be corporate customers, rather than consumers, said Jorge Garcia, a sales representative at the shop on Lexington Avenue.

“Most of the corporate clients are asking for BlackBerrys,” said Garcia, who expects about 90 percent of the new phone’s sales to come from those customers, with 10 percent coming from walk-in shoppers.

Verizon Wireless, the nation’s biggest carrier, has begun taking orders for the Z10 ahead of making it available in stores next week. Sprint Nextel Corp. (S:US), No. 3 in the market, won’t sell the Z10 at all. It’s waiting to offer the Q10, a version with a smaller screen and physical keyboard that’s coming out later this year.

‘Pent-Up Demand’

Early demand suggests that the Z10 will perform as well in the U.S. as in BlackBerry’s home market of Canada, Chief Marketing Officer Frank Boulben said in an interview.

“I expect that we’re going to hit the ground running,” he said, citing “substantial pent-up demand.”

The U.S. will add to the phone’s global footprint, Boulben said. By the end of April, BlackBerry expects the Z10 to be available from 150 carriers around the world. By this time next year, there should be six different BlackBerry 10 models on the market, he said.

“It’s not a one-trick pony -- neither from a country standpoint nor a device standpoint,” Boulben said.

The rollout of the new phones is supported by the biggest marketing campaign in the company’s history. As part of the blitz, BlackBerry splurged on a Super Bowl ad in early February, betting that it could build excitement around the phone even though a U.S. debut wasn’t imminent.

Alicia Keys

BlackBerry, long popular with corporate clients, has tried to project a more artistic image with the new products. At the Jan. 30 unveiling, it introduced Grammy-winning singer Alicia Keys as its global creative director, a new title.

At last night’s event, Richard Piasentin, BlackBerry’s head of U.S. sales, said he had been on the road for almost four weeks straight promoting the new lineup.

“This is a pivotal moment for the company and we all know it,” he said in an interview. “I’ve never seen a team galvanized around a moment like this.”

The key to the Z10’s success will be how well store salespeople can demonstrate how the phone works to both BlackBerry loyalists and others, said IDC’s Llamas.

“This is an entirely different platform,” he said.

Gesture Navigation

Critics have praised the Z10’s features, including its virtual keyboard. It also dispenses with a home button, which is used by the iPhone and Samsung Electronics Co.’s Galaxy S to take users back to the main screen. The Z10 relies instead on gesture-driven navigation to switch between applications and peek at messages while still in the Web browser.

Shares of the company, formerly known as Research In Motion Ltd (BB)., have rallied about 40 percent this year on optimism that the new lineup can revive BlackBerry’s prospects. The stock climbed 3 percent to $16.65 at 9:55 a.m. in New York. Still, it remains down almost 90 percent from its 2008 high of $147.55.

The staggered rollout of the new devices makes it tougher for analysts to predict the impact on quarterly results. Sales estimates for the period that ended March 2 range from as little as $2.41 billion to as much as $3.42 billion. The average estimate is $2.84 billion. While that would represent a decline of 32 percent from a year earlier, it’s a smaller drop than the company posted the previous quarter.

Ehud Gelblum, an analyst with Morgan Stanley (MS) in New York, raised his rating on the stock this week to the equivalent of a buy, citing the potential for the BlackBerry 10 phones to lift the company’s average selling price and profitability.

Still, BlackBerry will struggle to regain lost market share in the U.S., he said. The company will appeal mainly to existing BlackBerry users looking to upgrade, rather than gaining converts from Android and Apple’s iOS operating system.

“Our more bullish stance is not based on a resurgence in share in the U.S., where we believe users are already mostly sold on the Android/iOS duopoly,” he said.

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Sarah Frier in New York at sfrier1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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