BlackBerry Declines After Move to Open Up BBM Messaging

Photographer: Galit Rodan/Bloomberg

The CEO of BlackBerry, the Canadian smartphone maker, said the company will begin offering BBM as a free application on Apple Inc.’s iPhone and devices running Google Inc.’s Android. Close

The CEO of BlackBerry, the Canadian smartphone maker, said the company will begin... Read More

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Photographer: Galit Rodan/Bloomberg

The CEO of BlackBerry, the Canadian smartphone maker, said the company will begin offering BBM as a free application on Apple Inc.’s iPhone and devices running Google Inc.’s Android.

BlackBerry (BBRY) fell the most in a week after announcing plans to open up its BBM instant-messaging system to other smartphones, a move that loosens the company’s grip on one of its most valuable services.

The stock dropped 4 percent, the biggest one-day decline since May 7. Shares of Waterloo, Ontario-based BlackBerry have climbed 28 percent this year, fueled by optimism over the company’s comeback plan.

BlackBerry Chief Executive Officer Thorsten Heins said today the company will begin offering BBM as a free application on Apple Inc.’s iPhone and devices running Google Inc.’s Android. The move is a gamble for the smartphone marker, said Steven Li, an analyst at Raymond James in Toronto. While it increases the reach of the service, which has more than 60 million users, it’s not clear how BlackBerry will make money.

“They are losing exclusivity, but counting on the fact that the BBM experience is much better than any of the other messaging apps,” said Li, who has a neutral rating on BlackBerry. “I’m still not sure how they monetize it.”

BBM will be available as a text-only application for the competing smartphones in the next few months, before a voice feature is added, Heins said today at the company’s annual conference in Orlando, Florida.

Emerging Markets

As part of his presentation, Heins unveiled the BlackBerry Q5, a new lower-end phone aimed at emerging markets. The Q5, available in four colors, will go on sale beginning in July. He also said the updated BlackBerry 10.1 operating system will roll out today, featuring a Skype phone application.

“We have reached solid ground with this company,” Heins told software developers, suppliers and corporate customers at the BlackBerry Live event. “Not only are we still here, we’re firing on all cylinders.”

In the year since the company’s 2012 gathering, Heins has worked to streamline the business and return it to profitability, surprising analysts. After cutting 5,000 jobs and eliminating six of 10 manufacturing sites, Heins now faces the challenge of reviving sales growth.

The company hasn’t shown it can regain market share lost to Apple and Android, and only one of its new phones -- the Z10 -- is available in the U.S., BlackBerry’s largest single market.

The Q5 is the third phone in the new BlackBerry 10 lineup and the first targeted at consumers in developing economies. BlackBerry demand in those markets has held up better in recent years than in the U.S., where Apple and Android are more dominant.

‘Very Significant’

The new phone will be key to BlackBerry competing with low-cost Android models overseas, said Adam Leach, an analyst at the London-based research firm Ovum.

“The Q5 could be a very significant device for the company, as there is a significant opportunity for high-quality low-cost smartphones,” he said in an e-mailed statement. “Emerging markets accounted for roughly 17 percent of the nearly 450 million smartphone shipments globally in 2011.”

The phone Heins showed off was cherry-red and resembled a more basic version of the Q10, a model that went on sale in Canada and the U.K. about two weeks ago. Heins also demonstrated BlackBerry 10’s mapping and videoconferencing features in a black Bentley Continental convertible, displaying how the software can work with technology beyond phones.

Z10 Sales

The company’s flagship model is the Z10, a touch-screen device going head-to-head with the iPhone 5 and Samsung Electronics Co.’s Galaxy S4. Reports of the phone’s sale performance have been mixed, with some analysts seeing lackluster demand and speculating that production has been cut. BlackBerry shipped about 1 million Z10s in their first quarter on sale, in line with estimates.

The Q10, meanwhile, will go on sale in the U.S. in early June, Heins said at the event, pushing back the target from late May. T-Mobile US Inc., the fourth-largest U.S. carrier, said today that it will offer the model for $99.99 down and monthly payments of $20 -- part of its new installment-plan approach to selling smartphones.

The Q10, which has a physical keyboard designed to appeal to the BlackBerry faithful, has been faring well in other markets, said Mark Sue, an RBC Capital Markets analyst. Heins told Bloomberg News last month that the phone should sell in the “several tens of millions,” without giving a time frame.

‘Healthy’ Sales

Sales in the U.K. and Canada, where the Q10 is already available, “remain healthy,” Sue wrote in a report yesterday. He has a neutral rating on the stock.

A bigger test of the Q10’s appeal will be when it goes on sale in the U.S. BlackBerry faces an uphill battle to win back market share it has ceded to Samsung and Apple in recent years.

Samsung accounted for a third of smartphone sales last quarter, while Apple had 17 percent, according to research firm IDC. BlackBerry saw its share fall to 3.2 percent in the fourth quarter, before the company dropped out of the top five in the first three months of this year.

BlackBerry Live attracted about 5,000 people to Orlando, the same or slightly better attendance as last year, according to Kiyomi Rutledge, a spokeswoman for BlackBerry. The company is giving out free Z10s to attendees.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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

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