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BlackBerry Middle East shrugs off global woes

Cites strong local sales as a reason to keep its eye on growth

Horton says that BlackBerry remains a popular choice for smartphone buyers in the Gulf.
Horton says that BlackBerry remains a popular choice for smartphone buyers in the Gulf.

While BlackBerry has attracted more than its share of bleak news headlines in recent months, the mood at the company's Dubai office, which oversees the Middle East and North Africa, reflects a more upbeat story.

A row of trophies from regional partners including operators, retailers and channel partners adorn the main desk in the lobby, and staff appear to be in a cheerful, even buoyant mood, as I wait to meet Nick Horton, BlackBerry's newly appointed managing director for the Middle East and North Africa.

While the fate of BlackBerry in the Middle East is undoubtedly tied to that of the global operation, which is headquartered in Ontario, Canada, the performance of the local Middle East unit has increasingly diverged from that of the global operation.

Indeed, while poor handset sales in North America and other developed markets contributed to BlackBerry's second quarter net loss of $965m, the brand continues to command a strong market share in the Middle East, and particularly the Gulf. Even in the past quarter (June-August), BlackBerry was the second best-selling smartphone brand in KSA and third best-selling in the UAE, positioning the brand a couple of places ahead of Apple, according to data from market research firm, GfK.

For Horton, the company's problems at the global level offer no excuses for his team in the Middle East to slacken their pace. The New Zealander, who has been with BlackBerry for five years in the UK and then Singapore, is determined to maintain and build on the company's successes in the region.

"There is so much going on. There is a market here which is doing really well but then all the North American news tends to put a bit of a dampener on things, so we are talking with the team and with our partners to redress the balance a bit about what is happening in the Middle East, because we still have a really successful brand," he says. "The brand is still really attractive; people still want to buy our handsets. We just launched the Z30 two weeks ago and it is doing really well."

As Horton speaks, his directors in Ontario are busy discussing the future of the company, including its ownership. In late September Blackberry agreed to be acquired by a consortium led by Fairfax Financial, its biggest shareholder, for $4.7bn. The company said that it would also continue to explore other options during negotiations with Fairfax. Meanwhile, a securities filing on Thursday October 10 by BlackBerry's founders, Mike Lazaridis and Douglas Fregin, led to speculation that the pair may table a separate bid for the business, according to a report from Reuters.

"It is kind of hard for us trying to keep perspective about how things are going and the reality of what the situation is here on the ground, but it is a good challenge, that's for sure," Horton says.

With these problems in the background, 2013 has been a busy year for BlackBerry in the Middle East region and globally. The company introduced its new operating system, BlackBerry 10 (BB10), in January along with its Z10 touch screen handset. This was followed soon after by its second BB10 handset, the qwerty-keyboard equipped Q10.

"This year has really been about the transition to BlackBerry 10 and so what we are seeing is that we are maintaining our market share, but we are transitioning the mix from the old OS to BB10," Horton says. "For our last quarter to the end of August more than 50% of our sales were on BB10." He adds that this was important not just to validate the new operating system, but also because the new handsets "tend to be in a higher price tier" and are therefore more profitable for the company.

Globally, the Z10 and Q10 failed to gain traction, leading to the firm's poor second-quarter financial results. Unsold Z10s forced BlackBerry to take a hit of about $934m, according to the company's Q2 results. In the Middle East, the picture was somewhat different. Horton said that the Z10 "went like a rocket ship" when it was first launched, although sales tailed off after just two or three weeks. While BlackBerry does not publish sales results for the Middle East, Horton said that the Q10, which was launched in the region in May, generated stronger sales than the Z10. "The Q10 took us to the next level. The Q10 has been really successful; we launched it in the UAE with Etisalat and they sold their volume out within the first 30 days so that went really well and has been really strong," he said.

Horton is also quietly optimistic about the potential of the firm's latest launch, the BlackBerry Z30. The touch screen device features a 1.7 GHz processor, a refined version of the BlackBerry 10 OS and a Super AMOLED 5-inch display.

In particular, Horton hopes that the new device's touch screen keyboard will win over fans of BlackBerry's physical keyboard. "I was always a Qwerty guy but the keyboard on this is so usable plus you have all this extra screen real estate. I agree the keyboard is an attractive part of our proposition. Also our implementation of the Arabic character overlay on the keyboard has always done well for the region," he says.

But how might current headlines about the company's ownership affect sales? "That's a good point," Horton says. "What we are spending a lot of time on is working with our carrier, distribution and retail partners, and just saying ‘look, it's business as usual for us'. There is a finite period until November 4 when the due diligence is taking place as part of the Letter of Intent we have received from Fairfax Financial and we are going to have a definitive answer one way or the other on November 4. But we can't just stop working; we need to keep the momentum going."

And on the commercial front, BlackBerry certainly has a busy calendar ahead of it for the rest of the year. The company was present at GITEX Shopper, a major regional electronics retail event in Dubai, during the first half of October. It is also preparing to exhibit at GITEX Technology Week, the region's biggest ICT trade show, which starts on October 20.

On November 1-3, BlackBerry will sponsor the Mercedes team at the Abu Dhabi Grand Prix. "We have a lot of opportunities, a lot going on, and that's what we're focusing on," Horton says.

Global strategy

While BlackBerry has had a tough challenge in the past few years at the global level, with the likes of Apple and Samsung eroding its market share, it is clear that the company is still not yet out for the count. The company is changing its strategy with BlackBerry 10 to focus on a core market referred to as "pro-sumers", by which it means people who value the productivity that their mobile device gives them. At the same time, the company will also continue to focus on the enterprise segment.

However in the Middle East, BlackBerry will continue with a broader focus, reflecting the trend in the region. "We are taking a market approach, for the Middle East as a whole, especially in UAE, KSA, Qatar and Kuwait; we are still going after a broad segment because that is who BlackBerry customers are at the moment. We will work with all the retailers to access that," Horton says.

While Horton does not want to speculate about the Fairfax bid and other deal rumours that have appeared in the press, he is keen to point out another fact that puts the company's position in a more positive light. "BlackBerry has about $2.5bn in the bank to start off with," he says. "We have a world class enterprise network; we have got lots of customers that heavily use our enterprise service, lots of consumer customers and lots of BBM users. There is a lot of value here. We need to keep refining it to make sure we are making the right products for the right customer group but I know from the success we've had here that it is possible. We just need to continue with that and not worry too much about some of these external factors," he says.

"We are operating on the basis that it is business as usual. We have got a good market here; we are continuing to be successful and we just need to keep going with that."

Another pillar of BlackBerry's strategy to expand its reach was its decision to expand its popular messaging system, BBM, as a free app available for download of Android and Apple smartphones. The move will benefit BlackBerry owners who use the service by expanding their potential contact base. It will also give non-BlackBerry users a taste of the brand. The app was available for about 8 hours in September during which time it notched up some 1.1m downloads, before BlackBerry removed it for an unspecified time owing to a technical glitch. "Our teams continue to work around the clock to bring BBM to Android and iPhone, but only when it's ready and we know it will live up to your expectations," the company said on its corporate blog, without saying why the delay was necessary.

The idea of rolling out BBM to Apple and Android operating systems is mainly about gaining scale, according to Horton. "We recognised that for social networks scale is really important. One of the ways we can get scale is by continuing to grow our BlackBerry base which we are still working on, but the other way was to take the experience on to other platforms, so that is at the heart of why we are doing that. We recognise that there is a unique set of experiences that are part of BBM that we think will be very attractive on the other platforms."

While the app will be free to download, Horton said that the company is looking at the feasibility of working with telecom operators in the region to create BBM data packages, or to ensure that BBM is included in some of the social packages that the carriers have.

Asked whether the move could have the unintended consequence of deterring potential customers from buying a BlackBerry device, Horton said that the company believes there is enough "strength and differentiation" in BB10, with the keyboard and also with the OS, to maintain loyalty from its core customer group.

"It is going to be interesting. It is clearly a new approach for us and taking us into unchartered territories but I think it is going to be really exciting," he says.