Blackberry 2014 Annual Report Download - page 149

BlackBerry Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Other Revenue
Other revenue, which includes non-warranty repairs, accessories, licensing revenues and gains and losses on revenue hedging
instruments, decreased by $159 million, or 62.6% to $95 million, or 1.4% in fiscal 2014 compared to $254 million, or 2.3% in
fiscal 2013. The decrease was primarily attributable to non-warranty repair revenue and also reflects gains on revenue hedging
instruments experienced in fiscal 2013 and not repeated in fiscal 2014 as well as decreases in licensing and accessory revenues.
See “Market Risk of Financial Instruments - Foreign Exchange” for additional information on the Company’s hedging
instruments.
Revenue Trends
The Company has continued to encounter challenges adapting to the BYOD movement as many IT departments that previously
required employees to use the BlackBerry wireless solution because of its emphasis on security and reliability are permitting
employees to choose devices offered by the Company’s competitors, who are increasingly promoting the merits of their own
security and reliability, and this has impacted the Company’s enterprise subscriber account base. To address this evolution of
the market, the Company has introduced products, including its portfolio of BlackBerry 10 smartphones with BlackBerry
Balance and BES 10, which give IT departments the ability to securely manage BlackBerry devices and other operating system
platforms through a single unified interface and to securely protect corporate data on an employee’s personal smartphone or
tablet. The Company has continued to encounter challenges with the BYOD trend. As previously disclosed, the Company also
believes that uncertainty surrounding its recently completed strategic review process may have continued to negatively impact
demand for the Company's products in fiscal 2014. The Company plans to refocus its product and services offerings on its end-
to-end solution of hardware, software and services for enterprises. The Company has experienced a decline in demand for its
products and in its overall market share. The intense competition impacting the Company's financial and operational results that
previously affected demand in the United States market is now being experienced globally, including in international markets
where the Company has historically experienced rapid growth. The increase in competition encountered by the Company in
international markets is due to the recent entry into those markets of global competitors offering high end devices that compete
with the Company's BlackBerry 10 devices, as well as other competitors targeting those markets with lower end Android-based
devices that compete with the Company's lower cost devices. The decline can also be attributed to consumer preferences for
devices with access to the broadest number of applications, such as those available in the iOS and Android environments.
As previously disclosed, the Company has experienced a continued decline in service revenues. See “Summary Results of
Continuing Operations – Three months ended March 1, 2014 compared to Three months ended March 2, 2013 – Revenue –
Revenue by Category – Service Revenue” and “Overview – Sources of Revenue” for further details related to the Company’s
assessment of the decline of its service revenues.
Revenue by Geography
North America Revenues
Revenues in North America were $1.8 billion or 26.6% of consolidated revenue in fiscal 2014, reflecting a decrease of $1.1
billion compared to $2.9 billion, or 26.2% of consolidated revenue in fiscal 2013. The decrease in North American revenue is
primarily attributable to a decrease in revenue from the United States, which represented approximately 19.4% of total
consolidated revenue in fiscal 2014, compared to 20.2% of total consolidated revenue in fiscal 2013, as a result of the intensely
competitive dynamics within the United States. Sales in Canada represented approximately 7.2% of the consolidated revenue.
Revenues in the United States have continued to decline and subscriber attrition has remained high due to the intense
competition faced by the Company in this market, consumer preferences for devices with access to the broadest number of
applications, such as those available in the iOS and Android environments, and the other factors described above. To address
this decline, the Company worked with developers to ensure that a broad spectrum of applications including games,
multimedia, productivity, enterprise and social media applications would be available on BlackBerry 10 smartphones prior to
their introduction. Sales in the United States have also been impacted by the significant number of new Android-based
competitors that have entered the market.
Europe, Middle East and Africa Revenues
Revenues in Europe, Middle East and Africa were $3.0 billion or 43.9% of consolidated revenue in fiscal 2014, reflecting a
decrease of $1.5 billion compared to $4.5 billion or 40.7% of consolidated revenue in fiscal 2013. Some of the larger markets
comprising this region include the United Kingdom, South Africa and United Arab Emirates. The Company launched
BlackBerry 10 devices in many countries in this region in fiscal 2014 including Saudi Arabia, the United Arab Emirates, South
Africa, the United Kingdom, Slovakia, Austria, Netherlands, Nigeria, France, Germany, Italy, Spain, Turkey, Switzerland,
Kuwait, Lebanon, Iraq and Pakistan.