The encrypted communications firm, Silent Circle, is coming to terms with the abysmal sales of its privacy-focused Blackphone 2 which was estimated to sell 250,000 units but has only been able to sell 6,000 so far.
In 2014, the company founded a partnership with the Spanish smartphone manufacturer Geeksphone to produce the original Blackphone. It was touted as the first ever 'NSA-proof' smartphone and was successful enough for the two companies to design and release a second-generation device in September 2015.
Silent Circle had expected the second iteration of their Blackphone to sell better than the original due to consumer concerns regarding privacy, encryption and the information released by Edward Snowden. The device was designed around protecting the privacy of its users by utilising its own Android-based SilentOS that included a number of added security features including encrypted voice calls, messaging and file transfers.
However, recent court documents that were obtained by Forbes show that a legal battle has been developing between Silent Circle and Geeksphone after the news of the Blackphone's incredibly poor sales. BigOn Telecom, Kumion and America Movil all showed a great deal of interest in purchasing tens or hundreds of thousands of units which Smart Circle misinterpreted as a guarantee of sales. The company then borrowed the funds necessary to begin a production run of 250,000 devices.
Both BigOn Telecom and Kumion walked away from the deal and America Movil decided to lower the number of units it intended to purchase from 100,000 to 6,000. Silent Circle is now in court with Geeksphone and has had to let go of 20 to 25 of its 120 person staff to remain in business.
Matt Neiderman, Silent Circle's general council, wrote a letter to Geeksphone in which he detailed how the company had come derailed so quickly, saying: “The hardware business has proved to be a significant financial drain for Silent Circle. Because of the large purchase orders that proved to be bogus, Silent Circle borrowed money to purchase inventory and parts so that it would be able to deliver devices to meet the demand it believed it had, and focused most of its resources on preparing for the launch, marketing and sale of the Blackphone 2.”
"With poor specifications, underperforming but overpriced hardware and no guidance from Geeksphone into the distribution of the device, the Blackphone proved to be a major financial failure, costing millions of dollars, all funded by Silent Circle.”
Surprisingly enough though, Silent Circle is still considering the idea of creating a Blackphone 3 and is working on ways to reduce its manufacturing costs.