Blackberry HOLD

BBRY : NASDAQ : US$8.72
BB : TSX
HOLD 
Target: US$8.00

COMPANY DESCRIPTION:
BlackBerry Ltd. is a designer, manufacturer and marketer
of wireless solutions for the mobile communications
market. Through development and integration of
hardware, software and services, the company provides
solutions for access to information including email,
messaging, Internet and intranet-based applications.

All amounts in US$ unless otherwise noted.

 

Q4/F’14 RESULTS: STRONG COST CUTS LEAD TO
UPSIDE, BUT SERVICES REVENUE STILL DECLINING
Investment recommendation: Consistent with our global surveys indicating
very weak BB10 and legacy BB7 devices sales, BlackBerry reported soft
February quarter results with sales of 1.3M BlackBerry units and $976M in
revenue, below our 1.9M and $1.1B estimates. However, a better services
versus hardware revenue mix and significantly lower operating expenses
versus our estimates resulted in a non-GAAP loss of $(0.08), above our $(0.55)
estimate. While we remain impressed with BlackBerry’s execution on its cost
reduction initiatives, we believe the new management’s long-term plans are
still in early stages of execution with limited near-term sales visibility, and we
anticipate BlackBerry will continue to post operating losses through F2015. We
anticipate gradually improving trends following the BES12 launch in November
and believe BlackBerry could achieve break-even results exiting F2016. We
maintain our HOLD rating, but we increase our price target to $8.00 based on
our updated sum-of-parts analysis.
Investment highlights
 BlackBerry reported soft Q4/F2014 sales but better than expected overall
results as lower operating costs and a favorable revenue mix resulted in a
solid 9.3% sequential increase in Non-GAAP gross margin. Further, with
Q4/F2014 Non-GAAP operating expenses of $577M, declining 51% versus
Q1/F2014 levels, BlackBerry achieved its cost reduction target one quarter
ahead of schedule. However, BlackBerry’s net cash declined approximately
$790M Q/Q with negative cash flow from operations of $553M.
 Despite the strong execution on reducing the cost structure, we anticipate
BlackBerry will need to continue to reduce costs given the weak demand
for its devices and declining subscriber base and services revenue.
 While we believe new initiatives to monetize BlackBerry’s installed base
and assets such as BBM on other platforms, M2M, BES12, and enterprise
services are potentially compelling, we believe many are still immature
and too early to quantify versus the likely loss of traditional BlackBerry
services revenue over the next several quarters and even years.
 While we believe BlackBerry’s balance sheet and $2.7B in gross cash buy
time for CEO John Chen to implement his new strategies, we believe the
shares reflect a more stable company and maintain our HOLD rating.
Valuation: Our $8.00 price target is based on our updated sum-of-parts
valuation detailed later in this report

BlackBerry Hold ( only if you must)

BBRY : NASDAQ : US$6.52
BB : TSX
HOLD 
Target: US$6.00

COMPANY DESCRIPTION:
BlackBerry Ltd. is a designer, manufacturer and marketer of wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, the company provides solutions for access to information including email, messaging, Internet and intranet-based applications.

Technology — Communications Technology — Wireless Equipment
OCT./NOV. SURVEYS INDICATE CONTINUED WEAK SALES TRENDS; LOWERING ESTIMATES
Investment recommendation:

Following very disappointing August quarter results, our Oct./Nov. handset sales survey work indicated very weak sales trends with falling BlackBerry 10 prices and continued high levels of inventory. Following the unsuccessful funding of Fairfax Financial’s $9/share bid, we believe a sale of BlackBerry is no longer imminent and few – if any – candidates remain to purchase the company in its entirety. While we maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, we now believe a breakup is more likely than an outright sale and fundamentals will continue to deteriorate over a now longer public sale process under new management. Despite lowering estimates, we maintain our $6 price target based on our unchanged sum-of-parts analysis.
Investment highlights
 Given BlackBerry’s announced exit of the consumer smartphone market and increasing competition from ever-more-capable low-cost Android smartphones in emerging markets, our surveys indicated rapid BB7 share losses. In fact, we believe consumer BlackBerry sales are down more than 50% Y/Y. In addition, our surveys indicate continued soft BB10 enterprise sales, driven by upgrade delays from legacy BB7 enterprise customers given the uncertainty around BlackBerry’s future and increasing competition from BYOD devices, from Apple and Samsung in particular.
 Therefore, we are lowering our F2014 BlackBerry unit estimates from 19.7M to 19.0M, or down 33% Y/Y. In fact, as summarized in our global handset survey and Q3/13 global handset market report published today titled “Q3/13 handset market summary and Oct./Nov. surveys: Apple poised for Q4/13 smartphone and tablet share gains; introducing 2015 global handset estimates”, we now estimate BlackBerry has only 1.4% smartphone market share, down from 4.2% in Q3/12 and from 15% in Q3/10.
 Despite BlackBerry’s significant restructuring to lower operating costs, our forward estimates remain below break-even levels. With our lower unit sales estimates, we are lowering our F2014 pro forma LPS estimate from $(0.82) to $(1.09) and our F2015 estimate from $(1.24) to $(1.28).
Valuation: Our $6 price target is based on our unchanged sum-of-parts valuation

Blackberry HOLD ONLY If You Must

BBRY : NASDAQ : US$7.73
BB : TSX
HOLD 
Target: US$7.00

 

Technology — Communications Technology — Wireless Equipment
FILING REVEALS FURTHER CASH COMMITMENTS, ACCELERATING SERVICES ARPU DECLINE
Investment recommendation:

Following very disappointing August quarter results and the cancellation of its earnings call, BlackBerry recently released an updated 6-K filing containing increased operational details and updated management commentary. Material new details include the disclosure of steeper services ARPU declines versus our estimates when accounting for $25M in quarterly services revenue recognized from prior periods and a $300M increase in cash restructuring charge expectations over the next three quarters. Given BlackBerry’s net cash levels and services revenue stream represent two key pillars of our sum-of-parts valuation, we maintain our $7 price target, well below Fairfax’s outstanding $9 bid.

We maintain our belief BlackBerry will ultimately end up selling the company due to the difficult competitive smartphone market and low probability BlackBerry 10 can return BlackBerry to sustained profitability, even despite planned deep cost cuts. Further, while we believe the most likely exit strategy for BlackBerry remains a sale to Fairfax Financial, we anticipate a lower revised bid post additional due diligence will be required to secure full institutional investor funding for Fairfax’s proposal.
Investment highlights
 Post very soft August quarter results and consistent with our continued survey work that indicates rapidly deteriorating BlackBerry market share with still further excess channel inventory, we have lowered forward handset and services revenue estimates materially. Please see our separate global handset survey report published today titled “September surveys indicate strong iPhone 5s demand, steady Samsung sales, and struggles for other OEMs” for further details.
 Further, despite deep cost cuts to lower operating expenses by 50% over the next three quarters, we maintain our belief BB10 products will not return BlackBerry to sustained profitability. In fact, we believe the BYOD threat to BlackBerry’s enterprise installed base could increase with the consumer franchise de-emphasized and the likely increased BB7 churn could accelerate the decline of services ARPU and company margins.
 We lower our F2014 pro forma LPS estimate from $(0.65) to $(0.82) and our F2015 estimate from ($1.07) to $(1.24).
Valuation: Our $7 price target is based on our updated sum-of-parts

BlackBerry SELL Target $ 9

RIM BlackBerry 7230

RIM BlackBerry 7230 (Photo credit: Wikipedia)

BBRY : NASDAQ : US$15.63
BB : TSX
SELL 
Target: US$9.00

COMPANY DESCRIPTION:
BlackBerry Ltd. is a designer, manufacturer and marketer of wire less solutions for the mobile communications market. Through development and integration of hardware, software and services, the company provides solutions for access to information including email, messaging, Internet and intranet-based applications

Canaccord says that its global surveys indicate mixed BlackBerry sell-through trends, with weakening sales of the Z10 over the past month but strong initial demand for the limited supply Q10.

Given the weaker Z10 sales levels combined with more limited initial supply of the Q10 than our expectations, we are lowering our BB10 selling
estimates for the May quarter from 3.3M to 2.8M units. While we anticipate stronger near-term results for BlackBerry as higher margin BB10 smartphones sell into the channel, we do not believe BlackBerry can achieve sell-through market share levels to return to sustained profit
levels. Therefore, we reiterate our SELL rating and $9 price target.
Investment highlights
 Given store surveys indicated slowing Z10 sales at Verizon, AT&T, and T-Mobile combined with lower supply levels of the Q10 with a physical keyboard than our expectations, we have reduced our May quarter BB10 smartphone shipment estimates from 3.3M units to 2.8M units.
 With new BB10 smartphones facing increased high-end competition from the Samsung Galaxy S4 and the HTC One, we anticipate Z10 sales could further weaken in the consumer retail channels. However, we anticipate a strong ramp in Q10 sales over the next several months could more than offset the slower Z10 sales.
 While we have lowered our BB10 estimates, we modestly lower our 2013 LPS estimates given our belief BlackBerry may temper nearterm
marketing plans until supply levels of the Q10 improve.
 Given our lower BB10 estimates primarily from our lowered Z10 sales assumptions, we reduce our F2014 LPS estimate from ($0.37) to ($0.44). Our F2015 LPS estimate of ($0.75) remains unchanged.

Blackberry Slides

Research In Motion (BB : TSX : $13.99),
Research In Motion (BBRY : NASDAQ : US$13.78

Shares of BlackBerry slid Thursday following an ITG Investment Research report that said sales of the
Z10 smartphone are weak in the U.S.

The report said that in many cases, more people are returning the phone than keeping it and that overall demand remains week. A separate report from Detwiler Fenton said, “In several cases, returns are now exceeding sales, a phenomenon we have never seen before,” with many returning it because they find the interface unintuitive.
The Z10 (and soon to be launched Q10) are seen by many as BlackBerry’s last chance to return to prominence as a relevant smartphone manufacturer. Canaccord Genuity Technology Analyst Michael Walkley believes BlackBerry’s hardware business will struggle to return to profitability given increasing smartphone competition, and he struggles to assign any value to the hardware business given his belief that an acquirer of BlackBerry would likely attempt to transition BlackBerry’s subscriber base to their own competing smartphone products or ecosystem. While BlackBerry has roughly $2.9B in cash, he assigns zero value to BlackBerry’s cash in his sum-of-parts analysis because he believes BlackBerry’s core business will struggle to break even, and he anticipates BlackBerry’s cash balance will decline over the next several quarters as the company spends on advertising and working capital to launch its BlackBerry 10 platform. Late Thursday, BlackBerry said claims of high Z10

Broken Blackberry

Broken Blackberry (Photo credit: MattHurst)

returns are “absolutely false.”

BlackBerry SELL

BlackBerry Jam Asia 2012

BlackBerry Jam Asia 2012 (Photo credit: isriya)

BBRY : NASDAQ : US$14.15
BB : TSX
SELL 
Target: US$9.00 

Investment recommendation:

Global surveys post the recent BlackBerry Z10 launch indicated mixed initial sales with limited initial supply cited as the reason for early post-launch stock-outs at some carrier stores rather than overwhelming demand. Our follow-up checks have indicated steady but modest sales levels.

With new BB10  smartphones launching in the U.S. only in mid-March or later at subsidized prices no better than competing high-end  Apple/Samsung smartphones, combined with our expectations for the Galaxy S IV to launch at a similar time frame in the US market, we are lowering our BB10 sales estimates for the February quarter and all of F2014.

We reiterate our SELL rating and $9 price target

Highlights

 Given our store surveys indicated modest Z10 sales into the channel in the U.K. and Canada, we have reduced our February quarter BB10 smartphone shipment estimates from 1.75M units to 300K units.
 Further, we believe carrier support for BlackBerry 10 in the U.S. is modest, as demonstrated by Sprint only planning to launch the Q10 and T-Mobile only the Z10. Further, we anticipate carriers will not build large inventory levels for BB10, consistent with prior BB7 high-end launches, and will initially stock modest levels given the weaker consumer demand for high-end BlackBerry smartphones.
 With our expectations BB10 smartphones will face increasing competition from a host of new Android and Windows smartphones and potentially a new iPhone in 1H/C2013, we anticipate global carrier partners will order cautious initial BB10 inventory levels, leading us to lower our Feb. quarter and F2014 BB10 estimates.
 We reduce our F2013/14 EPS estimate from ($1.10)/($0.48) to ($1.18)/($0.62) and introduce our F2015 estimate of ($1.03). Valuation: Our $9 price target is based on sum-of-parts analysis .

Follow

Get every new post delivered to your Inbox.

Join 1,937 other followers