Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) (or Blackberry) February-quarter Z10 ship-in appears light of expectations, according to a new research note from Pacific Crest. Analysts at Canaccord Genuity expressed similar concerns, as did Deutche Bank analysts in recent reports. However, analysts at Jefferies’ channel  recent channel checks indicated the exact opposite. The picture is far from clear based on the various channel checks.

Based on Pacific Crest checks, the analysts estimate Z10 shipments are tracking to roughly 275,000 to 325,000 units in the February quarter. They believe that the Street expects roughly 1 million units. Further, they believe that any benefit from the Z10 is likely to be at least partly offset by cannibalization of Bold 9900 sales, which their channel checks indicate have declined materially since the Z10’s launch.

Blackberry Z10

May quarter tracking is well below Street expectations, according to Pacific Crest. Applying normal rates of decay in launched markets and assumptions for channel fill in the United States, they believe the company is likely to ship-in roughly 1 million to 1.5 million units in the May quarter, they estimate. They estimate Street expectations are for roughly 3 million to 4 million units.

There is no line of sight to profitability

he analysts remain sellers of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB). Pacific Crest continues to believe that the Z10 launch involves relatively small shipment volumes and only moderate sell-through so far in markets which have historically been some of BlackBerry’s strongest. As a result, investor optimism that the BB10 could reverse the company’s trajectory appears to be well overdone at current levels, in their view.

Further details from the report below:

Heads Up

The U.K. and Canada Are Small Markets, but Pacific Crest remind investors that while the United Kingdom and Canada have historically been important markets for Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB), they remain relatively small markets for high-end smartphones. The analysts estimate that the annual smartphone market in the United Kingdom at roughly half its population of 63.2 million people, which is 31.6 million. Of those 31.6 million, they believe roughly half, or 15.8 million, are able to afford a high-end smartphone. Based on a weekly addressable market of slightly over 300,000 people, their checks imply that BlackBerry’s Z10 sell-through share is roughly 10% to 14% overall so far, which is a generous estimate, in their opinion.

In Canada, the analysts also assume the annual smartphone market is roughly half the population of 34.8 million, so 17.4 million. Of that 17.4 million, we assume roughly 70% can afford a high-end smartphone, which implies a market of 12.2 people. Based on their estimate of a weekly market of roughly 235,000, they estimate Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) has roughly 12% to 16% sell-through share overall.

In terms of sell-through share, Pacific Crest believes that  both of their estimates are higher than the sell-through Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) has likely achieved over the past year. Given that the effects of channel fill and initial pent-up demand have probably now been exhausted in these two countries, they do not expect BlackBerry’s share to increase.

May Quarter Tracking Well Below Street Expectations

Applying normal rates of decay in launched markets and assumptions for channel fill to the United States and other emerging regions, the analysts believe that the company is likely to ship-in roughly 1 million to 1.5 million units in the May quarter. They believe the Street is expecting roughly 3 million to 4 million units. Sell-through run-rates need to improve materially, in their view, for BlackBerry to achieve 3 million to 4 million per quarter and they remain highly skeptical that this will happen.

Developers Are in ‘Wait and See’ Mode At their recent Emerging Technology Summit in San Francisco Feb. 11-12, they hosted a panel with several application developers regarding the next innings of mobile ecosystem development.

The analysts’ main takeaway from the panel pertaining to Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) was that developers are largely unwilling to invest more time or money into developing for BB10 without meaningful improvement in overall BB10 sales. They analysts believe application development has generally been a leading indicator of the trajectories for ecosystems; that developers seem unwilling to allocate resources to BB10 bodes quite ominously, from their perspective. Additionally, their most recent checks indicated anecdotally that some would be Z10 buyers are waiting to see if heavily used applications like WhatsApp and Instagram will be rolled out for BB10 before making their purchase. Specific BB10 initiatives for these popular apps remain to be seen, however, they believe that the breadth of the Android and iOS ecosystems are likely to continue driving share gains at the expense of BlackBerry.

There Is No Line of Sight to Profitability

They Remain Sellers of Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB). They continue to believe the Z10 launch involves relatively small shipments with only moderate sell through so far in markets which have historically been some of BlackBerry’s strongest. As a result, investor optimism that the BB10 could reverse the company’s trajectory appears to be well overdone at current levels, in their view. To achieve sustained profitability, they believe that the company would need to ship roughly 3x to 4x more BB10 devices than they anticipate on a quarterly basis, and They remain skeptical that BlackBerry has any reasonable path toward achieving these kinds of shipments.


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