Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) is expected to “meet or beat” the estimates set by Morgan Stanley (NYSE:MS) for BB10 owing to strong Global sales. A report from Morgan Stanley raises the FQ1 estimates for BB10 to 3.5 million from 3.0 million. Also, shipments of BB7 are falling faster, but the report considers it as “less relevant.”


BB10 Estimates Raised

The increased estimates of BB10 from to 3.5 million are mainly due to “strong global sell-in of the new Q10 and Z10 devices.” The report expects that stronger BB10 will boost both GM and ASP, and therefore the report is also raising its GM estimates to 41 percent from 38 percent and for ASP to $316 from $276, which is up 21 percent quarterly.

Stable Demand for Q10

The store checks conducted by the Morgan Stanley reveal stable demand for Q10. The device is popular among QWERTY lovers. The checks were carried out at 63 stores in the U.S. (including AT&T), U.K., and Canada. The checks suggested positive feedbacks and low return rates for the device. Some of the stores even called the Q10 the “3 best seller” after Galaxy S4 and iPhone 5.

BB7 Shipments Falling

The report believes that shipments for BB7 are falling more quickly than expected as users are switching to lower cost Android devices. The report slashes the forecast for BB7 to 3 million from 5.5 million, and for subscribers to 73 million from 74.5 million. The service forecast of $888 million has not been changed.

Fall in Operating Cash Flow

The Canadian firm is expected to burn cash in the first quarter of 2014, mainly due to the increasing working capital needs and forecasted 50 percent rise in marketing spending. For the fourth quarter of 2013, reports expect an operating cash flow of ($142 million), down from $210 million.

Items to Watch For

As per the report, the following items will be the main focus this quarter:

  • BB10 shipments, which the report expects at 3.5 million
  • Gross margin, which is estimated to improve by 100 bps to 41 percent.
  • Service revenues, which are forecasted to decline 6 percent

Morgan Stanley has an overweight position on the stock with a price target of $22. The report expects the handset maker to show signs of improvement in a “slow but steady two steps forward, one step back fashion.” The strong shipments of BB10 devices are expected to more than compensate the fall in BB7 units.