Blackberry Ltd (NASDAQ:BBRY) (TSE:BB) is due to report 3QFY14 (November) earnings this Friday morning, December 20, before the open. MKM analysts expect revenues will be weak, likely below their $1.45bn estimate which is below consensus of $1.58bn. The difference between analysts’ ($0.37) EPS loss forecast and consensus of ($0.45) is their more aggressive opex reduction assumptions. The company will likely burn $200mn-$400mn in cash in 3QFY14 leaving it with net cash of slightly over $2bn.


In analysts view, the best way to create shareholder value at BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) would be to break-up the company, sell pieces and auction the intellectual property. However, this does not appear to be the route interim CEO John Chen is taking. In a recent open letter he said the company will continue to focus on Hardware, Enterprise Mobility Management, BBM Messaging and new Embedded Devices with QNX OS. This sounds more or less like everything it did before and no real change. Analysts at the firm await more clarity from the new management on corporate strategy, but don’t expect to get much on Friday’s earnings report. MKM analysts are maintaining their Neutral rating and $6 fair value estimate.

Blackberry weak earnings report

Analysts are modeling Hardware revenues to drop 12% q/q and Services revenues to fall 5% q/q, but would not be surprised if the declines come in even steeper. MKM’s 3.6bn unit estimate, which is down 4% q/q and 49% y/y, may prove to be too high given the dismal consumer reception to all BB10 models so far. Investors will be watching cash burn intently. Analysts are looking for roughly $300mn in cash burn and would consider less than this to be a positive and more than this to be an incremental negative.

New management likely doesn’t clarify strategy much on Friday’s earnings call

Interim CEO John Chen will likely reiterate what he said in his open letter two months ago. He said the company will remain in Hardware, Enterprise, BBM and QNX. This sounds too much like the status quo, which analysts see as a flawed strategy. They think BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) should look to shut down its sub-scale and money losing Hardware business, even though it is constrained by $2.9bn in outstanding purchase commitments. For maximum shareholder value analysts would like to see management sell the Enterprise MDM (Mobile Device Management) platform, BBM and QNX, likely in separate transactions, and auction off the intellectual property. However, this is not the course management seems to be taking.

The NPV of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s remaining high margin Services revenues stream is the largest contributor in analysts’ valuation at $4 per share, although they also see downside risks to firm’s Services forecasts. Analysts value the company’s patents at $1.50 per share or over $1.5bn, but could see a scenario where they go for more, perhaps significantly more, in an auction.

Finally, analysts attribute $0.50 per share or a little more than $250mn for the value of the QNX operating system. In the most optimistic scenario, where management is very aggressive with M&A, there could be potential upside to analysts’ valuation if management is able to sell Enterprise MDM, BBM social networking and QNX OS assets in separate transactions.