BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s third quarter results definitely disappointed investors. But some of the company’s moves won the heart of the Wall Street. The National Bank Financial analyst Kris Thompson still doesn’t see a positive sign in the company’s turnaround plan. Mr. Thompson has an Underperform rating on the stock with $3 price target.


BlackBerry’s $2.1 billion net debt

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s revenues plunged 56% YoY to $1.2 billion, well below the NBF estimate of $1.5 billion. Service revenue declined 13% QoQ to 632 million. The Canadian company no longer discloses subscriber counts. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shipped 1.9 million handsets during the quarter, far lower than Mr. Thompson’s estimate of 4 million units. Poor shipment led to $1.6 billion in inventory write-down. A good sign was that the company sold through 4.3 million devices to end users, reducing the channel inventory.

Though BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s smartphone ASP increased from $208 in August quarter to $251 in November quarter, its gross margins continue to decline. Mr. Thompson estimates that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s hardware gross margin is -25%. Even improvement in the balance sheet was driven by $1 billion the company raised through convertible debentures. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has $3.2 billion in cash. However, NBF says investors should focus on the company’s debt burden of $2.1 billion ($4.17 per share).

Can BlackBerry build a following (again?)

The only thing favoring BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is the deal with Foxconn Technology Co., Ltd. (TPE:2354). The Canadian company will jointly design and develop low-cost smartphones with Foxconn Technology Co., Ltd. (TPE:2354). The first device will be launched in April 2014 in Indonesia. It will lower the risk of inventory pile-up, and improve BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s gross margins.

The Taiwanese vendor’s vast scale will help it negotiate better deals with component suppliers, reducing manufacturing costs. Foxconn Technology Co., Ltd. (TPE:2354) is known for manufacturing iPhones. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s decision to share inventory risk with Foxconn Technology Co., Ltd. (TPE:2354) makes sense. Bringing smartphones at the right price points in the rapidly growing Asian markets should help the Canadian company build a following in the long run, and gain developer support.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares tanked 0.65% to $7.68 in pre-market trading Thursday.