BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is expected to generate positive free cash flow in the fourth quarter of fiscal 2015, according to Todd Coupland, analyst at CIBC World after meeting James Yersh, the chief financial officer of the beleaguered Canadian smartphone manufacturer.
Coupland also projected that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will be able to reduce its spending below its previously announced operating expenses. The company anticipated that lower royalty payments will cut its product costs in the second half of 2015.
The analyst said, “This will further help the company’s plan for positive cash flow by executing its already defined operating cost reduction plan,” Coupland said Yersh intends to lower the operating expenses of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) and his target is around $500 million every quarter.
Patent royalties set to expire
Coupland noted that the intellectual property expenses of the Canadian smartphone manufacturer ($800 million fixed costs annually) are related to patent royalties paid to third parties. According to him, the royalties are set to expire by November this year, thus its annual fixed costs will become zero.
The analysts added that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is also paying some other royalties, which cost around $200 million, but the amount is declining because of lower BlackBerry volumes.
BlackBerry finding ways to monetize intellectual property
According to Coupland, the Canadian smartphone manufacturer continues to accelerate its efforts in seeking other ways to monetize its intellectual property to transform the company from a net payer to a net collector. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has 12,000 patents including those that are pending for approval.
Coupland maintained his Market Weight rating for the shares of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) with a $5 price target, but projected that the company’s gross margin for fiscal 2015 will increase from 27.4% to 31.1%
The analyst explained, “Our Blackberry stock view hinges on the success of turning around the services revenue decline and stabilizing its enterprise base. Cost cutting can only take Blackberry so far. The real test of the transition plan is to convince enterprise customers that paying for its mobile device and services offering makes sense. Thus far we have not seen any data points to indicate this is taking place.”