BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s new CEO John Chen is leading the company through a massive transformation. The Canadian company is targeting reduced operating expenses of $2 billion per year by Q1 2015. Moreover, the deal with Foxconn Technology Co., Ltd. (TPE:2354) should help BlackBerry break even on hardware. But Raymond James analysts Steven Li and Tavis C. McCourt say that the ailing smartphone maker still needs to reduce its operating expenses by another 40% to $1.2 billion a year to generate any profits. Raymond James currently has a Market Perform rating on the stock.

BlackBerry

BlackBerry services revenue to decline to $1.5 billion

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s services business has declined from $3.9 billion in fiscal 2013 to an estimated $2.2 billion per year in fiscal 2014. Raymond James expects it to shrink further before stabilizing at around $1.5 billion per year, if the company gains traction in managing non-BlackBerry devices. With services revenue of $1.5 billion and operating expenses of $2 billion, the Waterloo-based company would still be in the red, unless its hardware business or BBM monetization is massively successful. BlackBerry has promised to include many new features in the BBM.

BlackBerry Services

Cutting its operating expenses by 40% to $1.2 billion could add 30 cents per share to BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s earnings. Carrier fees related to BB7 are likely to keep declining. Telecom operators don’t pay a service fee for BB10 devices. There are three types of BB10 users. One, consumer BB10 users who pay nothing. Two, corporate BB10 users who account for the company 80-90% enterprise user base. They pay an annual fee of $19 per year, down from $59 per year in May 2013. Three, regulated clients such as FBI and the Department of Defense. They pay $10 a month.

BlackBerry Subscriber

BlackBerry worth $10.91/share

Each unit of BB10 device sold to corporate users reduces BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s service revenue by $6/user/month. Meanwhile, every BB10 unit sold to consumers cuts its Services revenue by $1.50/user/month. Raymond James says all of BB7 subscribers would have moved to BB10 by fiscal 2018. Using sum-of-the-parts analysis, the analysts therefore estimate BlackBerry to be worth $10.91 per share.

BlackBerry SOTP

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares jumped 5.35% on Tuesday to close the session at $9.46.