Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) has apparently slashed its BlackBerry 10 builds from 2 million per month to 1 million per month, according to Jefferies analyst Peter Misek. He said the 50 percent cut is to be expected in light of the company’s weak second quarter earnings report and apparent weak demand for the BlackBerry Z10, although he reiterates his Buy rating and $18 per share price target for the stock.
Misek sees upside to Research In Motion
The analyst said the risk / reward in investing in Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB) is toward the upside as the company’s stock “approaches distressed salvage value.” He said the company currently has about $6 per share in cash, and he estimates the BlackBerry patents to be worth between $2 and $3 per share.
In his estimates, the un-distressed salvage value is between $9 and $10 per share, assuming that there’s no value in the company’s hardware division and that its services are worth between $3 and $4 per share. Misek believes the company’s mobile device management could add $8 per share of value and is expecting to see the broader rollout of the management system to happen in the company’s fiscal year 2015.
Are Research in Motion’s devices in demand?
Although the numbers suggest otherwise, Misek believes there is “pent up enterprise demand for the BB10 handsets with the improved web browsing experience as the main attraction.” He refers to earlier reports from the company which indicated that 60 percent of Fortune 500 companies were testing Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB)’s BlackBerry 10 system.
Misek believes that these enterprise customers could start shifting from trials to broader rollouts in the second half of the year. The company previously had its BlackBerry Enterprise Server deployed at 90 percent of Fortune 500 companies, which means that 30 percent of the companies which were using the system prior to BlackBerry 10 were not even trying out the software, either because of slow adoption of the new technology or because they are migrating to third party systems which allow users to bring their own devices.
He admits that “the swing factor” is the poor initial showing of BlackBerry 10 devices, which he thinks might cause some enterprise customers to either delay or skip refreshing their BlackBerry devices.
Worries about cash bleed lessened
More than one analyst has referenced cash bleed as being one of the greatest causes of concern for Research In Motion Ltd (NASDAQ:BBRY) (TSE:BB). However, Misek sees it as “less of an issue than feared.” He believes that tax rebates and “solid DSO / DPO management” will make it possible for the BlackBerry maker to “mitigate cash concerns.”
He said the days payable outstanding (DPO) increase in the May quarter was mostly because of higher marketing and advertising expenses in connection with the launch of BlackBerry 10. Since payment terms for marketing and advertising are usually a lot longer than the company’s typical supplier payment terms, he thinks “this was a major driver” rather than the company increasing its payment terms to suppliers.
