BlackBerry Ltd (BBRY) Estimates Lowered On Deteriorating Outlook


An analyst at Deutsche Bank Markets Research lowered their earnings estimate for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) over the next quarters in 2014 until 2015 due to the fact that the outlook of the company is becoming more hopeless.

BlackBerry Ltd (BBRY) Estimates Lowered On Deteriorating Outlook

In a note to investors, Deutsche Bank analyst Brian Modof explained that the primary reason behind the reduction of earnings estimates for the struggling Canadian smartphone manufacturers is the lack of demand for BlackBerry handsets in developing markets and the deteriorating revenue of its services business.

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According to Modof, although his original conviction for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) was negative, he thought the company “could buy time with a longer services revenue tail.” However, his perception is no longer the same because the projection for its services revenue is now in decline by 12% sequentially.

Modof also noted that the end-demand for the BlackBerry handsets showed that it is becoming weaker even in developing countries where the BB7 platform was once believed to have a strong hold.

BlackBerry recorded a net loss

In the second quarter, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) recorded a net loss of $965 million or $1.84 per share and $1.6 billion revenue. According to the company, the majority of its losses were due to an inventory write down related to unsold BlackBerry Z10 devices worth $934 million.

“While a 40% reduction in the operating workforce is a step in the right direction, we continue to believe that Blackberry needs more drastic action, especially in light of the recent filing,” wrote Modof.

He suggested that a “smaller company focused strictly on the enterprise market” is likely the best strategy for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) at present. However, he believed that the company will still struggle because of the slow conversion of potential BES customers.

Modof said, “As a result of the bleak outlook, we are lowering our estimates again on our model. We continue to believe that a buyout at a $9 price remains unlikely.” The analyst maintained his Sell rating and $6 price target for the shares of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB).

The current earnings estimates of the analyst for the Canadian smartphone manufacturer are the following:

3Q14E $1.5b and ($0.58) from $1.5b and ($0.42)

4Q14E $1.3b and ($0.39) from $1.4b and ($0.29)

FY14E $7.4b and ($1.54) from $7.6b and ($1.27)

 FY15E $3.5b and ($0.40) from $5.1b and ($0.69)

Fairfax submitted its takeover agreement

Fairfax Financial Holdings Ltd (TSE:FFH) submitted its takeover agreement with the struggling Canadian smartphone manufacturer. Cerberus Capital Management showed interest in acquiring the company and signed a non-disclosure agreement to review BlackBerry’s financial records.