BMO Capital analysts have lowered the estimates on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) based on the recent quarterly results, the cessation of the deadline by the Fairfax financials-led consortium, and the $1 billion investment from Fairfax financials and other institutional investors.
Selling assets, best solution
Fundamentals of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) have been weak for a long time now. Analysts note that BlackBerry 10 was a failure, and fear a “channel build on the Z10, and that was realized faster than expected with a $934 million inventory write-down last quarter.” BlackBerry Q10 is also not showing any sign of improvement while “legacy BB7 products” are losing on popularity, which was expected.
Analysts Tim Long, Alex Spektor and Ari Klein of BMO capital suggest that the best way out for BlackBerry will be to sell off its assets. There are many valuable assets that can be sold or divested, but the company has failed to do so because of its strategy to sell a company as a whole rather than in parts.
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Analysts expect net cash to be around $1.6 billion at the end of the FY 2015, a decline from $2.6 billion in the end of the August quarter. The Intellectual property portfolio of BlackBerry is expected to be worth around $1 billion, though BlackBerry might have spent more than this amount in acquiring these patents.
Valuation of segments
Estimated value of BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) global data network is $ 700 million. It is not sure if the service business will collect service ARPU upon acquisition, so analysts believe that the value is near to what global service provider will pay for the capex investments.
BlackBerry shelled out hundreds of millions of dollars to acquire QNX worth $200 million. Analysts feel that there are less chances of anyone being interested in this operating system as Android has become very popular.
Though the software business is small, the MDM market growing and the enterprise base of BlackBerry is massive. Analysts have valued this segment at $500 million. Shuttering of devices business will cost around $300 million after the current core program is complete, believe analysts.
BlackBerry Q2 performance
For the second quarter, BlackBerry posted revenue of $1.6 billion, with a contribution of $771 million from hardware and $724 million from services. Adjusted gross margin for the company came in at $36%. Net loss was posted at $248 million for an EPS of $0.47.
Analysts have assigned a Market Perform rating to BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) with a price target of $7.00 (from $8 previously).