BlackBerry Ltd (BBRY) Misses On Q3 Earnings

BlackBerry Limited (BBRY), reported highly disappointing financial results for the third quarter of fiscal 2014. Both the top and the bottom line significantly lagged the corresponding Zacks Consensus Estimate.

Following the announcement, Blackberry has decided to enter into a 5-year agreement with the world’s leading developer of electronic products and components, Foxconn. Such a strategic decision will help the Canadian device maker to target the smartphone market of Indonesia and other emerging nations. Foxconn will supply inventories for the smartphones.

Third Quarter Results in Detail

GAAP loss from continuing operations in the third quarter of fiscal 2014 was $354 million or 67 cents per share compared with a profit of $9 million or 3 cents per share in the year-ago quarter. The adjusted net loss per share of 67 cents was also significantly wider than the Zacks Consensus Estimate of a loss of 46 cents per share.

Total revenue in the reported quarter was $1,193 million, down 56.3% year over year. Revenues also missed the Zacks Consensus Estimate of $1,585 million. Geographically, North America contributed 28.5% of the total revenue while Europe, the Middle East and Africa constituted 46% of the total revenue. Similarly, Latin America and Asia Pacific generated 11.3% and 14.2% of the total revenue in the third quarter of 2014, respectively.

In the reported quarter, BlackBerry sold 4.3 million smartphones, out of which 3.2 million were BlackBerry 7. Quarterly operating loss was $5,025 million compared with an operating loss of $230 million in the year-ago quarter. Such massive operating loss during the quarter was mainly buoyed by writing down of long-lived assets valued nearly $2.74 billion.

In the third quarter of fiscal 2014, BlackBerry generated $405 million of cash from operations compared with $2,093 million in the prior-year quarter. Free cash flow in the reported quarter was $164 million against $1,768 million in the year-ago quarter. Cash and marketable securities were $3,062 million compared with $2,654 million at the end of fiscal 2013. Long-term debt during the quarter was $994 million versus no debt in the prior-year quarter.

BlackBerry currently has a Zacks Rank #3 (Hold).

Outlook

The company continues to maintain its cost control measures by slashing operating cost, thereby expecting to generate strong cash flow in the fourth quarter of 2014.

Our Take

Ever since Apple Inc.’s (AAPL) iPhone hit the market, BlackBerry and Nokia Corp. (NOK) have been facing competitive pressure, which has taken a toll on BlackBerry. The situation further aggravated once Google Inc. (GOOG) launched its Android software and several handset manufacturers adopted the operating system.

Meanwhile, BlackBerry has decided to go private by divesting its entire stake to a consortium headed by Toronto-based insurance company Fairfax Financial Holdings Limited for $4.7 billion or $9 per share.