BlackBerry Ltd (BBRY) Debt Burden Of $4.17/Share A Cause Of Worry

BlackBerry Ltd (BBRY) Debt Burden Of $4.17/Share A Cause Of Worry
user1462590383 / Pixabay

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s third quarter results definitely disappointed investors. But some of the company’s moves won the heart of the Wall Street. The National Bank Financial analyst Kris Thompson still doesn’t see a positive sign in the company’s turnaround plan. Mr. Thompson has an Underperform rating on the stock with $3 price target.

BlackBerry’s $2.1 billion net debt

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s revenues plunged 56% YoY to $1.2 billion, well below the NBF estimate of $1.5 billion. Service revenue declined 13% QoQ to 632 million. The Canadian company no longer discloses subscriber counts. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shipped 1.9 million handsets during the quarter, far lower than Mr. Thompson’s estimate of 4 million units. Poor shipment led to $1.6 billion in inventory write-down. A good sign was that the company sold through 4.3 million devices to end users, reducing the channel inventory.

Carlson Capital’s Double Black Diamond Jumps On Energy Sector Holdings

Black DiamondClint Carlson's hedge fund, Carlson Capital's Double Black Diamond strategy, gained 1.04% net of fees in the month of September. Following this performance, the fund has returned 9.87% net of fees for the year to the end of the month. Q3 2021 hedge fund letters, conferences and more The Double Black Diamond strategy makes up Read More

Though BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s smartphone ASP increased from $208 in August quarter to $251 in November quarter, its gross margins continue to decline. Mr. Thompson estimates that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s hardware gross margin is -25%. Even improvement in the balance sheet was driven by $1 billion the company raised through convertible debentures. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has $3.2 billion in cash. However, NBF says investors should focus on the company’s debt burden of $2.1 billion ($4.17 per share).

Can BlackBerry build a following (again?)

The only thing favoring BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is the deal with Foxconn Technology Co., Ltd. (TPE:2354). The Canadian company will jointly design and develop low-cost smartphones with Foxconn Technology Co., Ltd. (TPE:2354). The first device will be launched in April 2014 in Indonesia. It will lower the risk of inventory pile-up, and improve BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s gross margins.

The Taiwanese vendor’s vast scale will help it negotiate better deals with component suppliers, reducing manufacturing costs. Foxconn Technology Co., Ltd. (TPE:2354) is known for manufacturing iPhones. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s decision to share inventory risk with Foxconn Technology Co., Ltd. (TPE:2354) makes sense. Bringing smartphones at the right price points in the rapidly growing Asian markets should help the Canadian company build a following in the long run, and gain developer support.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares tanked 0.65% to $7.68 in pre-market trading Thursday.

Updated on

No posts to display