BlackBerry Ltd Q1 Earnings: Another Mixed Quarter?

BlackBerry Ltd Q1 Earnings: Another Mixed Quarter?
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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will post its 1QFY15 earnings on Thursday June 19th before the opening bell. Analysts Tim Long, Alex Spektor and Ari Klein at BMO Capital Markets, in a report issued on June 10, 2014, note that longer term strategic factors are more important as the new management is focusing on the firm’s turnaround efforts.

Estimates not in line with consensus

According to BMO, total revenue for the May quarter is expected to come in at $873 million and $912 million for August quarter, below the consensus estimate of $970 million and $979 million, respectively. Consensus estimates are looking for more revenue from BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s hardware segment in the wake of Z3 sales.

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Hardware Gross margin for the quarter will continue to be negative in the mid-teens due to the legacy manufacturing mix. Margins are expected to improve in financial year 2015 on account of more smartphones from the Foxconn ODM strategy, according to the analysts. On the other hand, the subscriber base will shrink further leading to proportionally higher hardware revenues causing downward pressure on overall margins.

Consensus estimates are for a gross margin of 38.8% in the May quarter (vs. analysts estimate of 42.5%), which would be the after effect of higher street estimates for hardware revenues. Although BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has successfully brought down its operating expenses, there is not much expectation for any further cuts.

The BMO analysts have placed their estimates above the consensus estimates for earnings per share of ($0.25). Earnings per share are expected to come in at (0.18) in May quarter and ($0.16) in August quarter. Additionally, they believe that factors such as lower gross margins, higher opex and low tax recovery rate contribute to the lower consensus earnings.

BlackBerry shipment, ASP, subscribers to decline

According to analysts, the number of smartphone units shipped in the quarter will be slightly higher than the February quarter. Total shipments are expected at 1.4 million in May and 1.8 million in August. The limited availability of Z3 has been a major reason for fewer sales, but BB10 smartphones may garner sales by expanding into countries such as India and Thailand.

Meanwhile, the average selling price (ASP) is expected to decline for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s old BB10 smartphones in the May quarter. The average selling price for smartphones in May is expected to be around $250, and in August is expected to be $245.

On the subscriber front, the company is probably losing 4 million users every quarter and analysts expect a subscriber base of 54 million in May and 50 million in August.

BMO Capital Markets analysts have placed a Market Perform rating on BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) with an unchanged price target of $8.

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