BlackBerry Classic and Passport sales outlooks were cut by RBC Capital Markets analysts by half on Tuesday, although they retained their bullish stance on the company owing to its software sales. RBC analysts assigned a Sector Perform rating to the Canadian company with a price target of $11.
Software to compensate for softening hardware sales
RBC analysts estimate near-term sales for the two smartphones to drop to 700,000 from their previous estimate of 1.4 million. According to the analysts, around 3.2 million units will be sold in fiscal 2016, compared to their earlier estimate of 6.5 million units.
However, RBC suggested that BlackBerry’s software sales will compensate for the poor hardware performance. “We’re slashing our estimates on BlackBerry hardware units, but it’s not the focus anyway,” RBC said in a research note to clients. They noted that BlackBerry software is indicating some positive signs.
The Waterloo, Ontario-based company ramped its efforts to retain clients in industries in which it has strong demand, such as government, financials and healthcare. BlackBerry is a leader in software security, which is popular among enterprise clients.
At present, the Canadian company is expecting 2016 software revenue to clock in sales of $600 million. Software revenue came in at $67 million in the first quarter, an increase of 20% from the fourth quarter of the previous year.
BlackBerry must increase support to iOS
According to RBC, BlackBerry needs to enhance its feature support for Apple’s iOS. In its report, RBC noted that the company’s performance in the Android and BB10 environment is satisfactory as it is looking to enter into a partnership with Samsung Knox. However, with Apple, the Canadian company needs to increase its collaboration.
Though RBC slashed its hardware estimates, BlackBerry CEO John Chen made some solid points when he was asked why BlackBerry is still making phones. Chen said that among all other manufacturers, BlackBerry is the only one that offers the best security service. Chen cited the example of the U.S. Army and said that they are still deploying BlackBerry, and if he decides to shut down the hardware line, the company would lose the account. Chen stated that he will make the segment profitable again.
On Tuesday, BlackBerry shares closed down 1.03% at $10.12, and year to date, the stock is up by over 8%.