BlackBerry has been trying sincerely to make its handset business profitable, but this does not seem happening even though it has released some amazing devices recently. Now a veteran Wall Street analyst who has covered the Canadian smartphone maker for over a decade has issued a warning to investors that the handset unit is dragging down its business and hence should be shut down.
BlackBerry must exit device business
Gus Papageorgiou of Macquarie Group initiated coverage on BlackBerry and gave a Sell rating, which is in line with the rating of six other analysts. The analyst said the firm is making a shift to software but that it won’t come fast enough to be able to offset declining revenue.
In a note to clients, Papageorgiou said, “That strategy has yet to pay off. We remain skeptical that the company can make the handset business a success. It does not have any meaningful scale and we are not convinced the market will see security as a differentiator for Android devices.”
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BlackBerry still generates about 40% of its revenue from handsets. Papageorgiou said the company’s shrinking device business does not even have many interested buyers. He believes profit margins will get a boost if the handset business is shut down and that the Canadian firm will win applause from the market for exiting the device business.
Will Chen make handset business profitable?
In December, BlackBerry CEO John Chen said the company will always remain in the phone making business. However, last month, Chen said the top priority for the company is to ramp software and services.
Last year, BlackBerry switched to making devices that run on Google’s Android operating system and released a new flagship device, the Priv, giving customers access to a universe of applications and features that were not available on BlackBerry’s own operating system.
Priv sales have been considered disappointing owing to the device’s high price and tough competition. Chen admitted that the price was too high and expects the next models to be priced in the $300 to $400 price range. Chen said the company has two more handsets in the pipeline which it will unveil before March 2017.
Bloomberg data indicates that Papageorgiou previously covered BlackBerry for Bank of Nova Scotia from 2002 until 2014 when he left the bank.
On Wednesday, BlackBerry shares closed down 0.45% at $6.65. Year to date, the stock is down almost 29%, while in the last year, it is down by almost 36%. The stock has a 52-week high of $10.55 and a 52-week low of $5.96.