BlackBerry shares are marking their second day of gains after the company unveiled its second Android-based phone. The question now is whether a less expensive Android phone will convince the masses to return to BlackBerry, and it will be quite a while before we know the answer to that question. For now, analysts seem pleased with the direction CEO John Chen is taking.
BlackBerry looking like a “hardware design house”
RBC Capital Markets analyst Paul Treiber noted that structurally, BlackBerry is “looking more like a hardware design house.” Chen recently referred to the company as such, replacing the description of a “handset manufacturer.” Treiber explained that the DTEK50 is basically the very first customized phone that was designed and manufactured by another vendor. Recall that BlackBerry designed the Priv in-house. TCL is manufacturing the DTEK50, according to FCC documents, which also reveal that the handset has nearly the same specs as the Alcatel Idol 4, also made by TCL.
BlackBerry signed its first agreement with another company to manufacture its smartphones in late 2013 when it contracted with Apple assembler Foxconn. The company said on its last conference calls that its agreements have become financially more attractive than the first agreement with Foxconn, noted Treiber. He added that breakeven for BlackBerry’s handset business declined to 3 million per year in April from 5 million at the end of last year.
BlackBerry’s risks reduced
BGC analyst Colin Gillis said he’s positive on the DTEK50 because “the slimmest degree of success can have a material positive impact” on BlackBerry’s sales. He explained in a research note that as the company builds its software business, any sales contribution from phones “is optically very welcome.” He believes the newest Android phone might “find a degree of success as a fleet phone for corporate and government customers.” Time is running out for Chen to make the handset business profitable, as he has pledged to do this by September.
For the August quarter Gillis estimates $392 million in sales, representing a 20% decline year over year. He expects losses of 3 cents per share, which would still be an improvement from last year’s losses of 13 cents per share. He estimates a gross margin of 45% and 500,000 phones sold at an average selling price of $281.
He continues to rate BlackBerry as a Buy with a $9 price target. Interestingly, he downgraded Apple to Sell just before the earnings report that sent its shares higher.
