BlackBerry Ltd Earnings: More Losses Expected As It Licenses Its Name To TCL

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BlackBerry Ltd Earnings: More Losses Expected As It Licenses Its Name To TCL

BlackBerry is set to release its next earnings report on Tuesday before opening bell, and the consensus estimates stand at revenue of $332 million and losses of 1 cent per share. Meanwhile the struggling Canadian company announced that it has sold the rights to the BlackBerry smartphone brand to TCL, and so it seems the thing many analysts have been demanding for years has finally come to pass. The company has exited the hardware business–although you will still its name out there.

What BlackBerry must do to become profitable

Credit Suisse analyst Kulbinder Garcha has an Underperform rating and $6 per share target price on BlackBerry stock. He’s expecting $304 million in sales and losses of 3 cents per share for the third quarter of the company’s fiscal 2017. In the long term, he expects service access fees and hardware sales to fall to zero as the company discontinues production of hardware.

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However, he warns that at least for now, service access fees still contribute a large portion of BlackBerry’s operating profits. In the last quarter, service access fees accounted to $66 million of operating profits, and because this segment is expected to fall to zero, it’s a big concern. Garcha believes the Canadian firm won’t be able to turn profitable unless either its software business scales or it manages to slash operating costs enough.

Unimpressed with software portfolio

The Credit Suisse analyst is projecting Services revenue of $73 million for the third quarter, representing a 58% year over year decline. He’s not impressed with BlackBerry’s software portfolio, referring to as “average, at best,” and noting that the company built it mostly by acquiring software assets.  He also feels that some of these assets are of questionable quality, especially Good Technology.

Further, he points out that the Mobile Device Management market is extremely competitive. Garcha projects $171 million in software revenue for the third quarter, representing a 5.9% increase from last year.

BlackBerry sells the smartphone rights to its own name

BlackBerry’s hardware revenue is indeed going to fall to zero as it announced this week that it has sold the rights to its own brand name on smartphones to TCL. So much for Chen’s efforts to make the hardware segment profitable; apparently even a turnaround expert like him couldn’t turn it around. However, the Canadian company will continue to develop its software, such as BBM.

It announced a week ago that it has exited the smartphone market, and now it says it has licensed its name to Chinese smartphone maker TCL. The company will manufacture and sell BlackBerry-branded phones in most parts of the world. The only exceptions are Bangladesh, Indonesia, Nepal, Sri Lanka and Indonesia, all markets where it had reached licensing deals with local firms. The deal also excludes India, suggesting a deal with a local company in that market is on the way as well. Chen said they are negotiating with an Indian firm at present.

TCL, which also makes smartphones under the Alcatel brand, has manufactured BlackBerry’s DTEK50 and DTEK60, both of which run on Android. The Canadian company had struck a deal with TCL to take its phones and then rebrand them in order to cut costs but still have a toe in the smartphone market.

Shares of BlackBerry slipped by as much as 0.59% to $7.58 on the NASDAQ during regular trading hours on Friday.

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Michelle Jones is editor-in-chief for ValueWalk.com and has been with the site since 2012. Previously, she was a television news producer for eight years. She produced the morning news programs for the NBC affiliates in Evansville, Indiana and Huntsville, Alabama and spent a short time at the CBS affiliate in Huntsville. She has experience as a writer and public relations expert for a wide variety of businesses. Email her at [email protected]
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