BlackBerry Ltd (BBRY) Downgraded On Continuing Headwinds

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Is BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) really in the midst of a turnaround? Of course it depends entirely on who you ask. Most analysts agree that new CEO John Chen is executing on his turnaround plans. However, in a report dated March 30, 2014, Evercore analysts Mark McKechnie and Zachary Amsel say everything Chen is doing is just two or three years too late.

BlackBerry’s report “mixed but negative”

They call BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s latest report “mixed but negative, which rather sounds contradictory. They also say the company’s services business is “unfixable versus increased competition and that the company’s handsets will struggle to even become profitable.

The Evercore team compared BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) to what happened in the battle between Sun and Wintel in the workstation industry which happened in the late 90s and early 2000s. They believe BlackBerry is being pushed into a “shrinking niche” which includes only die-hard users who have advanced security or regulatory requirements.

BES 12, BBM look brighter

They say BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has the right idea with BES 12, which it plans to launch in November. The new enterprise server takes the support for BES 10, including BES 10 devices and adds BBOS so that it can support legacy BB7 devices on a single platform. BES 12 also supports both iOS and Android. BlackBerry hopes to halt the declines it is seeing in services and move toward growth instead. Evercore analysts again say this strategy is about three years relate because of open ecosystem MDM players.

Many have also said that BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) could monetize BlackBerry Messenger. The company reported 85 million users, which is a quarter over quarter increase of 5 million users. However, BlackBerry has neglected to break out revenues for the app. The Evercore team used WhatsApp’s model of 99 cents per year, which would add up to $100 million in revenue with rather high margins.

They believe there is a future in BBM if BlackBerry focuses more on enterprise users, which are extremely regulated and must archive their messaging traffic. They note that many IT managers continue to struggle with messaging traffic for iOS users because often it can’t be tracked because Apple Inc. (NASDAQ:AAPL) uses a closed API.

What about BlackBerry handsets?

Chen said again that they weren’t giving up on handsets, and in fact is planning to launch three new ones this year. The very first one under their partnership with Foxconn Technology Co., Ltd (TPE:2354) (OTCMKTS:FXFCOF)  is scheduled to launch at some point after this month. BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is also confident in the future of its Classic handset, which will be released in the fourth calendar quarter.

However, Evercore analysts seem to be having a difficult time of rationalizing BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s continued focus on handsets. They don’t even assign a value to it in their sum of the parts analysis, which includes $2 for patents, $2 for services and $2 to $3 in net cash by the end of the 2016 fiscal year.

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