BlackBerry Ltd (BBRY) “Train Has Wrecked,” But It’s Not Over Yet

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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares were still taking a beating in premarket trading this morning, declining another 5 percent on the heels of Friday’s disastrous news. Analysts at Evercore lowered their price target and estimates based on that news, although they continue to rate the company as Equal-Weight.


BlackBerry’s full report due this week

Analysts Mark McKechnie and Zachary Amsel issued a report to investors with their take on Friday’s terrible news from the company. The company will release its full earnings report this week Friday, but last week it preannounced almost $1 billion in inventory write-downs, extremely weak smartphone sales and plans to slash 4,500 jobs. But even though the Evercore analysts have lowered their estimates for the company, they do see a silver lining in the cloud. They said the fact that BlackBerry’s hardware sales are still struggling “could serve to accelerate strategic efforts to separate the firm’s hardware and services business.”

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) said it expects August sales to be $1.6 billion, compared to the consensus of $4 billion and last year’s $2.87 billion. The company said its net cash is at $2.6 billion and that it expects to see revenue of about $800 million based on the sale of 3.7 million units. However, they believe sell-through for the quarter was about 5.9 million units.

BlackBerry 10 still struggling, but services doing well

The greatest majority of handsets the company sold during the quarter were BlackBerry 7 units, which shows just how frosty the reception of BlackBerry 10 has been. As a result, the company said it is expecting a non-cash charge of about $950 million for write-downs on BlackBerry 10 inventory. McKechnie and Amsel are estimating that about 4 million BlackBerry 10 devices have been marked down by approximately $240 each.

They note that the bright area in BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is its services sales, which they said appear to be intact. They are estimating service sales of about $777 million for the August quarter, which is a 3 percent sequential decline and based on a 2.5 million subscriber decline. That brings BlackBerry to about 70 million subscribers at the end of the August quarter.

The Evercore analysts said they maintain their long-term view of about 30 million “die-hard subscribers,” which would be around $1 billion in sales annually, a $3 per month average revenue per user and $160 million in operating profit with a 15 percent operating margin.

BlackBerry forecasts reduced

They cut their fiscal 2014 year earnings per share estimate to a loss of $1.03 per share, compared to a loss of 69 cents a share previously. They also slashed their sales estimates to $8.8 billion, compared to their previous estimate of $11.5 billion.

The analysts lowered their price target form $10 a share to $8 a share based on their updated sum of the parts analysis. They based their new target on $2.2 billion or $4.30 a share in net cash expected by the end of fiscal year 2014, plus $1 billion or $1.85 a share for BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB)’s declining BlackBerry Enterprise System platform. They also added $1 billion or about $2 a share from the company’s patents and $0 for handsets.

They continue to believe that the company would be worth more if its services business was separated from its hardware business so that it could be accepted as an open-platform vendor. They said without a strategic change, they believe the company’s shares will continue heading downward.

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