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Blackberry Continues to Slide

Zacks Equity Research

Canadian handset maker, BlackBerry Limited (BBRY) which plans to release its second quarter 2014 financial results on Sep 27 recently produced a disappointing preliminary result for the second quarter of fiscal 2014. As a result the stock price of the company fell by nearly 17% to $8.73 per share at the close of the market on Sep 20.

BlackBerry anticipates GAAP net loss of nearly $950 million to $995 million for the second quarter of 2014 mainly attributable to written-down unsold devices costing of between $930 million to $960 million. Moreover, it expects revenue for the upcoming quarter to be $1.6 billion, down 45% year over year while smartphones sales are expected to be 3.7 million, down 50% year over year.

Loss per share on a GAAP basis is expected to be around $1.81 to $1.90 which includes written down cost of the inventories and a $72 million restructuring expense, while excluding these charges loss per share is expected to be in between 47 to 51 cents. As per the Zacks Consensus Estimate revenue and EPS for the period are expected to be $2,422 million and a loss of 19 cents per share respectively.

BlackBerry also plans to slash its smartphone portfolio from six handsets to four devices which includes two entry level phones and the remainder will be high-end devices. Such a move will help the company to reduce cannibalism of its own devices and target both the markets in both developed and emerging nations. Moreover, the company’s decision to trim its staff strength by nearly 40% will help the company to slash its operating costs by nearly 50% by the end of the first quarter of 2015.

Earlier, BlackBerry which was the market leader in the smartphone business, had failed to upgrade its operating platform. It led to loss of market traction to Apple Inc.’s (AAPL) iOS and Google Inc.’s (GOOG) Android operating systems during the past few years, and as a result the company is incurring huge losses.

Despite launching its new operating platform BB10, the company has failed to revamp its smartphone business. In the last year, the company sold nearly 32.5 million smartphones as compared to Samsung Electronics’ 216 million and Apple Inc.’s 136 million handsets. Both, Samsung and Apple took up 30.3% and 19.1% global market share respectively, while BlackBerry had a mere 4.6% market share in 2012.

Such poor performance of the company may force BlackBerry into either privatization or to sell off its entire business. The company may also dispose of its popular BlackBerry Messenger (:BBM) service which has 72 million dedicated followers. The company has already decided to offer its popular BBM service to Android and iPhone users.

Similar to BlackBerry another mobile phone giant Nokia Corporation (NOK) has also decided to sell off its struggling handset business to Microsoft Corp. for $7.2 billion.

Now it will be interesting to see what price bidders are willing to pay for the Canadian handset maker if it goes on sale. If Nokia can sell its business for only $7.2 billion even after listing 30,000 patents and more than 10,000 patented innovations, then we prefer to remain highly doubtful about the market price of BlackBerry as the company has only 2,033 patents and $3 billion in cash and marketable securities.

Currently, BlackBerry carries a Zacks Rank #3 (Hold).

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