BlackBerry Q2 – Ballad of the fat lady II

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The fat lady has sung on BlackBerry’s attempt to appeal to the consumer.

  • BlackBerry has issued a horrible warning on Q2 14 missing revenue forecasts by a massive 47%.
  • Q2 Revenues are expected to be $1.6bn compared to estimates of $3.0bn as just 5.9m devices have been sold to users compared to consensus of 7.9m and Radio Free Mobile at 8.3m.
  • As a result of the weak demand, shipments into inventory were only 3.7m resulting in the huge revenue miss.
  • As a result of the lower revenues, EPS will now be a loss of $0.47-$0.51 compared to a consensus loss at $0.11.
  • On top of this BlackBerry is also taking a charge against inventory and supply commitments on the Z10 device that will total around $930m-$960m.
  • BlackBerry will also cut around 4,500 jobs as it downsizes its portfolio to four devices and focuses on the enterprise and prosumer.
  • I expect further hefty restructuring charges to follow.
  • This warning underlines the fact that BlackBerry’s attempt to satisfy the consumer demand for smartphones (see here) has been a total disaster and will now be stopped.
  • The biggest question is what will happen to BBM?
  • This is an asset that actually has some value.
  • BBM still has around 75m users (mostly in emerging markets) that are very active (30+ minutes per day).
  • Looking at the valuations being thrown around for WhatsApp, Line and others, BBM has significant value if it can be extracted from its troubled parent.
  • Hence I think there is some interest around this asset and would not be surprised to see it parcelled up and sold off.
  • The rest of the company is a much more difficult proposition and I can’t see anyone being willing to take it on.
  • With Nokia now being part of Microsoft that potential buyer is no longer at the table.
  • Furthermore, the offering that Microsoft makes to prosumers and enterprise will be much more tightly integrated with its superb enterprise offering leaving companies with no reason use BlackBerry.
  • BB10 requires a complete re-install of the BlackBerry Enterprise Server, offering companies the perfect opportunity to bail out of the system.
  • The “Bring-your-own” device market is dominated by Apple and Samsung and with Microsoft likely to get better and better in the enterprise, there seems to be no room left for BlackBerry.
  • Hence, the shares are likely to drift in the southerly direction from here, albeit with a nice bounce should BBM be sold.
  • Other than that bounce, there is no reason to hold the shares which could easily end up with a valuation of zero.
  • The fat lady has sung on the consumer strategy and I am deeply concerned that she will return for an encore.