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BlackBerry: ‘Passport,’ ‘Classic’ Key to Upside Despite Software Focus, Says Wells
By Tiernan Ray
- BlackBerry’s forthcoming Passport handset.
Wells Fargo analyst Maynard Um this afternoon reiterates a Market Perform rating on shares ofBlackBerry (BBRY), in advance of what are expected to be media events on September 24th for the company’s new Passport handset, and another one in November for the BlackBerry “Classic.”
Although CEO John Chen has said a lot about BlackBerry as a software maker, “we believe its hardware launches will be the key driver to achieving near-term profitability and to buying time while the business model shifts,” writes Um.
“On the one hand, the Passport’s premium pricing (media outlets suggest pricing could be $700 for the base model and higher for premium models) should assure good gross margins.”
“On the other hand, the high price point may limit unit elasticity, even for enterprises.”
With BlackBerry set to report results for the fiscal Q2 ended August on September 26th, “guidance for the November quarter could be better despite lower blended gross margin due to higher hardware mix and higher opex for launch,” opines Um.
Um sees a chance of improved cash flow in the quarter despite continued losses:
We forecast August quarter revenue of $863.4mm (Street: $947mm) and a loss per share of ($0.20) vs Street’s ($0.15). The decline is driven by a decline in services revenue of 14% sequentially (9% when adjusting for the $30mn Venezuela benefit last qtr, which is in line with the historical trend). More importantly, FCF should improve from the pro forma cash burn of $255mn last quarter. For the November quarter, the higher Passport ASP could drive upside to our $425 ASP for BB10 devices though may be offset by lower units vs our 1.2mn forecast. However, at that ASP, there may be upside potential to our 16% hardware gross margin with every 100bps upside equal to roughly $0.01. Some Classic shipments toward the end of the quarter could also help guidance
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