No turnaround likely to show up in year-end numbers
* UpdateBlackberry will announce its fourth-quarter and full-year results on Friday 28
March before the market opens. We are expecting full-year sales to be $6.9bn (cs $6.9bn),
with an operating margin (excluding write-off) of -17% (cs -19%) and a loss per share of
$1.75 (cs -$1.83). We see no particular pick-up in the handset division in the final quarter,
where we see demand continuing to contract sharply. The new handset (the Blackberry
“Jakarta”) will launch in April and so will have no impact on the historical results.
Additionally, we forecast that Services revenues will also be down almost 13% sequentially
as subscriber accounts continue to fall.
* SG view We are probably too early into the restructuring led by the relatively new CEO
John Chen to see the full impact of the decisions recently taken. However, we believe that
the Foxconn agreement signed in December (five-year deal to outsource production) and
the announced sale and leaseback of the Canadian property portfolio (could raise up to
$0.5bn) are both sensible moves in buying the company time while it finds a new direction.
The handset direction is less certain. The Jakarta handset is recognition of the importance
of customers in developing markets. However, Chinese competition is releasing Android
handsets at extremely attractive prices into precisely these markets. And the focus on
business users could also be a problem as companies are moving to BYOD (bring your
own device) solutions. Therefore, we still consider that the most likely outcome is that
Blackberry’s assets are sold separately. As we consider that, proceeds from such a sale
should reach around $6 per share.
* How we value the stock As we have left our forecasts unchanged, we stick to our sumof-
the-parts target price of $6.00 per share (handsets $0.0, cash $2.00, patents $1.30 and
subscriber services $2.70). As the share price has risen rapidly over the last couple of
months, we downgrade our recommendation to a Sell from a Hold.
* Events, catalysts & risks Blackberry will report its full-year results on 28 March 2014. The
key risks to our target price are: 1) stronger handset sales than we expect, 2) a bid for
Blackberry from someone interested in the corporate relationships.