Smartphone Weekly Notes: Apple, BlackBerry, Samsung

The smartphone industry had a news-filled week, with Apple’s (NASDAQ:AAPL) much-anticipated smartwatch finally hitting stores and BlackBerry (NASDAQ:BBRY) making another strategic acquisition to bolster its security software portfolio. Here’s a quick look at the news that mattered for the mobile technology companies that we cover.

Apple’s Watch Hits Stores, Expect Strong Initial Sales

Apple began selling its much-awaited Apple Watch on April 24 in nine countries including Australia, Canada, China, France, Germany, Hong Kong, Japan, the UK and the United States. While early reviews of the device have been mixed, we still think that it will sell very well owing to Apple’s brand cachet and pent-up demand for an Apple wearable. KGI Securities estimated that global pre-orders for Apple Watch exceeded 2.3 million units. That said, the long term success of the device will be contingent on how customers perceive the incremental utility that it offers over a smartphone and how well Apple is able to correct early flaws such as weak battery life and a slightly complicated user interface.

• We have a $128 price estimate for Apple, which translates to a market cap of $740 billion. Our price estimate is roughly in line with the current market price. We are modeling Apple Watch shipments of 17.5 million units for CY 2015. We estimate the company’s CY 2015 revenues to come in at around $220 billion. Our FY 2015 EPS estimate of $8.77 compares to a consensus of about $8.69 according to Reuters.

BlackBerry Pushes Towards Software Goal With New Acquisition

Earlier this week, BlackBerry announced that it was acquiring WatchDox, a privately-held U.S company that develops secure enterprise file-sync-and-share (EFSS) solutions that allow users to protect, share and edit files on various devices. BlackBerry is betting on security and enterprise mobility software to drive its turnaround, with plans to more than double its software revenues to about $600 million for this financial year. BlackBerry has been making many strategic acquisitions to this effect. For instance, last year, the company purchased Secusmart GmbH, a developer of anti-eavesdropping and mobile data encryption technology and Movirtu, a U.K. based start-up that provides a virtual SIM platform that enables users to operate their personal and business phone numbers on the same smartphone. With the WatchDox deal, BlackBerry’s mobile security portfolio will now include secure voice, secure data, secure messaging and secure document management, providing a comprehensive suite for customers. While the terms of the deal were not disclosed, The Wall Street Journal reported – citing unnamed sources – that Blackberry was paying about $70 million. ^[1]

• Trefis has a $9.50 price estimate for BlackBerry, which translates to a market cap of around $5 billion.  Our price estimate represents a small downside to the current market price. We estimate the company’s FY 2015 loss per share at around $0.04, which compares to a consensus loss of $0.07 according to Reuters. We are forecasting the company’s CY 2015 revenues at $3.15 billion.

Samsung’s Galaxy S6 Flagship Sees Solid Demand, High Bill Of Materials

According IHS, Samsung’s (PINK:SSNLF) latest flagship Galaxy S6 Edge is the company’s most costly phone yet to build and assemble. The 64 gigabyte model built for Verizon Wireless costs about $290 to build, including both parts and assembly. That’s about $34 higher compared to last year’s flagship Galaxy S5 and  about $50 more than the 64 GB iPhone 6 Plus. ^[2] The device will retail for about $800 unlocked. However, despite the higher bill-of-materials and manufacturing costs, we believe that the S6 will command better margins compared to Samsung’s previous flagships since the company is likely to have better pricing power for the new devices, unlike the S5 which saw retailers offer large discounts within the first few months of its release. The S6 offers solid product differentiation (curved screens option, premium design and high-end hardware specs) and initial customer demand for the device appears to be very strong. For instance, Bloomberg reports that Samsung had to open a new manufacturing facility for curved OLED screens about two months ahead of schedule in order to meet demand for the S6 Edge smartphone. ^[3]

• Trefis has a $1,285 price estimate for Samsung, which implies a market cap of around $194 billion. Our price estimate is slightly ahead of the current market price. We estimate the company’s CY 2015 revenues at about $192 billion.

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1. BlackBerry to Buy WatchDox, WSJ, April 2015 [↩]
2. Samsung Galaxy S6 Edge Pricier to Build, Cheaper to Buy Than Comparable Apple iPhone 6 Plus, IHS Teardown Reveals, IHS, April 2015 [↩]
3. Samsung Speeds Up Production of Curved S6 With Demand Soaring, Bloomberg, April 2015 [↩]