All Eyes Will Be On BlackBerry’s Floundering Hardware Unit When It Reports Q2 Earnings


BlackBerry (NASDAQ:BBRY) is expected to publish its Q2 FY’17 earnings on September 28. While the firm’s software business is expected to expand further, driven by a growing base of enterprise mobility management customers, analysts and investors will be closely watching the performance of the struggling hardware unit that BlackBerry has been somewhat reluctant to pull-the-plug on, despite declining shipments and continued losses.

Trefis has a $8 price estimate for BlackBerry, which is slightly ahead of the current market price. We estimate that the handset business accounts for about 10% of the stock price.

See our complete analysis for BlackBerry here

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All Eyes Will Be On The Hardware Unit 

BlackBerry’s smartphone shipments declined from 1.1. million units in Q1 FY’16 to 500k units in Q1 FY’17, as a slew of handset launches, including the much touted Android-based Priv, failed to resonate with customers. Now, the firm is counting on a $300 Android handset called the DTEK50, launched in August, to shore up sales. While early reviews of the device were positive, we don’t think it will really change the equation for BlackBerry’s smartphone unit, given its relatively odd positioning. The DTEK50’s security on a budget proposition could face challenges, as users in highly-regulated verticals who value cutting-edge privacy features are unlikely to be particularly price-sensitive. Moreover, the BlackBerry brand is becoming less and less relevant in the consumer smartphone market, where users tend to assign greater importance to hardware specs and features over security.

However, development and inventory-related costs are likely to be minimal for the new phone, which is essentially a re-branded version of  a handset manufactured by Chinese electronics firm TCL. This could explain why BlackBerry has guided that the losses of the mobility solutions group will shrink sequentially this quarter, with a possibility of operational break-even being achieved by Q3 FY’17.

Software Growth Should Continue

BlackBerry’s software segment emerged its single-largest business unit during the previous quarter. The company’s EMM offerings – BES 12 and the recently acquired Good Technologies – will remain the key revenue drivers of the software unit this quarter. The EMM business is now largely subscription-based, allowing for a stable, annuity-type revenue stream that should provide the company with a cushion, as it doubles down on nascent, yet high-growth areas such as the Internet of Things. BlackBerry added a total of 3,300 enterprise customers over Q1, and we will be watching the firm’s progress in further expanding its base this quarter as well. During Q1, the percentage of recurring software revenue (subscription-based) improved by 400 bps to 74%, and it is possible that the metric could improve further this quarter.

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