BlackBerry (BBRY) Expected to Beat FQ1; Long Term Picture Not So Bright

June 24, 2013 8:28 AM EDT
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Goldman Sachs today maintained a Neutral rating on BlackBerry (NASDAQ: BBRY) with a price target of $17.00. Analyst Simona Jankowski thinks the Q10 got off to a good start. His assessment is base on data points from Blackberry suppliers, including Jabil (NYSE: JBL).

"BlackBerry is a significant customer for Jabil's High Velocity segment, and Jabil's original guidance was partly attributed to 'the ramp of a new handset program', said Jankowski.

"Our store checks in UK, Canada, and the US point to a decline in Z10 demand; however, Q10 appears to have gotten off to a good start. Note that the Q10 was not available in the US in the May quarter. These factors lead us to increase our BB10 shipment estimate. On BB7, we now expect lower units as BlackBerry announced the availability of the Q5 in UAE and UK in June, with further rollout to other emerging markets expected soon. We believe this implies faster conversion of BB7 than we were expecting. The higher BB10 in the mix pushes up our gross margin by 200bps for F1Q, leading to our significantly above consensus EPS estimate," said Jankowski.

Goldman sees FQ1 revenue of $3.53 billion and EPS of $0.16. This is ahead of prior estimates of $3.57 billion/$0.06 and above consensus of $3.46 billion /$0.04.

"We now expect BlackBerry to ship 3.5mn BB10 units (prior estimate 2.5mn) and 4.2mn BB7 units (prior estimate 6.6mn) in the May quarter," added the analyst.

With a longer term view, Goldman is less optimistic.

"Starting with the November quarter, we remain well below consensus as we expect (1) a decline in BB10 shipments post the initial sell-in and pent-up demand period, given relatively tepid feedback on consumer end-demand, (2) declines in BB10 ASPs as budget devices (such as Q5) are introduced to address emerging markets, (3) revenues and margins come under pressure from continued declines in services revenues, due to lower BB7 units. We expect hardware revenues to resume declining after peaking in the August quarter, on account of lower units and lower ASPs," said Goldman.

For an analyst ratings summary and ratings history on BlackBerry click here. For more ratings news on BlackBerry click here.

Shares of BlackBerry closed at $13.78 yesterday.

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