Needham & Company Downgrades BlackBerry (BBRY) to Underperform; Blames Fail on BB10 Devices

July 1, 2013 8:12 AM EDT
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Needham & Company downgraded BlackBerry (NASDAQ: BBRY) from Hold to Underperform following its Q1 disappointment.

"BlackBerry reported a $0.17 loss in the first fiscal quarter, a period when earnings should be positive and rising," analyst Charlie Wolf notes. "We believe these results call into question whether the company's new BlackBerry 10 family can save the day.

The analyst believes the fault lies with the devices themselves. "While they generally received favorable reviews, neither has a "wow" factor that would translate into a "no-brainer" upgrade. And in the case of the application library and ease of use, we find the Blackberries to be no match for the iPhone and Android phones," the analyst comments.

Wolf said the upgrade cycle of the Q10 in the second and third quarters could create a "false spring," with sales tapering off once pentup demand is satisfied.

BlackBerry must focus on emerging markets with its lower-priced Q5, which now represents two-thirds of its installed base. "While BlackBerry Messenger drove sales in the emerging markets where BBM is popular, the competitive landscape has become much more treacherous with alternative instant messaging services and low-priced Android devices flooding this market," the analyst comments.

Wolf believes BlackBerry's expanded service offerings to include the iPhone and Android phones could fail to stem the continuing loss of high margin service revenues.

The firm cut 2014 estimate from a profit $0.65 to a loss of $0.77.

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 $10.46 yesterday.

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