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UPDATE: MKM Partners Downgrades BlackBerry (BBRY) to Sell, Sees Lower Chance of BB10 Success

February 22, 2013 7:30 AM EST Send to a Friend
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    7 Buy, 38 Hold, 16 Sell

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    Up: 15 | Down: 25 | New: 10
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(Updated - February 22, 2013 10:35 AM EST)

MKM Partners downgraded BlackBerry (NASDAQ: BBRY) from Neutral to Sell and lowered their price target from $12 to $10 citing after attributing a lower probability of success to BlackBerry 10 following our testing of the Z10 and observing BB10's momentum stall out in the U.K. after only a few weeks.

Analyst Michael Genovese deceased the probability of BB10 success. "We reduce the estimated probability that BB10 will be a success and the stock will appreciate to $40 to 10% from 15% and increase the estimated probability that BB10 will fail and the stock will decline to $7 to 90% from 85%," he said.

They note their original expectation for the U.S. Z10 launch in mid-February has been pushed back to late March, and the Q10 looks like it has slipped to late April. "We are lowering our 4QFY13 (February) Z10 sell-in forecast to 400,000 units from 1.5mn units. As a result, our 4QFY13 estimates decline to $2.57bn/($0.31) from $2.81bn/($0.27). Our wireless service provider checks suggest unwillingness to carry heavy BB10 inventory, and there is a significant BB10 application gap versus iOS and Android. We are reducing our 1QFY14 BB10 shipment estimate to 1.8mn units from 3.0mn units and lowering FY14E to 8.0mn units from 11.7mn units. Because we now more accurately quantify the ASP impact of BB10, our FY14 revenue forecast moves up to $11.81bn from $11.58bn and our FY14 EPS moves down to ($0.60) from ($0.34).

Genovese notes the BlackBerry 10 application gap is formidable. Commenting on testing of the device he notes: "We have been testing the Z10 and like the operating system, especially the touchscreen BB10 keyboard predictive text functionality, but we do not think it is differentiated enough to save the brand. The Z10 hardware seems bulky and heavy, but the biggest problem by far is the lack of available applications for BB10. Based on our research, fewer than 10% of the 100 most popular Android apps and fewer than 5% of the most popular iPhone apps (both free and paid) are available for BB10. Not a single top-50-grossing app on Android or the iPhone can be acquired for the Z10. We are disappointed that BlackBerry has not had more success in attracting popular developers and partners to the BB10 ecosystem. Without a much larger (and popular) set of applications to choose from, we believe consumers will have little incentive to switch to BB10 from Android or Apple devices."

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




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Comments

Look at the evidence
Jamie on 2013-02-22 12:08:54
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Analysts that are downgrading now are short sighted or trying to drive the price down for short gains. I also don't believe that Z 10 sales are doing poorly. They are selling very strong in the UAE and in Saudi Arabia. The Z 10 is not going to match the iphone 5 or Samsung Galaxy S 3 any time in the near future and holding them to their bar makes no sense. I think the sales numbers for the Z 10 will be closser to 1 million for the quarter ending Feb. 02 because of strong initial demand in the UK, Canada, UAE, Saudi Arabia, South Africa, France, Germany, Italy and ofcourse India. All of these markets have access to the Z 10 before the end of the quarter.


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