Looking at bull and bear views on BlackBerry

By Chris Umiastowski on 3 Apr 2013 03:17 pm EDT

Now that we’re one week beyond the latest BlackBerry earnings report, I thought I’d take a look at what some analysts are saying, and chime in with my own thoughts.

On the bullish front, we have Richard Tse from Cormark, who reflected on the earnings over the long weekend.  Here is a summary on Tse’s comments from CanTech Letter. 

It seems Tse believes that the quarterly results show BlackBerry management is up to the task of transitioning to its new platform successfully.“In our view, given the hyper competitive market and major internal product transition, we believe the results of the past two quarters have been nothing short of remarkable,” said Tse. “Operating improvements thus far under such extreme challenges give us reason to believe in BlackBerry’s ability to execute on BB10 as having better odds than we originally would have anticipated.”

This is a big part of the bull story on BlackBerry right now.  They’ve launched a new OS, and new hardware that sells with attractive gross margin.  The other part of the bull story, not discussed in the CanTech Letter article, and perhaps not discussed in Tse’s latest report, is the potential to grow the enterprise user base. Unfortunately it’s too early into the launch of BB10 to know if the company is on track to succeed here.  But we all recognize the opportunity, and understand its value.

On the more bearish front, we have GMP Securities analyst Deepak Kaushal.  I find his work to be well balanced and thoughtful rather than dismissive or flippant.  I read through his whole report and thought he made a couple of good points.

He estimates Z10 gross margin at 20%, which is a lot lower than most analysts have been suggesting.  The implication of this is BB7 margins showed a recovery in the quarter.  Since that portfolio is dying, we’re more interested in seeing strong BB10 margins.  And Kaushal seems to be arguing that we haven’t yet seen proof of solid Z10 margins.  I know from experience that it often takes BlackBerry a couple of quarters to ramp up margins on new products. 

If you’re wondering how he calculates / estimates this, then bear with me.  It’s not that hard to do.  We know hardware revenue.  We know last quarter’s ASP, which was based only on older BlackBerry hardware and no Z10 volume.  We know how many Z10s shipped (one million, approx).  Yes, you have to make some assumptions on what happened to BB7 ASP during the quarter, but then you’re left with what should be a reasonable ballpark guess on BB10 ASP. 

Gross margin split between BB7 and BB10 is harder to calculate, but I think what Kaushal is saying is that you’d have to assume absurdly low BB7 gross margin to get to the kind of BB10 gross margin that some analysts are estimating. 

Kaushal also estimates BB10 ASP to be $371 over the entire fiscal year.  I think a lot of people have been throwing around $500, which is fine.  But we know BlackBerry is introducing lower-cost models, so it’s important to consider that the overall ASP won’t be $500.  Just something to keep in mind if you’re doing some back of the napkin math, folks.

It’s important to look at both bull and bear arguments on stocks.  Reading the bear arguments tell us what BlackBerry needs to do in order to inspire an upgrade from bearish analysts.  In this case, we need to see the company stem the subscriber losses and sustain its 40% gross margin while experiencing fewer BB7 sales.  

I’d also like to bring up another important point.  Quite a few people have asked where BlackBerry gets its numbers from when claiming that 55% of Z10 buyers are coming over from other platforms.  I’d like to know too.  If the estimate is indeed reliable, it’s the kind of data that, if I were at BlackBerry, I’d want to flaunt every chance I had.  And if I were in investor relations, I’d want to call up every single bearish analyst and walk them through the details, making sure they understand the significance of it.  Because let’s face it ... if the majority of Z10s are being purchased by people new to (or coming back to) BlackBerry, it’s damn good news.  And it will show up in the subscriber numbers rather quickly, I’d think.

Topics: BBRY Editorial

Reader comments

Looking at bull and bear views on BlackBerry


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Seems that the high ($500-$550) ASP talk from earlier may be too much?. Considering Tmobile is at $531.99 off contract it seems that Blackberry has smartly been selling at a lower price to carriers to earn interest and market share. Definitely the right move, but moves ASP to probably $500 or so?

One important point on gross margin not talked about. Amortization in cost of sales dropped $130mm vs. Q3, which helped spike up gross margins materially. That big intangible spend in FY2012 drove a big increase in amort (in Cogs) during most of FY2013. We saw that drop materially in Q4. It probably accounted for almost 40% of the GM increase over Q3. I don't believe BB7 and below devices sold at better margins...I think it was this amort benefit.

also why BBRY should have a GM tailwind for much of 2014...amortization should be lower by at least $125mm per Q for first three Q's of 2014.

Thanks for this. Very good point.

EDIT: I had a chance to go through the detailed financials for Q3 and Q4 this morning. Amortization in COGS declined by $137M this quarter, but $127 of it comes from intangibles, which are usually cross licensing agreements, and the total charge will depend on volume. Complicated to figure out, but I'm inclined to believe reduced volume had a positive effect on this charge, boosting margins a bit. CORE expenses were also $36M lower on the COGS line compared to Q3, which helped margins by 1.3%.

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I suppose another way of saying this is that its possible cash gross margin on hardware last year was understated. Approx. $1.2Bn of amort. flowed through Cogs in FY2013 vs. $950mm in 2012 and $489mm in 2011. Thats a big jump. The number dropped to $213mm in Q4 so if that is a more normalized level, there could be a nice benefit this year -- having that move from the cash flow statement to the P&L.

It has been said that profit is an opinion; cash is a fact. It sounds to me like you have looked at the cash flow statement and reconciled the "opinion" that BlackBerry has been doing poorly (on the income statement) with the fact that it has been strengthening its balance sheet, particularly the net cash position. The difference is due, in part, to so many non-cash charges recently that have made the income statement look much worse than the reality BlackBerry operates in. Facts and opinions *eventually* converge and in BlackBerry's case you are right to point out that the income statement "opinions" will start to look a lot better over the coming quarters as things move to a more normalized level. Investors like Prem Watsa (who is a major shareholder of BBRY) make their fortunes by recognising things like this before others do. Wall Street will come around gradually and Main Street should follow.

Adam you should end these articles with how to contact the developer to ask them to port the app.

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Love your articles. I'm not even in the marketing aspect of blackberry but totally feel educated on the market after these write ups. Good stuff Chris

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I started to assume that the 55% number comes from people registering new BlackBerry IDs. This may not be entirely accurate, but I think this number would show that at least 55% of people who've bought the Z10 had no prior need for BlackBerry ID, and thus had to register. As BBM and BlackBerry World are now tied to a BlackBerry ID, could be a good indicator of new users (give or take a few % points).

But this is just wild speculation on my part. No more wild that saying 55% of new Z10 owners are from other platforms though! I hope it's true.

Came to speculate on the same point, glad I read through the comments before I posted!! ;) Makes perfect sense to me as to how they're tracking it.
Edit: Forgot to mention Chris, always nice to read your articles, always well written and informative!

I don't think they got the 55% number from new activations but rather from the carriers switching phone numbers from one previous device to another. Add that with the BB ID activations, then you get some good information - existing customer, new BB ID.

Let's not forget people like me that have to hold off until their Company IT Department Updates Enterprise for BB10........ours is approx. April 30.

Thanks Chris I have been waiting for you to come out with this post. There seems to be a lot of confusion out there as to where BlackBerry really stands as an investment and potential success or failure. It is nice to get an unbiased outlook from a "realistic BlackBerry fan"!
Keep me coming!

CB10 App, Z10

Let me start by saying these "analysts" are just talking heads. Its anybodys guess how Blackberry will do. but honestly there is room in this industry to be 3rd or 4th place. You dont have to outsell Apple or google to survive in this space. RIM has no debt and lots of cash in the bank. They will be around for a LONG time and sell lots of units and make money.. wont beat apple but who cares.. they dont need to. Let the 14yr girls use their iphones to take pics in the mirror with and play Draw Something.. let the people who make money in this world use Blackberrys. its a fact. No more gloom and doom when it comes to BBRY please.

Good point about the 55% conquest, Chris. I'd like to know this info too. However, having said that, I personally know a person, as well as people on the forum who have switched over to BB after rocking Android devices.

I think the 55 percent must come from the carriers and aggregated by BB. For example,

Verizon knows what cell phone customer X has. If customer X orders a Z10, then it's clear customer X has changed platform.

If the carriers provide this data to BlackBerry then they can aggregate it and present it to investors.

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You are correct about the carriers. If it is an existing customer, they know exactly how many of what were switched to what.

If a new customer, say Att coming to VZ, I am not so sure. They might know if they were moving an existing phone number, but that is just a guess.

Customer base. You should be talking not - if - but - how big of a subscriber base loss they are going to write off this quarter. No doubt. Plus it's awesome that 1 out of 2 Z10 owners come from other platforms. Fact is that is history now. The ratio will go down significantly over next quarters.

I think the launch of the Q10 will have higher overall numbers, but a lower percentage of first timers. IMO, this will be the ramping up of enterprise refreshes. The IT dept will have had time to implement BES 10, and the Q10 I think, is seen as the "corporate" device, irrespective of the awesome software keyboard on the Z10. Even with Mobile Fusion, IT will still try to push the BB device first. Whether or not they can overcome the CEO's iRection or raging Androidgens remains to be seen however.

They're spinning the "55%" this is how and in various ways.

first - 55% of what exactly? I'll come back to this later...

second - a huge chunk of the 98 million in profit is not profit that came from selling hardware or services, it was laying off thousands of jobs previously announced.

third - back to my first point, if you're a seasoned analyst you can figure that 90%+ of the 55% of z10 sales came from customers that were on the bb 7 platform, I think 90% is low - think it's more like 95%-98%. There was demand from bb users on the z10s.

We all know that shipped doesn't translate to sales either.

Another indicator is that Rogers and other telco providers are now offering the z10 for 49.99 on a 3 year contract within 60 days of its launch - which indicate that demand is low. I can walk into any Rogers, Telus, or Bell and get one. Lowering the hardware cost is not necessarily a bad thing but when the price of the device is lowered like that its usually a good indicator that demand is low. if demand is high then the Telco's would take advantage of selling the device at 199.99 on a 3 year contract. Analyst look at that as a negative.

Now there's demand for the Q10, I know - I'm one of them that will be buying one (off contract) for sure. A lot of business type people who's rocking a bold or the curve still sees the blackberry as email/phone will likely pick it up. This is more the catalyst that will likely lead BB to another profitable quarter likely the next 3 quarters as more and more people that are current blackberry users buy the q10/z10. It is not from users migrating from iOS or Android platform or at least not by any number worth mentioning.

Just offering some perspective.

Really? $50 for a Z10 on a 3 year contract? I don't believe it. In fact, on the Rogers site, it's $99 for 3 years on a limited time offer.

I think you're speculating on a number of things. How do you know 95-98% of sales came from BB7 users?

Most analysis can make that assumption, that those that bought the z10 are bb7 users. You see most people that owns the iPhone 5 and s3 and are the two top dogs in mobile right now are selling 10s of millions of them every qtr most of those are current user, yes bb has lost users to those platform and likely locked in in two or three yrs contract and not switch, maybe a small number but insignificant to overall sales. The most loyal customers are users of the iPhone and Samsung they will simply not switch some but most won't. Especially iPhone users when invested in accessories such as docks, cases, music, apps etc. Blackberry users however have left in droves to the iPhone and to either Samsung or android platform.

what you want to look at are total units shipped, total units sold, minus returns and then of course the all important net new activations.

yes apologize for error on price, you're right 99.99. My point is that if there's demand and its high this is likely still be at 199.99 on contracts. I got two z10s one I bought outright the other I got for 49.99 yes that's right from Rogers on a new activation.


1. where have you seen $50 for Z10? I see $100 only.
2. most of the time Z10 has been sold for $140 from the start, so $40 drop is not huge and do not forget you need to compete in a price also especially when S3 and IPhone 4s is $0 and IPhone 5 -$100 for the same contract.
3. Just bought 2 Z10s this weekend from Rogers for tricky $100, which not exactly $100 as you pay $150+tax and then get $50 rebate. So while standing in the store 2 more phones has been taken - another Z10 and IPhone 4s! not IPhone 5 ($100 + tax make a difference for some people) Only hardcore fans buys products for full price , the rest wait for discounts.
3. BTW I was not BB user before, nether Android or IOS. one of my co-worker also just bought 2 Z10s and weren't BB users.

My bad, I meant 99.99 not 49.99.

as I stated, you as a former iPhone user likely one of the few that bought a z10 or two. I'm not saying there weren't any I'm stating that number to be low around 5% of sales in the qtr.

anyway I'm not going to debate it, I have no interest or own any stock in bb I was merely offering another view.

I don't own any stock, but that's a good question, is it BB measuring the 55% change in email addresses using the BBID, or carriers providing that info? Probably a close approximation, but not an exact match.

Actually, that is one way BlackBerry can know if it is a new sale or not. New activations require a BlackBerry ID.

There is something that I never hear mentioned and I think it bears (no pun) thought. I work for a manufacturer of high tech devices in a cousin field, there are many similarities. One thing we do is review SKUS and try to reduce the number without damaging sales. Keeping SKUs to minimum really reduces costs; supply chain, components, training, spare parts, packaging, etc, it goes on and on. . I understand that BB is in many different markets (we share that issue) but at the same time, as operationally sensitive as Thor is, I cannot believe he not going to streamline the product offering, it is bloated and old. I would expect to see some of it shortly after the Q10 release. Of course the Bears will claim they are eliminating phones because week after next they are filing for BK.


I haven't read the earnings report start to finish. But it may be telling if they omitted the "55% of Z10 buyers came from other platforms." The earnings report has to be much more factual due to legal recourse. Heck, they even have a disclaimer on the reliability of the subscriber number they give in the report.

If they omitted it, I suspect it is just a wild guesstimate that includes feature phone buyers. Analysts are misinterpreting it to mean these are coming back from iOS and android. And BBRY is a-ok with this hype from the misinterpretation.

Part of the 55% may be from surveys too. I received one from BBRY Monday and one of the questions was who made my previous device.

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Well, we have to consider as well that the BlackBerry Z10 launched after Christmas, when a lot of folks just got a Samsung or iPhone. Also, a lot of other folks are getting their Visa and Mastercard statements. If BlackBerry decides to launch new phones when folks dig deep to spend money in May (graduation), August (back to school) and November (Christmas), that would be nice.

Chris, as usual great insight. The hard part is over, stock goes much higher from here.


The information about the 55% of Z10 buyers coming from other platforms has to be coming from the carriers. They know what phones people are dropping when setting up their new Z10 phone. There is no other place that Blackberry could get that info. Great article

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heins specified in a bloomberg interview that about half of the 55 pecent is from android and the other half from iphone.

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I think Z10, Q10 and whatever else is there is only a small part of the Blackberry story. BBRY is about mobile computing platform and I see BBRY as a software platform rather than a handset manufacturer. The licensing revenues from licensing BB10 to all kinds of hardware vendors is going to be huge, think GM at 80-90%. Thats where the true value of BB10 lies, only if this management doesn't delay things and is not late at licensing. They should start licensing tomorrow.
BBRY can be an Apple like story, the Apple that we saw from 2003 to 2010 but Heins has to move at a speed of light, the old Blackberry way has to be thrown away.

Please also keep in mind that BBRY stock price today is lower than what it was when Heins took office... and a lot of positive things have happened.

Mostly good, basic overview. Most numbers mean very little right now. There will be much smoke and screens for a time: "If you look at a liability long enough it becomes an asset." The 55% coming from other platforms is garbage. Virtually no one (ie no material %) is coming from Apple or Android (especially Samsung employed). And who is going to pay the same price for an unknown that can claim only to match Apple or Samdroid features: Only BlackBerry loyalists (like me). Come on why do we play these blind loyalty games or be swayed by analysts paid for their words (rhetorical comment I suppose).

BlackBerry should be marketing (ie pricing) the Z10 to reclaim its once proud, now decimated, user base. The true financial results of the Z10 (BB10) won't be known until the dust settles in 24, or more, months. In the meantime, the only meaningful numbers are "Verified number units shipped" and watching how fast pricing drops in the market. If a bare minimum of 50mm+ aren't shipped by end of year, big problems. If price dropsuch before end of year, equally big problems and dismal failure for BB. Beyond manipulating numbers for marketing hype, any recovery for BlackBerry (earnings and prestige) will be pretty easy to read just by units in market.

Before all gloom and doom, however, remember Apple was insolvent and gone not that long ago. They became the largest capitalized company in the world and remain near the top. Hope that BlackBerry can remain independent....

P.S.--Love to have seen BB give a bonus to those loyal users of neatly a decade albeit I understand that we are the low having fruit for the high markups on their new products.

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