BlackBerry found quite a way to wrap up 2013. First, the company put itself up for sale as it realized there was probably no other way out of the hole its founders had dug. Then, it changed its mind. CEO Thorsten Heins was ousted and the company decided it would right the ship on its own — though it really hasn’t given the world any indication of how it plans to accomplish this incredibly daunting task. Industry watchers have churned out a regular flow of doom and gloom since then and the company’s share price is down about 50% on the year after rocketing from the $11 range to nearly $18 back in January. But in the latest analyst note packed with negativity, there may actually be some bittersweet news buried in there for BlackBerry fans who have been on edge lately, wondering whether or not the brand they love will still be making smartphones a year or two from now.
While many have suggested that BlackBerry should kill its struggling handset business and focus on enterprise solutions, BBM and other areas, Citigroup analyst Ehud Gelblum thinks it’s way too late and that ship has sailed. At this point, BlackBerry’s smartphone business would be too expensive to kill.
“We believe that Blackberry remains challenged as a going concern, and continues to be worth more in a breakup scenario, especially with Windows Mobile now looking like it is becoming more established as a 3rd ecosystem behind Android and iOS leaving little room for either Blackberry’s BBOS or BB10,” Gelblum wrote in a note to clients picked up by Barron’s. “We believe refocusing its business on areas where Blackberry has been losing share as the market has shifted away from it is likely to lead to substantial operating losses going forward as management attempts to put the company on strong footing in a shifting environment. Oddly enough, simply shutting the business is also not likely to add value as the separation costs and purchase commitments that we estimate would be incurred could exceed the company’s cash balance and would likely require substantial renegotiating of agreements with manufacturers.”
He continued, “In short, we see no clear-cut strategy, simple or otherwise, to help BBRY out of the strategic box it finds itself in and believe wind-down costs could come close to wiping out a great deal of the current cash balance on which the current valuation is based while the ongoing cash flow from the legacy Services business should dry up quickly. Short of a longshot turnaround and commercialization of the BBM business, we see few options for the company.”
Gelblum thinks it would cost BlackBerry another $450-$500 million in separation costs to get rid of the rest of BlackBerry’s staff in the smartphone division, and then potentially another $1.5 billion in separation costs related to hardware, $1 billion in capex commitments tied to BlackBerry’s NOC, $400 million in other purchase commitments and $200 million in operating leases. This puts the total cost well above the company’s total available cash even with the $1 billion it recently raised from Fairfax and other investors.
Long story short, it looks like BlackBerry will continue to build the smartphones its fans love so dearly for the foreseeable future.