You get the feeling that it’s going to be a rough week for BlackBerry. Barron’s points out the company get hit with three separate downgrades from analysts on Monday in the wake of its hugely disappointing earnings report last week. The most bearish analyst flagged by Barron’s is Deutsche Bank’s Brian Modoff, who cut BlackBerry’s price target to $6 and who says the company’s hardware business has actually become its biggest weakness. Instead of making smartphones, Modoff thinks BlackBerry should instead focus on its BlackBerry Enterprise Service 10 platform that he says is the company’s most valuable remaining asset.
“Unfortunately, we believe that continuing to run the devices business could be their Achilles heel,” Modoff writes. “If they choose to keep plowing money into marketing BB10 devices across the globe, it will create a heavy cash burn unless the uptake begins to quickly gain traction.”
Needham & Co. analyst Charlie Wolf, meanwhile, thinks the company has some short-term upside because its QWERTY-equipped BlackBerry Q10 and Q5 models ought to sell well with diehard fans who want to have full keyboards on their smartphones. However, he warns that we shouldn’t see this slight boost as the start of a long-term recovery.
“Q10 sales could quickly ramp significantly once the smartphone is rolled out since the installed base of BlackBerry owners in the enterprise has been stuck on older models for so long,” he writes. “But the potential sharp rise in sales could be short lived since the installed base in the business market is not that large any more. Recalling the comments of reviewers, virtual keyboards have taken over in a few short years. So even diehard BlackBerry fans may think twice before upgrading to the Q10.”
The latest earnings results were so discouraging that even analysts who maintained their ratings on the company found it very hard to believe it has a future as a competitive smartphone platform. Goldman Sachs analyst Simona Jankowski, for instance, maintained a Neutral rating for BlackBerry shares but slashed her price target from $17 to $12 and said that BlackBerry 10 had no hope of competing with iOS or Android in the mobile market.
“Our prior fundamental valuation used a scenario analysis that assigned 20% probability to the bull case (i.e. a turnaround based on traction with BB10) and 80% probability to the sum-of-the-parts base/bear case (i.e. continued share declines),” she writes. “We no longer assign any probability to the bull case, given the disappointing traction of BB10 in the first full quarter since the launch.”
