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Is BlackBerry Ltd (BBRY) Still Worth the Risk?

Android has grown many-fold in terms of popularity among the competing mobile platforms with only Apple putting up a semblance of a competition, relying mostly on its hardware capabilities. Google Inc (NASDAQ:GOOG)’s  Android, accounting for nearly 75% of all smartphone devices, has instigated renewed initiatives from Microsoft and BlackBerry Ltd (NASDAQ:BBRY) to carve their niches in the market for their platforms.

BlackBerry Ltd (NASDAQ:BBRY)
To begin with

Keeping a tab on the quarterly earnings reports has been very crucial, especially for the BlackBerry Ltd (NASDAQ:BBRY) investors, as it provides device sales data and expectations of the future. So a slide by 30% in the company valuation ensuing the baffling results from the first quarter with a revenue postings of $3.07 billion and EPS of -$0.10 did not take anybody by surprise. The Street was expecting it to post earnings of $0.07 per share on revenues of $3.38 billion.

Lower than expected device sales with a reported shipment of 6.8 million, contrary to the expected 7.3 million, proved responsible for the decline. Transitional decline during the change to a new platform is expected, but even the new BB10 devices could not avoid the slip of 7% from the target. The expected BB10 device shipment of around 3.3 million faced a reality check with a realized shipment of merely 2.7 million devices.

The silver lining

The setback in the market expectation, nevertheless saddening, came with a silver lining of 9% top line improvement year over year, proving signs of a slow but assured recovery. The recuperated gross margins were a reflection of cost cutting measures and the premium BB10 pricing.

Gross margins improved to 33.9% as compared to 32.8% in 2012, dismissing any immediate risks of financial crisis in the company. Approximately $630 million was generated from operation cash flows, and it increased its cash pile to $3.1 billion from $2.9 billion in the previous quarter. In a positive strategic move, BlackBerry Ltd (NASDAQ:BBRY) is now trying to target the high growth Asian and South American markets with medium-low end devices, the latest Q5 devices being a case in point.

The downside

A disappointing shipment of a mere 2.7 million for its new flagship phone, the BB10 devices, was, apart from being the biggest disappointment, also the last ray of hope for the company to make a comeback. Not only did the device fail to garner consumer interest, the delayed launch in the U.S. also limited its impact in North America.

Of the many concerns, a strong BlackBerry Ltd (NASDAQ:BBRY) subscriber base has always been a priority and an argument for an investment in BlackBerry. While companies like Nokia rely solely on device revenue, service revenue from BlackBerry Ltd (NASDAQ:BBRY) have always been BlackBerry’s key winner, maintaining a constant source of operating cash flow from services. In such a scenario, the shrinking of subscriber’s base to 72 million from 76 million initiated an apprehension. Although the Street was also expecting a decline, the expected dip was for only around 2 million.

The company may seem to have found an escape route by targeting the mid and low range markets, but its approach is all wrong. The targeted Asian and South American markets focus highly on value with the hardware features being a major determinant. BlackBerry Ltd (NASDAQ:BBRY) Q5, with its Dual-core, 8 GB and 5MP camera, is sold for around $400-$500 (unlocked), whereas its competition


S3 with a quad-core processor, 8MP and 16GB memory is available for almost the same price. A reduction in price and upgrade on hardware capabilities on par with Android devices is a must if the company is planning to target this market.

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