BlackBerry Device Sales Falling Faster Than Expected According To MKM

BlackBerry Ltd (NASDAQ: BBRY) reported its 1QFY17 results similar to 4QFY16, with revenue significantly missing expectations, while the EPS and gross margin were better-than-expected, driven by lower opex and the revenue mix.

MKM Partners’ Michael Genovese maintains a Neutral rating on the company, while lowering the price target from $8.50 to $7.50.

1Q Results

Genovese mentioned BlackBerry’s free cash flow declined again sequentially, driven by inventory impairments, restructuring and working capital.

The analyst explained that the revenue miss was due to a shortfall in the mobility and hardware businesses, as well as SAF. However, software revenues were in line with the estimate.

Related Link: Benzinga Breaks Down BlackBerry Q1 Earnings

“We see Mobility Solutions (Hardware) as essentially worthless, and we continue to question management's decision to stay in this business,” the analyst said.

Genovese expressed doubts regarding BlackBerry being able to achieve its target of sustainable segment operating profit by 3QFY17, while also questioning the market positioning of the company’s enterprise mobility management business.

Lack Of Demand

“The announcement that over five hundred customers have moved to the Good Secure EMM Suites still strikes us as tame progress. SAF revenues are expected to continue to decline precipitously,” Genovese pointed out.

Genovese does not expect to see a rebound in mobility solutions volumes, given that hardware units declined, as compared to the estimate of sequentially flat units.

Although BlackBerry has plans to license its BlackBerry hub to other handset manufacturers, the analyst noted these initiatives did not solve the problem of the lack of appreciable consumer demand for the company’s new handsets or handset-related software.

In fact, according to the MKM Partners’ report, “It is impressive that the company was able to exceed 1QFY17 profitability estimates despite the large shortfall in Hardware sales.”