[crackerdoodle]

BlackBerry: Bad Results Made Worse By Poor Presentation
Jul 2 2013, 13:34 | 1 comment | about: BBRY
BlackBerry: Bad Results Made Worse By Poor Presentation - Seeking Alpha
Disclosure: I am long BBRY. (More...)

The financial results announced by BlackBerry (BBRY) last week were bad, there is no getting around that fact. But they were made to look much worse by the way in which management handled the announcement and the question and answer session that followed.

Here is my take on the results.

Net Income (loss) per share

The loss per share, after accounting for the write-down of earnings from Venezuela was only 3 cents - not very far from the breakeven guidance given by CEO Thorsten Heins at the end of the last quarter.

One of the problems is that the street was expecting BlackBerry to beat that guidance. Upbeat comments made over the last three months, such as the statement made by Heins that "we expect to sell tens of millions of BB10 phones" had created an expectation of better things, and the company fell far short of meeting that expectation.

The results are not quite as bad as the market reaction suggests. Revenue was up from $2.7 billion to $3.1 billion, and phone shipments were up 13% to 6.8 million for the quarter.

Shipments and sales

Shipments of BB10 phones were 40% of the total, or about 2.7 million phones. However, BlackBerry has left many of us fearing the worst by not providing actual sales numbers for the Z10 and Q10. This lays the company open to claims that shipments are simply sitting in the sales channels.

I would expect inventory in the sales channels to be about one month's supply, which would not be out of line for most retail operations. This would put actual sales of BB10 phones at around 2.2 million units, which is quite a bit lower than we were expecting prior to last week's announcement. However, one of the two BB10 phones had only been launched in a few markets at the end of the quarter. Also, the BES10 system has only just become available, and enterprise sales will only recently have started to show up in the numbers. At 2.2 million, the sales of BB10 phones would be disappointing, but not disastrous. However, given the lack of information from BlackBerry, speculation will probably put the numbers even lower.

Services and software revenues

Services and software revenue dropped to about $854 million from about $972 million last quarter. A drop in service revenue was not unexpected, with BlackBerry in the middle of a transition to a different service model. After accounting for the loss of $72 million because of Venezuelan currency restrictions, the size of the drop is within the guidance given at the end of the last quarter. A better presentation of the data would have helped to offset any concerns in this area. It would also be helpful if Heins could give us some understanding of how the new service model will work, and how he expects to generate income from future services.

Gross margins

The drop in gross margin to 34% from 40% is explained partly by the drop in high-margin service revenue. In fact, if you back out the service revenue and costs (at an assumed gross margin of 85%), the gross margin percentage on hardware has increased over last quarter. Revenue per phone has risen from $273 to $321 as a result of the higher percentage of BB10 phones in the mix. Revenue for the BB10 phones calculates to about $450 per unit based on an analysis of hardware revenue and phone sales during the past three quarters. This is similar to last quarter's figures. Amortization of intangibles was $219 million versus $207 million last quarter. Gross margin (hardware only) per shipped phone has come down, which implies that costs on either the Z10 or the older BB7 phones have risen. The most likely explanation is that sales incentives are being booked as cost of sales, rather than as a reduction of revenue.

The BB10 phones are the future for BlackBerry, and it is impossible to properly evaluate the company without a breakdown of costs and revenue between the BB7 and BB10 phones. It would certainly help if BlackBerry could provide more information on the cost and revenue split between the two phone systems.

Cash Flow

Cash flow was $630 million, due mostly to over $500 million in tax rebates associated with Scientific Research (SRED) tax credits. This should not be considered as a one time, non-recurring rebate of taxes. The SRED credits are complex, but as long as the research qualifies, and the program stands, the credits will keep rolling in.

BlackBerry has done a great job of maintaining positive cash flow. It is an excellent achievement to have stayed cash positive throughout the launch of a major new product line like the BB10.

Inventory

I have read negative comments about inventory build-up. Inventory includes finished product, which has not yet been shipped to customers, plus work in progress, and raw materials (components that have been received but not yet used). BlackBerry has launched two new products this month, and inventory has increased from 37% of hardware sales to 40% of hardware sales. Most of the inventory increase is in raw materials and work in progress. The inventory of finished products has only gone up from $78 million to $80 million. There is no stack of unsold phones waiting to be shipped and the inventory increase is hardly a surprise, given that there is likely to be inventory build-up in anticipation of bulk sales to enterprises in the next few months. The increase in inventory is not a cause for concern.

Management Q&A session

I did not get a chance to listen to the Q&A session after the financial results were announced, so I am basing my comments on a reading of the transcript. My earlier impressions of Thorsten Heins were of a competent, reliable and honest man, and I was confident he could turn things around at BlackBerry. In the transcript of the discussion following the financial results, he and his CFO sidekick come across as two bumbling buffoons. It is hardly surprising that most of Wall Street seems to hate this company. They were asked clear, reasonable and easily anticipated questions from analysts, many of whom had supported them with buy recommendations. They gave answers that were shifty, secretive and full of nothing but waffle.

I have been long BlackBerry for the past few months. If I sell today, I will breakeven on my investment. I don't expect the share price to drop much further, so I will stay in the game for now. However, I have lost a lot of confidence in the management of this company, and I will probably cash in my shares if there is a bounce back to $12 or more.

[greyw0lf01]

For those who believe in BBRY, there are ways to play the name without the volatility and built in diversification...

BBRY represents 10% of Jabil Circuits revenue. The benefit here is you get the upside of BB10 devices taking off and the downside protection of Jabil being exposed to other phone OEMs.

Of course if the entire phone sector slows down, then hopefully you’re in a diversified portfolio.

Attachment 178326

[dusdal]

Crackerdoodle,

Very nice assessment IMO.

The biggest negative was expectations management and ER presentation.

Thanks for sharing.

[CDM76]

Fair comment.

I am curious about the tangible impact of this. Whether a study has been done on something like this.

A quick Google search didn't reveal anything substantial. But constantly hearing negative news about anything has to have an eventual impact on consumers.

Posted via CB10

[crackerdoodle]

I totally agree with the above posted article. The way TH and company have handled numerous events and the earnings friday leave one scratching their head. In fact, I am absolutely shocked that a shareholder lawsuit has not been announced as of yet given the many lines of BS given by TH over the past few months. In addition, not breaking down BB10 numbers in the press release was totally underhanded to shareholders. I will never trust this group again. Unlike the authour I believe this stock will continue to fall significantly given managements total kick in the n-ts to shareholders.

[dusdal]

A friend from London(Canadian born) just posted her Canada day activities to facebook.

Obviously I've left out the ones with her in it but I was glad to see this name plastered all over Trafalgar square, London.





Posted via CB10

[morganplus8]

A quick Google search didn't reveal anything substantial. But constantly hearing negative news about anything has to have an eventual impact on consumers.

Posted via CB10

I believe it has a major impression on how consumers think about the brand. I got an ear full yesterday from a completely non-tech person who said she thinks the company is so hated by everyone that it didn't matter whether their product was many times better than the competition. She felt they would never be able to shake the perception that the world no longer wants BB. I can see why Apple needs to stay in front of the concept that they can no longer innovate. Its a slippery road to go down by simply ignoring it all together. BlackBerry fired their PR team for a good reason, what will become of that is anybody's guess. Winning in Silverstone on Sunday is good advertising for BlackBerry but we need to educate everyone of the features of the phone and what they are getting for their money. A 14 inch display phone running BB 10.2 in every outlet would allow people to see Peek and Flow, the Hub, Balance etc.. I have 90 apps on my phone and one that I'm missing .... on an Android tablet. Works for me but not everyone else is prepared to compromise let this to enjoy their BB product.

[cgk]

A quick Google search didn't reveal anything substantial. But constantly hearing negative news about anything has to have an eventual impact on consumers.

Posted via CB10

But tip that on its head, if this positive vibe ever existed or had any tangible impact - where is it? Why aren't sales higher?

[njblackberry]

Large investors like Prem aren�t necessarily watching BBRY. He might have some suggestions on what mgmt should do but if you generally think about what institutional investors typically do, they buy and hold.

Sorry to disappoint you but if Prem Watsa ISN'T watching BBRY it is a much more serious problem.
Besides that he owns 10% of the stock via his Fairfax Financials Holdings, he is also on the Board of Directors of BlackBerry.

Board of Directors - US

He had better be more involved than as a passive investor.

Your pretty charts notwithstanding. And we have no clue what his basis is, or whether he has hedged anything (which would be interesting as he is on the Board of Directors).

[silversun10]

A friend from London(Canadian born) just posted her Canada day activities to facebook.

Obviously I've left out the ones with her in it but I was glad to see this name plastered all over Trafalgar square.





Posted via CB10

They are all over the Blue Jays baseball as well, as they are of course local in Toronto

[dusdal]

Why should Prem stress about the short term share price of BBRY?

[silversun10]

Sorry to disappoint you but if Prem Watsa ISN'T watching BBRY it is a much more serious problem.
Besides that he owns 10% of the stock via his Fairfax Financials Holdings, he is also on the Board of Directors of BlackBerry.

Board of Directors - US

He had better be more involved than as a passive investor.

Your pretty charts notwithstanding. And we have no clue what his basis is, or whether he has hedged anything (which would be interesting as he is on the Board of Directors).

yeah, i don't think Blackberry needs any lessons from Mr Wall Street looks after Wall Street

[sidhuk]

I respectfully disagree . The buzz is now (again) that BlackBerry is not doing well. That makes ppl dbl think buying BlackBerry devices and hence hurts sales. So yes, something has changed - the positive vibe BlackBerry had created.


Posted via CB10

I agree with you for a short period of time that yes it is a negative time frame. Last year every report in media was that blackberry is dead, then, will be dead, then ok for two weeks, now it is dead again. Despite the fact that blackberry has pretty ok 1st quarter results. 4th quarter results, blackberry beat the street and made profit, the stock resulted down in $12 range. Why? I will leave that for every one else to figure it out because i do not have any solid prrof of manipulation. Plus i am not even sure what is the real definition of manipulatin is in the stock market world. Positive Word of mouth is blackberry's friend at this time. No one wants to against the bigger guys. Press gets more dollars from apple and samsung. They both have more money to make money on blackberry's death. Not sure if you know the background of samsung's head guy? Look at wiki. You ll see what we facing here.
Oooops i think i am being carried away lol. Watched movie Lincoln the other day, like Lincoln said that some one told him that he is too lazy to end his own conversation.
I like this thread the most. Very respectful, great knowledge, good devil's advocates and most of all dedicated contributors. So if blackberry can attract these kind of followers, it is a plus point.

[greyw0lf01]

And we have no clue what his basis is, or whether he has hedged anything (which would be interesting as he is on the Board of Directors).

Carl Ichan sits on the board of many firms, it doesn't stop him from hedging downside risk or outright betting against it. The same is true here... Prema merely has a board seat, not control... we can't assume anything.

$9.71/share

[take99]

Can they please hire a spokesman for this company to do some damage control? Why haven't we heard a peep from bbry yet? Do some interviews (not with TH mind you) and get some spin going on here. Its time for the new PR firm to step up to the plate, I am interested to see their approach. BBRY throw us a bone here!

[cgk]

Wow - I didn't think it it would go below $10 at the moment - $9.74?

[greggebhardt]

Fair comment.

I am curious about the tangible impact of this. Whether a study has been done on something like this.

We have a study in progress.

BBRY has not rebounded even a small bit and has continued to fall every hour as the investors bail out.

This, to me, is "tangible impact"!

[kfh227]

I still think that anyone that preorderdered should have gotten a free tshirt.

Obviously they are lovers of bbry and they would have worn it proudly.

HUGE mistake.

Perhaps for a10 preorders?

Or just give some to forum members


Posted via CB10

[greggebhardt]

Can they please hire a spokesman for this company to do some damage control? Why haven't we heard a peep from bbry yet? Do some interviews (not with TH mind you) and get some spin going on here. Its time for the new PR firm to step up to the plate, I am interested to see their approach. BBRY throw us a bone here!

A new PR team will not regain the trust. Takes years to do that and I can not see that happening.

TH seems paralyzed at the wheel.

[EvanRitch]

Im a qwerty guy HTC DesireZ and was tempted by the Q10 today I searched for SG4 and Iphone 5 qwerty to see if some mods have been done. Apparently they have cases that are blue tooth sliders. So really any phone can be a qwerty. Hmm maybe if they made one for the Z10 I would consider getting Z10 with the qwerty. I know it makes the phone bulky but I love horizontal qwertys

[njblackberry]

Why should Prem stress about the short term share price of BBRY?

Silly question.

Because he has to answer to the investors in his fund. And since BBRY is the #1 holding and has been devastated in the past three trading days, he should be interested. And he is also on the Board of Directors of BlackBerry and has a fiduciary responsibility also.

I hope he isn't wearing the same Rose Coloured glasses that so many here here. Or that he got conned by the old Co-CEOs or by the new "I know nothing" one.

[dusdal]

We have a study in progress.

BBRY has not rebounded even a small bit and has continued to fall every hour as the investors bail out.

This, to me, is "tangible impact"!

Haha I mean on sales, not share price.

Posted via CB10

[morganplus8]

Wow - I didn't think it it would go below $10 at the moment - $9.74?

Canadians are back to their desks today and tomorrow is a 1/2 day for the US followed by their holiday. The general market is down now and the media is leaning negative without a word from the company itself. All things lead to downward pressure here. Volume is tracking yesterday's levels and we have traded 230 million plus shares so far since the Q1 news came out. As far back as I can go, I can't find a more negative oversold condition on the Bollinger Bands, CCI = (-245) today, nothing even comes close here.

Walk away for a couple of days and let it sort itself out.

[Rob1]

Sold my 315 shares first thing this morning....I figured it would be dropping further today and I was right.

Anyway - I took a lost of about $1500 or so but I hope I can make some up if they drop low like last summer in the $6-$7 range then buy up some more and hope they hit $10 again.

Not sure why I bother since I think I have lost more in the long run over the last 3 years......always hoping I guess.

On another note - My Apple shares are also down but I think they are a better beat for making money at the present time.

Cheers

[potatoman3]

Still just PRAYING for some good news.