[Superfly_FR]

And now, drums time.
I'll start before the closing bell, so if you monitor a huge raise with no reason ... well, I'm just ...
HITTING THE COWBELL !

CU 2morrow.

[Komoto]

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.

This is the best analysis i have come across so far. As i have said before, the business model still seems intact and the turnaround is at its beginning stages.
I dont think anyone expected the Z10 to be flying off the shelves. The Q10 has only just come out. We may get some movement at the AGM.
Don't get me wrong, this is a high risk investment, probably more so than before, but if you have that risk appetite the upside potential is huge.

I think I will be holding this for another 12 - 24 months.

Greywolf and co, i do appreciate hearing your take on this as i would like to hear and evaluate both sides of this story.
Just out of interest Greywolf, you dont see any value in the company?

[greggebhardt]

IMO, even blackberry had shown 10cent profit in q1, the stock would have been punished regardless.

I have stated several times that the report would have to have been stellar for the BBRY to fly.

[plane6065]

Sorry to hear DarrenHD I lost tons too. It will take me a while to recover. I should have listen to my inner self and not carry too much to ER. Never though it drop like this. Life goes on and I need to concentrate on life instead of checking the stock all day.

Posted via CB10

[sidhuk]

and that too, SIRI been holding since under a dollar, SD just swing trade, NIHd swing trade. LoL these are the one I made money on.
then few more that I lost money on as learner's fee, because i fell for the media and market drama. still learning though.
I must add that i dont trade in margin account or options. developing real estate is my core business. if i have cash I buy something no loan, i learnt that lesson a while ago , if i dont have my own cash then cheapest way to entertainment is jack on the rocks and spend time in my home theater or gym.
thats one of the reason that it never made sense to me that why is your boker/margin lender is allowed to buy and sell stocks for their own benefit?

[dusdal]

Below $10 omg this is depressing

Posted via CB10

Depressing? I love sales.

Last weekend I went to a place where I usually buy clothes from Matinique. The stuff fits me like a glove off the shelf. I haven't been able to get there for a few months to replace some pants that are at end of life (hole forming in the ****).

She said that the new season clothes were in so the pants that I came for were 50% off. It's a small shop so they need to clear inventory where they can.

Same pants. No damage or anything. So I bought two instead of the one I came for.

[rebekahlynnharrison]

checking in between campgrounds. lol Off now to Grand Bend then to Port Huron.
Now if the weather would JUST cooperate. I haven't checked the stock and I don't plan to all this week. Hopefully things will have settled down somewhat. If this thing drops back to 7-8, I'm going to add a wee bit more and hold much longer than I anticipated. Hold the fort guys.

[greyw0lf01]

Regarding the Prema/Fairfax holdings... this is taken directly from their most recent financials:

"The company has economically hedged its equity and equity-related holdings (comprised of common stocks, convertible preferred stocks, convertible bonds, certain investments in associates and equity-related derivatives) against a potential decline in equity markets by way of short positions effected
through equity and equity index total return swaps, including short positions in certain equity indexes and individual equities as set out in the table below. The company's equity hedges are structured to provide a return which is inverse to changes in the fair values of the equity indexes and certain
individual equities. At March 31, 2013 equity hedges with a net notional amount of $8,424.1 ($7,668.5 at December 31, 2012) represented 104.5% (100.6% at December 31, 2012) of the company's equity and equity-related holdings of $8,057.5 ($7,626.5 at December 31, 2012). During the first quarter of 2013 the company paid net cash of $734.5 (2012 - $866.5) in connection with the reset provisions of its short equity and equity index total return swaps. Refer to note 17 for a tabular analysis followed by a discussion of the company's hedges of equity price risk and the related basis risk."

- Page 13

Based on Fairfax’s 3/31/13 filing, they are over hedged = short on their equity portfolio (chart on Pg 23).

http://www.fairfax.ca/files/2013%20Q...001_p9p8db.pdf

As I stated before, institutional investors have more options around how to manage downside risk. They increased exposure to Blackberry (FKA RIMM) in early 2012... since then, they have taken prudent steps to manage not just BBRY downside risk but also equity exposure.

Furthermore, Fairfax is primarily an insurance company, which means they are conservative in their investments. Blackberry can go belly-up tomorrow and they would still make money on the hedges.

You guys should do some homework beyond just looking at headlines and assume that the 30+% drop would affect Prema/Fairfax the same way it would affect the average Joe.

[tiziano27]

I *think* they can get it at the end of the FY only, although I'm really not sure about that.

Here's a scenario roughly based on last quarter, with Venezuelan service revenues included. I've done a lot of rounding though, so it won't be entirely accurate.

Revenue: $3.15 billion
Cost of sales + operating expenses (excluding amortization): $2.85 billion
Amortization: $400 million
EBIT: $100 million
Tax Loss Recovery: $30 million
R&D Credits: $30 million
Net Loss: $40 million

Increase in Tax Receivables: $60 million

Cash flow during the quarter = $300 million minus expenditures on plant & property plus intangible assets.
If those purchases are zero, then cash flow would be positive $300 million even without receiving the taxes receivable until next year. If those expenditures are $500 million, then cash flow would be negative $200 million.

Zarpan,

So you think they can recover 30% of the Loss before taxes? That's a lot of money and explain most of the $600 million of the last year.

Using some of your data in a bad scenario a I get this:



Using q1 as a base, adding Venezuela as you did:
-Hardware revenue falls 8,7%. => Lower BB7 sales and price cuts on BB10.
-Software revenue falls 15,9%. => Migration to BB10 in developed markets, migration to Android in emerging markets.
-Hardware margin % stable. => Less BB7 in the mix, but lower margin in BB10.
-Software margin % falls. => Less BB7 user base in developed markets where fee is higher.
-R&D stable.
-SM&A increase. => Increase in marketing expending.
-R&D tax benefit, I don't know how to calculate this, I take what you suggested.

So, FCF is strongly negative, but is compensated by the tax benefit of the next FY. This company could survive a couple of bad years in part thanks to the Canadian government. Of course they won't survive much time if the business just collapses.

The service fee revenue looks like a mine of gold, a gross margin of 86%! They need to find a new business model to replace this dying source.

[dusdal]

Ya, insider manufacturing info was spot on last quarter.

Posted via CB10

As much as I want to put some weight into this report, it uses 'industry insiders' from 'unnamed sources' and 'anonymous sources'.

[OMGitworks]

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. They usually sell when some pre-determined event or price trigger occurs which forces them to think about selling.

Look at Dell for example. One of the largest investors, Southeastern Asset Management has been on the rollercoaster even though they are sitting on huge paper loss. They are finally waking up and being active but the PC business has been declining for a little while now, but it took an activist investor to get them motivated.

We don�t know the cost basis for Fairfax Financial but it wouldn�t surprise me if the company took defensive positions in case of additional share loss so they could be indifferent to the current share activity. Remember, the rich stay rich because they have more tools available, they could have a total return swap on for all we know.
SNIP

Actually Prem Watsa is on the Board of BBRY and better be taking active role. We also know his cost basis is around $17 share, he said so himself. We also know he is holding at around a 9.9% maximum interest.

Leon Cooperman got stopped out some time ago and it saved him a lot of pain. Prem did not do so and is now out around $360M. We KNOW all of this.

[dusdal]

I am looking at the Nasdaq and it appears there was no short interest posted for BBRY June end of month?

Does anyone have this info?

[Reed Richards]

Hold the fort guys.

Thanks, Rebekah, hope your weather improves. I should follow your lead and not check the share price for a while, because right now I'm like, "OK, ENOUGH ALREADY!"

Anyone have any good insight into what is going on here? I feel like I've been on a ship that started taking on water and now the emergency flare just set the deck on fire.

[Dunt Dunt Dunt]

Depressing? I love sales.

Last weekend I went to a place where I usually buy clothes from Matinique. The stuff fits me like a glove off the shelf. I haven't been able to get there for a few months to replace some pants that are at end of life (hole forming in the ****).

She said that the new season clothes were in so the pants that I came for were 50% off. It's a small shop so they need to clear inventory where they can.

Same pants. No damage or anything. So I bought two instead of the one I came for.

It's only a sale if it's worth more than what you pay for it. With a pair of pants you pretty much know what their value is, with BBRY stock... who knows where it will go. You forget that it dropped less than a year ago down to $6, only the hope of BB10 being a success brought it back up $18. With the success of BB10 now under question and thus the company as a whole, what is to keep the stock from falling again? Or at least stabilizing close to where it is now, at least until BBRY shows something positive for the future.

[leafs123]

Positive article you say? noooooooo.

There's little risk in BlackBerry at these prices, says Cormark

[hootyhoo]

Regarding the Prema/Fairfax holdings... this is taken directly from their most recent financials:

"The company has economically hedged its equity and equity-related holdings (comprised of common stocks, convertible preferred stocks, convertible bonds, certain investments in associates and equity-related derivatives) against a potential decline in equity markets by way of short positions effected
through equity and equity index total return swaps, including short positions in certain equity indexes and individual equities as set out in the table below. The company's equity hedges are structured to provide a return which is inverse to changes in the fair values of the equity indexes and certain
individual equities. At March 31, 2013 equity hedges with a net notional amount of $8,424.1 ($7,668.5 at December 31, 2012) represented 104.5% (100.6% at December 31, 2012) of the company's equity and equity-related holdings of $8,057.5 ($7,626.5 at December 31, 2012). During the first quarter of 2013 the company paid net cash of $734.5 (2012 - $866.5) in connection with the reset provisions of its short equity and equity index total return swaps. Refer to note 17 for a tabular analysis followed by a discussion of the company's hedges of equity price risk and the related basis risk."

- Page 13

Based on Fairfax’s 3/31/13 filing, they are over hedged = short on their equity portfolio (chart on Pg 23).

http://www.fairfax.ca/files/2013%20Q...001_p9p8db.pdf

As I stated before, institutional investors have more options around how to manage downside risk. They increased exposure to Blackberry (FKA RIMM) in early 2012... since then, they have taken prudent steps to manage not just BBRY downside risk but also equity exposure.

Furthermore, Fairfax is primarily an insurance company, which means they are conservative in their investments. Blackberry can go belly-up tomorrow and they would still make money on the hedges.

You guys should do some homework beyond just looking at headlines and assume that the 30+% drop would affect Prema/Fairfax the same way it would affect the average Joe.

I can't claim to understand all of this, but basically, Prem was probably one of the big short sellers, right?

[greyw0lf01]

Just out of interest Greywolf, you dont see any value in the company?

It�s not that I don�t see value in BBRY, it�s that the market has evolved to the point where there is nothing exclusive to Blackberry anymore.

The easiest example to reference is BES. The company is now supporting non-blackberry devices. The unfortunate thing is you have at least a half dozen other companies in the mobile device management (MDM) space all clawing away for market share. These other MDM�s are part of larger companies so they can afford to undercut each other in price; Blackberry can�t compete on price.

Blackberry owned this segment and is now struggling to compete.

The Firm still has $3bn in the bank, 70+ million users and some crazy brand loyalty. There�s value but when everyone and I mean everyone is trying to take your lunch, how do you fight back?

iOS attacking from the high end and corporate;
Samsung attacking from the low, medium and high end and corporate;
Other Android OEMs that can afford to slash prices to move product;
Nokia competing on the low end;
Allegations of BBRY devices being hacked in the NSA scandal so no longer perceived as secure.

These are all things we can see guys. We all know of friends/colleagues who went to another platform for whatever reason... not everyone needs security (think how we easily give away info to FB), or a need to write essays on a qwerty keyboard. Companies dropping BBRY, developers slow to build... it all become a lot to overcome at the same time, it also doesn�t help that every global newspaper is running the same type of headline... BB10 is a flop, blah blah blah.

Isn�t Warren Buffet�s saying, buy what you know? If what you know isn�t doing so well, sit on your money and wait until it�s clear that things are getting better. But don�t sit on losing positions hoping for a hail mary.

What is BBRY worth.. who knows... but the market is trying to find some equilibrium between sellers and buyers.

[Mange Schillis]

I am looking at the Nasdaq and it appears there was no short interest posted for BBRY June end of month?

Does anyone have this info?

The data comes out 2 weeks later

[dusdal]

With the success of BB10 now under question and thus the company as a whole, what is to keep the stock from falling again? Or at least stabilizing close to where it is now, ...

Book value.

There was also $1.72 per share less in cash at that time and no end(start?) in sight for BlackBerry 10. All the while they had just reported a loss of 0.99 on the quarter (Q1, 2013).

[_dimi_]

I suggest the investors sceptical on BBRY start their own thread. Sounds fair, no?

I'm not a blind fan boy but extreme opinions don't seem to mix. Just look at Yahoo Finance..

Posted via CB10

[greyw0lf01]

I can't claim to understand all of this, but basically, Prem was probably one of the big short sellers, right?

I don't know if Prem was short but he's not sitting on a boatload of losses. To hedge a long position, you basically take an opposing position. This can be accomplished in many ways:

Sell short (short against the box)
Buy puts
Sell calls
Total Return Swap:

Party A (Prem) owns BBRY stock but has downside protection
Party B (bank) assumes the economic benefit/risk in owning BBRY stock without carrying it on their balance sheet.

There are other ways to hedge but the above covers some of the general ways.

As I said before, people yell about the shorts the shorts but it’s not that simple sometimes. Large short positions know exactly how to unwind their positions without driving the price up appreciably.

[JLagoon]

Hi Morgan; what are your thoughts on the action today?

[dusdal]

It's only a sale if it's worth more than what you pay for it. With a pair of pants you pretty much know what their value is, with BBRY stock... who knows where it will go. You forget that it dropped less than a year ago down to $6, only the hope of BB10 being a success brought it back up $18. With the success of BB10 now under question and thus the company as a whole, what is to keep the stock from falling again? Or at least stabilizing close to where it is now, at least until BBRY shows something positive for the future.

I did know their value. They cover my legs and make my **** look good.

Edit: I wasn't being crude. For some reason it blanks out b u t t.

They still do that for me and I got that same value for half the price.

Posted via CB10

[morlock_man]

Was chatting with my boss today and he was telling me about some of the companies he contracts with completely upgrading to new BB10 devices, as well as rolling out the BES10.1 secure work environment for iOS and Android.

They're only industrial contracting companies with thousands of employees, not quite a DOD-level contract, but it's a good sign.

[JLagoon]

Well, someone is buying big.