BlackBerry results may not clear up questions

BlackBerry Inc. is expected to report its first quarter of sales growth in two years on Friday, but the results may do little to clear up the question of how the company’s newest smartphones are actually doing with customers.

BlackBerry will post results for the quarter ended June 1 on Friday morning, before the opening bell. The company still officially does business under the name Research In Motion until investors approve the name change at their annual meeting on July 9.

Analysts expect the company to report adjusted earnings of 7 cents per share on revenue of $3.38 billion for the quarter, according to consensus estimates from FactSet Research. In the same period last year, BlackBerry lost 37 cents per share on an adjusted basis, on revenue of $2.8 billion.

One closely watched metric will be shipments of the company’s newest smartphones that use the BlackBerry 10 operating system. About 1 million BB10 devices shipped in the previous quarter — which only included the initial launch of the touch screen Z10 smartphone in a handful of markets. The recently ended period will include not only the Z10, but the Q10 that features a physical QWERTY keyboard.

Most analysts expect shipments of BB10 devices to be more than 3 million for the period. But those are units that BlackBerry has shipped into the sales channels, and don’t necessarily reflect sales to end customers — which is a key point of controversy between those who are positive and negative on the company’s prospects.

“BlackBerry’s results this Friday morning may have something for both longs and shorts as positive sell-in data offsets diminishing scale and declining services revenues,” wrote Mark Sue of RBC Capital in a report Tuesday.

BlackBerry shares fell Thursday ahead of the report, down nearly 3% to $14.46 in the final minutes of trading.

Sue, who rates the stock as market perform, noted that even Apple and Samsung are facing challenges in growing sales of high-end smartphones in a saturated market — making it all the more challenging for the much smaller BlackBerry to do the same.

“BB10 shipment trends are not sustainable without a meaningful increase in end-user demand and BB10 sell-through is soft in the crucial U.S. market,” he wrote.

James Faucette of Pacific Crest, who has an underperform rating on the shares, believes that those bullish on the heavily shorted stock are hoping for a “squeeze” that may come with higher-than-expected shipment numbers of BB10 devices. Current short interest on the shares is 35% compared with 14% at this time last year, according to FactSet.

“We believe the bears know what shipments are, believe the available sell-through data and understand the secular industry decline, which we believe will ultimately significantly reduce BlackBerry’s value,” Faucette wrote in a June 19 report.

A growing number of analysts and investors are speculating that Apple is building fingerprint scanning technology into its next iPhone. MarketWatch's Dan Gallagher reports.

Faucette also urged BlackBerry to provide sell-through data on its smartphones, though the company hasn't done this in the past.

Morgan Stanley remains bullish on BlackBerry. Analyst Ehud Gelblum raised his BB10 shipment estimate to 3.5 million units from 3 million units on Monday, though he added that sales of devices using the older BlackBerry 7 operating system seem to be falling faster than expected.

“We expect Q1 earnings to be inconclusive regarding BlackBerry’s long-term chances,” he wrote.

Most analysts also expect the company’s subscriber base to continue to decline by about 3 million from the 76 million subscribers reported at the end of the last quarter. This is likely to further pressure the high-margin service revenue, which is also under pressure from changes made to BB10 that result in less use of the company’s backbone network.

(Source: Market Watch)