BlackBerry Production Cuts, a New Phone, and Old Rumors

It's certainly been a hectic day for BlackBerry (NASDAQ: BBRY  ) . The rumor mill is running at full speed, BlackBerry's share price took a hit at the open after an analyst predicted poor smartphone sales results, and there's even talk that BlackBerry will sell all or part of itself -- again. As if BlackBerry CEO Thorsten Heins doesn't have enough on his plate, much of which he brought on himself by saying things like Apple's (NASDAQ: AAPL  ) iPhone is out of date and that tablets will become obsolete in five years, among other head-scratchers. Heins' comments aside, the shame is that the nearly 15% stock appreciation BlackBerry shareholders have enjoyed the past month or so just came to a screeching halt.

Z10 and Q10 sales
The bad news first: Today's 5% drop in BlackBerry's stock price was largely due to a report from a Pacific Crest Securities analyst indicating that production cuts on the new Z10 and Q10 devices are imminent. The upside for BlackBerry shareholders is that the headline paints a gloomier picture than what reality shows. According to the analyst, BlackBerry is producing between 1.5 million and 2 million smartphones a month -- not bad, considering the Q10 is offered in only limited markets.

The problem, according to Pacific Crest Securities, is that BlackBerry is selling only an estimated 1 million to 1.25 million units a month. Clearly, the math doesn't add up, and the result will be reduced production at some point in the not-too-distant future. The reasoning's logical, but it neglects to factor in a key point: The much-anticipated Q10 hasn't been rolled out in the U.S. yet. With its physical keyboard, a favorite feature of U.S. BlackBerry fans, the Q10 should give device sales a much-needed boost.

Another phone in the mix?
As mentioned on more than one occasion, BlackBerry faces the same challenge Apple does with its iPhone: Both are high-end, high-cost units, limiting their opportunities in emerging markets, especially as international carriers are unwilling or unable to subsidize pricing. Apple either has a mid-market phone in the works or will never offer anything other than premium iPhones, depending on which rumor you adhere to. But a lower-cost iPhone, just as with BlackBerry, is what needs to happen for both device makers to gain some traction. 

Like Apple, BlackBerry boasts a strong balance sheet, but it's not sitting on $145 billion in cash and selling 37 million smartphone sales a quarter as Apple is. Apple's last quarter was seen as "disappointing" because it had "only" a 6.5% jump in iPhone sales -- a problem BlackBerry would love to have. 

It was in early March when Heins squelched rumors that BlackBerry would make a low-end phone, saying, "This is not BlackBerry." But that doesn't appear to have stopped Heins from exploring the mid-range smartphone market, assuming the rumors that an "R10" device will hit the streets are true. Apparently, the R10 looks and acts much like the Q10, but with a little less of everything. For shareholders, an R10, or whatever it may end up being called, could give BlackBerry the kick-start it needs to get back on track.

The "who will buy BlackBerry" rumor resurfaces
Rounding out a day of excitement for BlackBerry was the re-emergence of an old rumor -- that BlackBerry will sell all, or part, of itself. This news was dredged up by an analyst with investment bank CanaccordGenuity, citing low Z10 sales and the limited number of available Q10s. Of course, there are just as many rumors detailing the successful Z10 rollout and problems keeping Q10 devices on the shelves because they're selling so fast.

Picking up the pieces
Cutting production, should it come to pass, isn't necessarily a deal-breaker for BlackBerry. As mentioned in a recent article, the immediate future for BlackBerry is all about making the Q10 available to the masses, and following that up with stellar sales. Adding a mid-range smartphone to the Q10 and Z10 stable could really be a game-changer for BlackBerry. If these two things happen in short order, the day's sell-off may prove to be an opportunity for growth-oriented value investors.

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Read/Post Comments (7) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2013, at 5:59 AM, H3D wrote:

    "The much-anticipated Q10 hasn't been rolled out in the U.S. yet. With its physical keyboard, a favorite feature of U.S. BlackBerry fans..."

    Clearly the few that are left stayed for a reason.

    1). Can't afford to change.

    2). Company hasn't yet changed.

    3). I'm used to a physical keyboard.

    That's about it

  • Report this Comment On May 08, 2013, at 8:10 AM, ZipXap wrote:

    4) Android sucks, I don't belong in a "walled garden", and Microsoft has a bad habit of abandoning their customers. Therefore, Blackberry by default.

  • Report this Comment On May 08, 2013, at 8:19 AM, jno20009 wrote:

    Pacific Crest continues to be bearish, makes one wonder if they're short BBRY? The consistently trot out this BS based on very little information. Just rumors to manipulate the stock. Carry on, nothing to see here.

  • Report this Comment On May 08, 2013, at 8:39 AM, cbglobal wrote:

    "Production cuts are imminent" based on no information; no evidence the guy did any due diligence what so ever. Just what the guy speculated in a dream he had the night before asa far as we know.

    We'll find out later his definition of imminent is sometime this century.

    When you consider than none of this guy's past analysis was anywhere close to what BBRY reported in the past should give you pause; like his prediction of 150,000 BB10 phones sold in the first quarter that was actually 1,000,000. I suppose he would tell you the margin of error in his analysis is 600%.

  • Report this Comment On May 08, 2013, at 9:28 AM, sammycooool wrote:

    Nice article on sell side analysts who are short the stock! Are you going to write one for today with all the glowing reports coming out about the company? We get it, analysts who have clients short the stock will say negative things about the company, many of us already know this.

  • Report this Comment On May 08, 2013, at 9:55 AM, tundrowalker wrote:

    The military just signed a very large contract with Blackberry. Didn't see that in your editorial at all. That's sort of, you know, a big deal when talking about the possible demise of a company.

  • Report this Comment On May 08, 2013, at 9:58 AM, sk8ertor wrote:

    Ok, so how about a new article with actual data as was released today by Bluefin, indicating that BBRY has actually *increased* their production on the Q10 and that carriers are holding next to nothing in inventory when it comes to these devices since they sold out in places where they're currently launched.

    Fool needs to wake up and stop falling for the bearish analysts' continuous misinformation.

    Waiting for a new, positive article.

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