(Reuters) - Blackberry Ltd warned on Friday that it expects to report a huge second-quarter operating loss next week and that it plans to cut more than a third of its workforce.
“It’s not surprising in the sense that we haven’t seen any traction with their devices, and it’s obviously exacerbated by the fact that you’ve got Apple out with a new product, you’ve got several new Android products, and Blackberry continues not to get traction.”
“We keep the sell rating because our view is this company has a lot of problems, and it’s not going to sell for the current price.
“That’s the unfortunate part of tech. Tech is very brutal in terms of product cycles, particularly consumer electronics. When you fall off, it’s very hard to turn it around.
“It’s a brutal market, consumer electronics and technology, and when you fall behind it’s hard to catch up, as Blackberry is seeing.”
“It’s awful, you know it’s well below what anyone had expected.
“Over the past few years, they’ve been trying to get a lot of traction in the consumer segment of the market, which is a much more competitive part of the market, and they’ve been doing that mostly in Asia-Pacific, in South America and the Middle East.
“And the phones have gone from some of the most popular devices on the market a year and a half to two years ago in those markets, to almost nonexistent today.”
“The market is surprised by the revenue number but one of the reasons that’s low is they’ve not recognized revenue from BB10 sales, which don’t seem to be selling.
“It makes it even more difficult for somebody to step in and buy the company. If you look at what’s been happening, they’ve burnt through approximately half a billion dollars in cash in the last three months. \
“The last time they reported results, they had $3.1 billion in cash equivalents and in the release today they say $2.6 billion.
“It’s the beginning of the end. If the company is not going to have cash, it’s going to run out of funds to operate.
“They are feeling pressured and one of the reasons they are so explicit about trying to explore a sale is that they do know they are running out of cash. This preliminary announcement today would suggest, that anybody who’s thinking of buying this company can see the end is coming, so why step in now when you can get it cheaper.”
“It’s obviously a disaster. They’re pre-announcing half the revenue the street expected this quarter.”
Part of that shortfall may stem from a change in how the company recognizes revenue, by recognizing only end-customer sales rather than sales into the channel, he said.
“Switching to a sell-out number reflects what customers are actually buying.”
BlackBerry sales of 5.9 million were still short of his expectation for 7 million under the company’s old reporting method.
“The number probably keeps shrinking in the future and that’s probably why they’re making this change.”
The restructuring “makes sense from a survival standpoint. That’s really what they’re trying to do these days.
“It just shows the dire situation they’re in. It’s going to be tough for them to overcome.”
Keeping entry level phones suggests they’re still trying in emerging markets. But he said the outlook was not good for them in emerging markets either.
“Android is cleaning up in the emerging markets space. Samsung is just eating everybody’s lunch.
“Everybody who’s run into trouble has tried to revive their brand. It’s been nearly impossible,” he said, referring to Ericsson, Siemens, Nokia.
“They’re trying to arrest their slide by cutting head count. I think that’s going to make it really difficult. There’s also some hope that by taking these steps right now, it helps cleans things up for any type of potential deal or acquisition that they’ve been very forthright about seeking.
“It’s still a really hard business to acquire. It’s probably going to find limited value for most potential buyers. They’re in a really, really difficult position.
“I don’t think (what they’re doing now) will work, but I don’t think anybody could do much better with it and that’s why it’s a hard business to acquire.
“Look, I honestly believe that they’re trying their best to preserve things for as many people as they can, but it’s a very, very hard market.”
“The revenue and device shipment numbers are pretty surprising given how weak it is. I think many of us were expecting a pretty difficult quarter, but this much worse than we anticipated.
“They have to do something. To me the fact that they are exploring a sale is the only real alternative at this point. I think in the meantime, the fact that they are cutting operating expenditures deep is the best they can do to try and stabilize this ship.”
“The company has sailed off a cliff. What do you expect when you announce you’re up for sale. Who wants to commit to a platform that could possibly be shut down?
BlackBerry’s 3.7 million unit shipments were roughly half what he said he expected. But their plan to restructure the company and narrow its focus is “reasonable.”
“It has to be done.”
Reporting by Solarina Ho, Julie Gordon and Alastair Sharp in Toronto, Sinead Carew in New York, and Malathi Nayak in San Francisco