Wells Fargo On BlackBerry: Are Promotions A 'Strategic Plan' Or Sign Of Poor Demand?

Maynard Um of Wells Fargo commented in a note on Monday that there are two interpenetration to

recent promotions. Firstly, BlackBerry's new trade-up program on Passports and discounts on Passports/Z30s could be a plan to grow a “grass roots effort” to increase BES adoption among new BlackBerry users. The analyst also notes the possibility that the company's promotions could be reflective of soft demand in North America for its device. “We believe the truth lie somewhere in the middle,” Um wrote while stating that his gross margin estimates could be negatively impacted by 90 basis points while earnings per share could be impacted by $0.02. According to Um the promotions do not necessarily increase incremental demand while half of the Passport demand in the fourth quarter is driven by promotions. The analyst calculates that that 50,000 units are being sold at a gross profit neutral. The analyst adds that BES 12 adoption will be key to BlackBerry's recovery but visibility is “very limited” in the early stages. Shares are Market Perform rated with a $9.50 to $10.50 valuation range.