BlackBerry Outlook Faces 'Greater Risks' In 2016, Imperial Capital Says

In a report published Friday, Imperial Capital analyst Michael Kim maintained an In-Line rating and price target of $10 on

. The company is expected to report its F1Q16 revenue below the estimates. The analyst also believes that there are "greater risks" to the FY16 estimates, driven by a slower than expected ramp of the software business. For FY16, the analyst also expects the continued weakness due to the falling service revenue. This, the analyst believes, is indicative of a long-term financial headwind, which will need to be offset by high margin revenue from software. The F1Q16 revenue and EPS are expected to come in at $780 million and (0.05), respectively, driven largely due to lower than anticipated expansion of Classic, via the US carrier channel. "Looking ahead, we are also less optimistic about future shipments of the new Leap device based on lackluster feedback. However, we continue to anticipate near-term bounce from Classic as legacy users exchange their aging devices, though this upgrade cycle could pull demand forward unless BBRY is able to introduce new devices with compelling features and capabilities," Kim stated. Regarding the outlook for FY16, the analyst believes that potential risks include slow software (BES12) and BlackBerry Messenger (BBM) ramp. The management expects to double its software revenue to about $500 million, while generating BBM revenue of $100 million. "This appears unrealistic given the company's middle-of-the-road EMM (enterprise mobility management) suite, as highlighted by market researcher Gartner's recently published Magic Quadrant report for EMM Suites 2015. It will be critical for BBRY to rapidly upgrade customers in the EZ Pass program to the gold tier and begin charging for technical support without material attrition," the Imperial Capital report added.