Oppenheimer: BlackBerry Device Biz Turnaround Will Be Difficult

In a report published Wednesday, Oppenheimer analysts Andrew Uerkwitz and Martin Yang reiterated a Perform rating on shares of BlackBerry Ltd BBRY, after the company reported first quarter (fiscal 2016) results below consensus, but above the firm’s estimates.

First quarter handset unit sales (1.1 million) were in line with Oppenheimer’s bearish expectations, but -- again -- below the Street’s consensus. The company added two new Taiwanese ODM partners, which the firm believes are intended to support hardware profitability increases. Having said this, the analysts reiterate their bearish view on BlackBerry’s handset business, based on increasing competition from Chinese OEMs and the fading value proposition of the company’s handsets.

Related Link: Wells Fargo: BlackBerry Restructuring, Divestitures Could Have Upside; Sale Less Likely In Near-Term

Nevertheless, ASP and software revenues (led by licensing) came in better than expected, contributing to the estimate-beating results. Health care and financial verticals were important to the software segment’s performance this quarter.

“Management stressed that core enterprise software, newly acquired business, and licensing revenues will provide growth,” the analysts add.

Management also “reiterated its focus on profitability and cautious optimism.” The company continues to cut costs in its handset business, but the experts now believe it faces “irreversible deterioration.”

While Oppenheimer thinks the company has executed well to develop its Software sales from core enterprise customers and tuck-in acquisitions, they conclude that “a turnaround in the Device business will prove to be difficult.”