RBC: BlackBerry Classic/Passport Sales 'Aren't Great,' Revenue Outlook 'Well Below' Wall Street Consensus

In a report published Thursday, RBC Capital Markets analyst Mark Sue maintained a Sector Perform rating on BlackBerry Ltd (NASDAQ: BBRY), with a price target of $11, saying that there were more signs of the company's software transition. "We're Street-low on revenue considering Classic/ Passport sales aren't great, SAF declines are continuing (estimate -49% YoY) and software contribution is too small to offset," analyst Mark Sue said. Total revenue is estimated at $487M, representing a 26 percent sequential decline and a sharp 50 percent y/y decline. The estimate is much below consensus of $689M. Sue further estimates smartphone sales at 700k units, representing a 46 percent sequential decline and a 56 percent y/y decline, reflecting slowing Classic/Passport sales and the lack of a full quarter for the Leap. BlackBerry could report its EPS at a loss of $0.07, higher than the Street's ($0.03), assuming opex of $305M.In the report RBC Capital Markets noted, "BlackBerry's $600M software revenue outlook is back-end loaded. Our near-term estimate is conservative; we expect software revenues to remain relatively flat at $70M in F1Q. We expect software revenue to ramp to $100M in F2Q and $145M in F3Q on conversion of BES EZpass trials, traction with carriers and SIM-based licensing."Sue commented that BlackBerry could be considering development of an Android-based device, marking the "first step towards a software-only model." In such a model BlackBerry would offer differentiated devices, while avoiding the large fixed cost of maintaining its own OS.