Macquarie Downgraded BlackBerry, Lowering Estimates

Macquarie Equities Research analyst Kevin Smithen downgraded

from Neutral to Underperform, reduced subscriber forecast for end-F15, and lowered the price target from $7.00 to $5.50. Smithen noted that although John Chen is regarded highly, Macquarie does not see him as the permanent CEO and moving to Waterloo. A review of the filing also lead the analyst to comment on Chens's incentive to sell the company as one entity. Smithen wrote, "Given the recent $1bln convertible, an analysis of recent 13-D filings from Fairfax and comments from new Executive Chairman John Chen, a breakup no longer appears as a likely outcome, though still possible. Meanwhile, our checks indicate a pick-up in the pace of services erosion at US enterprise customers, which will offset much of the 50% opex reduction, in our view. While we still believe that Lenovo and others were serious about acquiring certain parts of the company. BBRY's Board, faced with increasing levels of cash burn, decided to embrace a stand-alone turnaround plan left by Fairfax and Mr. Chen. We believe that the Board may have felt that the potential 'gutting' of operations in Waterloo by Lenovo and others was not in the best interests of all constituents (ie employees). Additionally, a breakup would likely be complicated to execute and take several qtrs. to achieve the separation needed to satisfy US and Canadian regulators." Macquarie lowered subscriber forecasts for the end of FY 2015 from 53.7 million to $46.8 million. The analyst noted that FQ415 services and software revenue fell from $519 million to $466 million. Further, BlackBerry is expected to cut $887 million is cash opex in half between FQ14 to FQ15. Smithen reduced the FY15 EPS from $0.74 to $0.40 and FY16 EPS from $0.99 to $0.43. BlackBerry Limited closed at $6.48 on Thursday.