What You Think About BlackBerry Is Wrong
NEW YORK (TheStreet) -- BlackBerry's (BBRY - Get Report) most recent earnings report was taken with a grain of salt by investors who cited its declining revenues. There are a lot of positive things happening at the company right now, but many investors have focused solely on the negative, and the stock has fallen more than 10% since the report.
BlackBerry has been painting an image of a stable company in its most recent press releases and conferences. Now that it is stable, BlackBerry may be entering a phase of growth, which will allow the company to expand its services and revenue and reward its investors.
BlackBerry's devices were once iconic, but its share of the device market has been decreasing to an insignificant level throughout the world.John Chen, the new CEO of BlackBerry, decided four months ago to have Foxconn manufacture and distribute BlackBerry's lower-end devices to key markets. The first product of the partnership, the Z3 smartphone, is set for release in Indonesia and other Southeast Asian markets in the coming weeks, and should boost BlackBerry's bottom line. Although analysts and BlackBerry enthusiasts are not anticipating the Z3 and other smartphone releases in the coming months to return BlackBerry to its previous dominance, they should still help the company recover somewhat. The lower-end smartphones, which as recently as just a few months ago carried a negative or break-even margin, are now being designed and distributed by Foxconn with only the profits being returned to BlackBerry. This means that BlackBerry will not be at risk of an inventory write-off, significant losses or the costs of research and marketing these phones. However, BlackBerry will continue to manufacture its higher-end smartphones, which carry a hefty margin. "Our handset business must be made profitable and we're working on our supply chains with the likes of Foxconn, Wistron and other suppliers, all across the world," Chen said while discussing the latest quarterly results. BlackBerry is taking several moves to improve margins, including severing its partnership with T-Mobile US (TMUS), which had eaten into its margins. The new initiatives, combined with just 20 weeks of inventory (using fourth-quarter sell-through) of old smartphones, and the new mix of revenue and margins of newer BlackBerry devices, should allow BlackBerry's hardware segment to return to profitability in the coming months.