Blackberry Rebounds With Strong Sales, Low Costs

Research in Motion (BBRY) recently closed at $14.70 on April 8, Monday. The stock declined by $0.29 or 1.93%. We estimate that Blackberry is in a turnaround phase from very depressed levels. The profits are increasing and above average while it continues to trade at a discount.

BlackBerry (ticker: BBRY) reported a strong fiscal-fourth quarter (ended February) with a much earlier profitable stretch than expected. One million Blackberry 10 sales out of six million shipments contributed to this upturn. Cost reductions were also effected throughout the company.

Cash balance decreased by $63 million and subscriber base by three million. Subscribers of Blackberry are now about 76 million from 79 million. However, cashflow from operations are $219 million, while cash and investments are $2.9 billion.

For the February quarter, BlackBerry reported $2.7 billion in revenue and 22 cents in earnings per share versus estimates at $2.82 billion and a 31-cent loss per share, respectively. The gross margin of 40% were much higher than expectations of 30% to 31% which threw off the estimate.

The company’s cash position declined by $63 million to $2.88 billion from $2.94 billion last quarter as the company invested in working capital with inventory growing to $603 million from $457 million, and accounts receivable to $2.63 billion from $2.54 billion.

Cost reductions, a leaner supply chain, and improved hardware margins are expected to produce a break even during the next quarter.

The company expects spending on marketing to increase by 50% quarter-over-quarter. This is to push the product transition of BB10 and the long awaited Z10. Lower priced models will also be released to target entry-level markets. A new BB10 Playbook is also rumored to be in the works. This diversified product line will help BBRY target a larger market demographic while keeping up with the competition of Apple (AAPL) and Samsung.

Blackberry Z10 are only just now becoming available in the United States, one of the company’s key markets. And it’s still unclear whether the new phones can command the spot in the corporate workplaces that BlackBerry once did.

The cell phone manufacturer’s stock has doubled in the past six months as the company prepared to launch its new BB10 operating system, a gadget designed to better compete with Apple iPhones and Google-based Android smartphones.

BlackBerry is also hoping that its PlayBook tablet can gain share in the crowded tablet market (another that Apple dominates). It shipped 370,000 tablets in the quarter. The competition is tough and the market is saturated, Amazon.com sold 6 million tablets in the same period. Apple sold 22.9 million.

Heins voiced optimism that the BB10 will take hold. “With the launch of BlackBerry 10, we have introduced the newest and what we believe to be the most innovative mobile computing platform in the market today. Customers love the device and the user experience, and our teams and partners are now focused on getting those devices into the hands of BlackBerry consumer and enterprise customers.”

The company has also undergone a change in leadership, as co-founder Mike Lazaridis, who served as vice chair of the board and director of the company, has decided to retire. He will step down from the BlackBerry Board on May 1, 2013 to focus on his new venture, the Quantum Valley Investments fund.

We issue a Neutral rating as Blackberry’s upturn will be closely scrutinized in the next 12 months. Balance sheet is strong, profits are increasing, and investors who are already holding this stock should keep it in their portfolio for the next 12 months

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