BlackBerry Z10 Goes On Sale, But BlackBerry Is Not For Sale

| About: BlackBerry Ltd. (BBRY)

BlackBerry (NASDAQ:BBRY)'s BlackBerry Z10 is now on sale in the United Stated. AT&T Inc. (NYSE:T), the second-largest U.S. wireless carrier, will start selling the highly anticipated BlackBerry Z10 touchscreen smartphone in the United States on March 22, 2013. The U.S. launch of the new devices has been delayed due to a longer carrier-testing phase in the country. AT&T's pre-sales of the devices had started on Tuesday, March 12. AT&T is selling the devices for $199.99 with a two-year contract. T-Mobile USA also started to sell the BlackBerry Z10 to its business customers in the United States on Monday. Verizon Inc. (NYSE:VZ), the largest U.S. wireless carrier, has yet to announce when it will start selling the Z10. Earlier, Sprint (NYSE:S) confirmed that they will not be carrying the BlackBerry Z10 which will make Sprint the only one of the 4 major US carriers not carrying the Z10 instead opting only for the BlackBerry Q10.

Estimate by the Analyst

On March 11, Scotiabank analyst Gus Papageorgiou said, "We believe the Street is pricing in such a weak fiscal 2014 that BB10 does not need to be an outstanding success to surprise." Papageorgiou has a sector outperform rating on BBRY and expects the company sold about 1 million BlackBerry 10 devices in the quarter ended March 2. The analyst indicated that next quarter will be the true test as BB10 launches in the U.S. and gross margins should improve as more Z10s enter the mix.

CEO's Take and Lower-Cost BB10

On March 7, BlackBerry CEO Thorsten Heins said feedback on the Z10 is "very encouraging" and he is surprised by the interest in the Z10 from other platform users. Heins noted that the Z10 is selling well in India and that five days of inventory sold out in just two days. In India, BlackBerry is planning to introduce a lower-cost BB10 device this year, but the company won't get into the $50 to $60 range for unsubsidized phones.


On March 11, 2013, the head of China's Lenovo Group told a French newspaper that the personal computer maker might consider an acquisition of Canada's BlackBerry at some point in the future. "External growth remains a question of opportunities. As for BlackBerry, the file could eventually make sense, but I must first analyze the market and understand the exact weight of this company," said Yang Yuanqing, Lenovo's chief executive.

Analysts, however, do not think the deal will happen for a few reasons:

"We believe a takeout of BlackBerry is unlikely, especially in the near term, nor is our investment thesis or 'outperform' rating predicated on such an event," said Wells Fargo analyst Maynard Um.

Canadian government, which blocked mining giant BHP Billiton's US$39B bid for Potash in 2010, will not easily approve a Chinese acquisition of BlackBerry. An acquisition might be difficult," said Morningstar analyst Brian Colello. "My understanding is that Canada treats the company and its patents as a bit of a crown jewel and would not rule lightly on a takeover." Jefferies analyst Peter Misek also said the take-over by Lenovo is unlikely due to regulatory concerns. However, the analyst indicated a Blackberry/Lenovo joint venture is a more likely scenario.

The deal is not financially sound. Pacific Crest's analyst, James Faucette, reiterated an underperform ratio on BlackBerry shares, writing that with an $8B market capitalization, an entity like BlackBerry would be difficult to engineer for an $11.2B company such as Lenovo. As reported by Tiernan Ray from Barron's,

"Lenovo has about $4.1B in cash, and if it were to retain its traditional minimum cash-to-revenue rate of 7%, it would need to hold onto $2.4 billion of that, leaving only $1.7 billion to fund any deals."

A spokesman for Lenovo in Canada also talked down the chief executive's comment, saying, "in no way was this an indication of activity or strategic direction". Another Lenovo executive had made a similar comment. Lenovo stated that the executive was only speaking broadly about M&A strategy.

Real Battle

At $199.99, the BlackBerry 10-equipped phone will be competing directly with Apple (NASDAQ:AAPL)'s iPhone 5 and top-end Android phones like Samsung (OTC:SSNLF)'s Galaxy S III. BlackBerry Z10 is the first device to launch with new BlackBerry 10 software and the first to operate over AT&T's 4G LTE network. According to the latest data ending in January, 2013, BBRY's market share had declined from 7.8% in October, 2012 to 5.9% in January, 2013. BBRY needs to show shareholders that it can stabilize the sales drop and reverse the declining trend with BB10.

Bottom Line

Fundamentally, BBRY does look attractive with $2.73B total cash and zero total debt, as well as a book value of $18.15 (vs. the current trading price of $14.47). However, while analysts continue to battle on BlackBerry with numerous upgrades and downgrades, investors need to be aware that BBRY will remain as traders' heaven until actual sales report for BB10 is released.

Note: All numbers are quoted from the closing of March 12, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Disclosure: I am long S. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.