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While the focus for BlackBerry (NASDAQ:BBRY) this past week has been on the U.S product launch of the new BlackBerry Z10 smartphone, all eyes will now be turning to the 4Q 2013 earnings report scheduled for release before the market open on Thursday, March 28th.

After a strong run up from a low of about $6.30/share in late September to an intraday high of $18.32 on January 24th, the stock has traded more or less in a range between $13.50 and $16.00 per share for the past seven weeks. Recent volatility has had a lot more to do with information (or lack thereof), innuendo, and conjecture surrounding the new BB10 OS and the global rollout of the aforementioned Z10 than it has had to do with upcoming earnings expectations.

However, results still matter and even though BlackBerry is not expected to post a profit, Q4 numbers will be an important gauge as to the continued financial health of the company. Indeed management said during the Q3 2013 conference call that the transition to BB10 will "impact revenue, unit volumes, gross margins, ARPU and operating expenses and we expect to report an operating loss in the fourth quarter."

That said, according to Bloomberg BusinessWeek, consensus earnings estimates are -$.32/share on $2.8 billion in revenue, but it is going to be the details that tell the real story.

Show me the Money

Assuming no huge surprise on the earnings/revenue front, the balance sheet is going to be my first stop. I'll want to see how well the cash position is being managed during this time of major transition for the company. BlackBerry ended Q3-13 with a healthy $2.94 billion in cash. However, as one would expect, the management also indicated during the last quarter conference call that the company would be increasing its marketing spend this quarter as it rolls out BB10. Even so, they anticipated ending Fiscal 2013 with a cash position "substantially higher" than the $2.1 billion cash balance the company had at the beginning of the year.

I'm not sure exactly how to quantify "substantially," but I'm expecting cash to be in the neighborhood of $2.2 billion. Anything more than that would be icing on the cake. Anything less would be somewhat of a concern. I say "somewhat" because the company has no debt that it needs to service and has indicated it has unused lines of credit.

In addition, based upon prior guidance from the company that it would be instituting pricing "initiatives" on BB7 devices to presumably clear out channel inventory, as well as the new service fee model coming on line, I expect margins to start being pressured. However, this could likely be offset by the transition from low/no margin BB6 devices, to somewhat higher margin BB7 (even with the pricing "initiatives" baked in) and new BB10 device(s).

As I said above, results still matter, but this is a time of transition for the company as it is not only introducing a new Operating System and new phones but is in the midst of moving to a new pricing system for the service side of the business. As such I believe that there will be a fair amount of "wiggle room" regarding expectations for the previous quarter's financials. Q4 was for the old "Research In Motion" and is past history. Now it's the new "BlackBerry" era, and investors and analysts alike are more forward-focused and interested in where the company is going rather than where it has been.

Therefore, the "real" part of the earnings call is likely to revolve around numbers related to the BB10 launch, specifically sales numbers of the Z10 thus far, as well as guidance going forward. Up to this point CEO Thorsten Heins has been coy about revealing exactly how many Z10's have been sold to date, sharing only that sales are exceeding expectations. However Heins has been confident enough to recently talk a little smack about the Apple (NASDAQ:AAPL) iPhone. While BBRY shareholders love the fact that their CEO is no shrinking violet, such overt confidence can be a double-edged sword as it has a tendency to lead to higher expectations from the investment community. However, as Muhammad Ali (who knows a little about taking smack himself) once said, "It's not bragging if you can back it up".

So what do Heins and his management team have to do to back up their claims of success? First and foremost they need to provide real numbers. The time for being coy is past. Thursday is the day were the rubber meets the road and Z10 sales numbers need to be revealed. Second, those numbers need to be good. Not necessarily "Shock and Awe" good, although that would be nice, but solid. Sales estimates from most Wall Street analysts seem to fall in a range of 300k-800k for the new phone. Heins is going to have to report something towards the very top of that range to retain bragging rights.

Another metric that doesn't show up on the income statement or the balance sheet, but is critical nonetheless, is Net Subscriber Adds. Last quarter the company reported a net loss of 1 million subscribers from its base of 80 million users. In Q2, on the strength of growth in emerging markets, the company actually reported a gain of 2 million subscribers. Based on a recent article published here at Seeking Alpha, it seems that at least some of those markets are still showing strong demand. Heins is going to need to demonstrate that the erosion of his global subscriber base has been arrested or at least slowed. Reporting anything less than 77 million subscribers would be at the very least a psychological blow to the client base and could possibly be a momentum killer.

Of course equally important and perhaps even more so, will be guidance going forward. Fiscal 2014 is expected to be a critical year of transition for BlackBerry. Goldman Sachs Analyst Simona Jankowski recently cut her rating on the stock to a neutral and predicts that the new BlackBerry lineup has only a 20% chance of success. Jankowski had previously predicted the company would sell between 2-3 million phones per quarter for the Fiscal 2014. Heins needs guide to at least 10 million BB10 sales in 2014 to prove he can deliver. Personally I believe that pent up demand from current BB6 and BB7 users will create a period of strong initial demand followed by a second wave as the Q10 comes on line later this year. I will be disappointed with any guidance short of 12 million units at the very least for 2014.

On the service side, the new BES service model is going to start impacting margins and revenue as more non-enterprise users opt to go without and save $3-$7/month. Heins and his team see this a la carte model as a necessary evil in order to remain competitive and anticipate eventual additional revenues from their cross platform mobile device system that manages security for enterprise BYOD users. I'd like to hear a little more about how that is going to flesh out because without those additional revenues, every BB10 device that is sold to a non-enterprise user means less service revenue going forward.

So that's it. It's not that complicated. Fiscal results need to be in line and from there all Thorsten Heins needs to do is deliver on his promises and provide a little assurance that things are heading in the right direction. Simple right?

I guess we'll find out Thursday morning.

Disclosure: I am long AAPL. 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.

Source: Countdown To Zero Hour For BlackBerry Earnings

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