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Those most bullish about BlackBerry (BBRY) talk about the potential for BlackBerry to sell six million BB10 phones per quarter. This would translate into an EPS upwards of $0.65 according to previous calculations. We are going to look at the supporting evidence for six million BB10 units per quarter based on supply chain checks and consumer interest surveys.

Supply Chain Checks and Financials

One recent supply chain check by Peter Misek of Jefferies indicated that BlackBerry 10 build plans had been increased to over two million units per month. This is supported by a BlueFin report that indicated that suppliers were anticipating a potential return to 2011 revenue levels if the forecasts they were getting from BlackBerry held up.

Now we need to answer the question about what a return to 2011 revenue levels for component suppliers means in terms of BlackBerry sales. The hardware cost of sales for BlackBerry was $2.36 billion for the quarter ending August 2011, and $2.58 billion for the quarter ending May 2011. In a previous article, we determined BlackBerry's cost of sales for BB7 and BB10 devices, and will use those figures here. The below two charts show two scenarios that match the hardware cost of sales for those 2011 quarters.

Product

Units (Million)

Cost Per Unit ($)

Total Cost of Sales ($ Million)

BB7

3

$220.40

$661.20

BB10

6

$282.64

$1695.84

Total

9

$261.89

$2357.04

Product

Units (Million)

Cost Per Unit ($)

Total Cost of Sales ($ Million)

BB7

4

$220.40

$881.60

BB10

6

$282.64

$1695.84

Total

10

$257.74

$2577.44

These figures of 9 to 10 million total BlackBerry units per quarter also matches up with Ehud Gelblum of Morgan Stanley's look at how amortization forecasts in BlackBerry's financials could tip off their unit forecasts. He concluded that the amortization levels implied a 10 million unit per quarter forecast. As we see above, 4 million BB7 units and 6 million BB10 units sold per quarter gets us to the right level for hardware cost of sales.

On the other hand, these supply chain checks are contradicted by Brian Blair of Wedge Partners, who believed that BlackBerry had scaled back production of the Z10 by four to six million units, and that full-year BB10 sales would be under 10 million units. We don't have any concrete sales information to prove which viewpoint is right yet, but I will later detail how consumer interest surveys (including those by bearish analysts) support a six million per quarter sales rate.

As well, many of Brian Blair's recent supply chain checks and forecasts have appeared to be inaccurate. These include:

  • Said there would be no iPad Mini in 2012. The iPad Mini was released in November 2012.
  • Forecasting 13 million iPad sales in Apple's (AAPL) most recent quarter, compared to actual shipments of 19.5 million. Blair's forecast was off by the most of any analyst listed.
  • Forecasting iPod sales of 7 million units, compared to actual shipments of 5.6 million units. This was also one of the worst performing forecasts.

Blair's iPhone unit forecasts were quite accurate (off by only 0.4 million), but getting one of four items correct does not inspire confidence that we should discard several pieces of contradictory information in favor of his supply chain checks and forecast.

Now the question becomes whether consumer demand will match up with BlackBerry's internal forecasts. Of course, BlackBerry would have only increased build plans in March and early April if they knew sales were going well up to that point. Although the US launch was still to come at that point, the Z10 would have already been launched to the majority of BlackBerry's subscriber base.

Consumer Interest Surveys

There have been a couple of recent surveys that have indicated a strong surge of interest in BlackBerry. ChangeWave Research found in a March 2013 survey that 7% of North Americans who were planning to purchase a smartphone within the next 90 days were planning to purchase a BlackBerry. This was up from 4% in December 2012 and 1% in September 2012.

Separately, an MKM Partners survey indicated that 5.9% of US respondents intended to purchase a BlackBerry as their next smartphone. Although MKM Partners is bearish on BlackBerry, their survey still indicated strong interest in purchasing a BlackBerry. With only 3.4% of their sample currently owning a BlackBerry, this means that at least 42% of projected BlackBerry sales come from non-BlackBerry users.

What does this mean in terms of potential sales? US smartphone sales are forecasted to reach 137.5 million units in 2013. Canada's population is 11% of the US's population, so combined smartphone sales would be around 151 million units for 2013. If we assume that 7% of North American smartphone sales are BlackBerries, that would represent 10.57 million units sold. We will also assume that 10% of BlackBerry sales in North America are the old BB7 units, so North American BB10 sales would be 9.51 million units based on consumer interest.

Sales in other developed countries such as Australia, UAE, Saudi Arabia, New Zealand, and those in Western Europe are projected to follow a similar pattern relative to the BlackBerry subscriber base. The US and Canada represent about 26% of BlackBerry's subscriber base with projected BB10 sales of 9.51 million over one year. Therefore we are assuming that Western Europe, which has another 26% of BlackBerry's subscriber base, will sell a similar amount of BB10 units. For emerging markets such as Indonesia, India, South Africa, etc... we are assuming that the BB10 sales ratio to subscriber is 20% of that of the developed countries. That means that a country such as Indonesia which has 7% of BlackBerry's subscriber base would be projected to sell about 500,000 BB10 units over one year.

Region

% of BlackBerry Sub Base

BB10 Sales (Million)

United States & Canada

26%

9.51

Western Europe

26%

9.51

UAE & Saudi Arabia

10%

3.66

Australia & New Zealand

1%

0.37

Emerging Markets

37%

2.71

Total

100%

25.76

These calculations get us to an average of 6.4 million BB10 sales per quarter.

Conclusion

Supply chain checks and BlackBerry's financials both point toward a probable internal forecast of 6 million BlackBerry 10 units per quarter. The consumer surveys also indicate that there is sufficient consumer interest to sell 6 million BlackBerry 10 units per quarter, and this doesn't even include enterprise interest, which has accounted for around 20-25% of BlackBerry subscribers in the past.

Keep in mind that with BlackBerry launching the Q10 in addition to the Z10, each phone will only need around a 3% market share in developed countries to get over the 6 million per quarter mark.

Source: BlackBerry: Supporting Evidence For 6 Million BB10 Units Per Quarter