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Despite sources in the supply chain claiming a rise in the purchases of parts and components, bearish comments from an analyst at Pacific Crest succeeded in limiting a bullish move in shares of BlackBerry (NASDAQ:BBRY). The basis of the bearish spin was that the company was raising production even though weaker-than-expected sales were expected. Investors should note that the same analyst said November 7, 2012, that BlackBerry 10 would be "dead on arrival" when BlackBerry shares were trading at $8.35. BlackBerry shares closed recently at $13.96, up 67% since that call was made.

Investors should look at the steady drop in BlackBerry as an opportunity to accumulate a position, ahead of earnings on June 28, 2013.

1) Inventory Levels Healthy

BlackBerry streamlined its supply chain so that it would be more nimble in responding to demand. Inventory Outstanding at the start of 2013, was markedly improved over previous years.

BBRY Days Inventory Outstanding Chart

BBRY Days Inventory Outstanding data by YCharts

When BlackBerry reports its quarterly results, it will be the first time the company includes a full quarter of Z10 sales. Sales in the U.S. may be light, but will be due mostly to the new BlackBerry being launched on March 22, 2013.

2) Strong Z10 Demand

Z10 demand was strong at launch. BlackBerry doubled its smartphone market share in Canada to 13.5% in the first quarter.

(click to enlarge)

Even if the initial hype from the launch wanes, chances are high that sales of the Z10 will remain strong. BlackBerry is spending more on marketing to advertise its product refresh. This move will ensure that the follow through in sales will last more than one or two quarters. As the device continues to be marketed alongside its global roll-out, BlackBerry will gain back some of its global market share lost during the first quarter. BlackBerry's global market share dropped from 6.4% to 2.9% last quarter:

(click to enlarge)

3) Strong Q10 Demand Anticipated

Verizon (NYSE:VZ) began accepting pre-orders for the Q10 in the United States on June 1. The keyboard-based model was launched in Canada on May 1, for $199.99. BlackBerry lacks any real competition for smartphones with keyboards. Not only will the company win upgrades from its fan base, but the release coincides with a strong effort from the company to push corporate BlackBerry server upgrades. BlackBerry is speeding up the upgrade review process by promoting free upgrades.

4) Short Squeeze Still Possible

Bearish reports from analysts are supporting investors holding a short position on BlackBerry shares. Short interest again rose on May 15, 2013, up another 3.7%. Bearishness rose steadily since February 28, 2013:

Settlement Date

Short Interest

Average Daily Share Volume

Days To Cover

5/15/2013

170,632,578

29,749,364

5.73567

4/30/2013

164,664,363

25,624,110

6.42615

4/15/2013

164,340,145

35,892,399

4.57869

3/28/2013

155,699,090

67,075,106

2.32127

3/15/2013

155,005,574

53,212,793

2.91294

2/28/2013

147,214,984

45,208,011

3.25639

2/15/2013

136,511,698

81,221,373

1.68074

1/31/2013

129,491,496

96,276,614

1.34499

1/15/2013

135,121,295

50,178,584

2.69281

12/31/2012

137,065,866

51,326,252

2.67048

12/14/2012

119,621,568

41,062,428

2.91316

11/30/2012

113,693,228

57,474,757

1.97814

11/15/2012

104,202,426

23,119,389

4.50714

Data Source: Nasdaq

Conclusion

As shares of BlackBerry drift lower, chances are high that the company will report strong sales for the BlackBerry 10.

BBRY Chart

BBRY data by YCharts

A short squeeze that was similar to the one experienced after February 15, 2013, is possible, but it is more likely that BlackBerry will issue positive guidance on sales of its BlackBerry 10 devices. The Q10 release will support growth, while the budget Q5 device will help BlackBerry regain unit sales in the emerging markets.

Source: 4 Reasons To Like BlackBerry Ahead Of Earnings