Not a day passes that we don't hear something negative about BlackBerry (NASDAQ:BBRY). This time it was analysts at Sanford Bernstein taking a shot at the BlackBerry punching bag. While the stock has been a punching bag for a while now, I think Sanford Bernstein has probably given the most punches.
According to an article in the WSJ, Sanford Bernstein believes that BlackBerry is likely to burn over $2 billion over the next 18 months (six quarters), and that might cause significant liquidity problems for the company. As Sanford Bernstein sees it, the company has $2.9 billion in purchase orders and commitments coming due over the next year.
While I do not doubt that BlackBerry has purchase order agreements of this magnitude (it would only be natural for a company doing over $10 billion in sales until recently), I do doubt that BlackBerry will be obligated to fulfill these commitments, even if we assume that it will not need them (which is also debatable).
Let me remind everyone of another purchase order issue that was in the news just some months ago. For those who recall, back in July, a story broke in the news where Verizon (NYSE:VZ) was on the Apple (NASDAQ:AAPL) hook for not fulfilling its purchase order commitment to Apple. According to several analysts at the time, Verizon was on the hook to pay Apple many billions for not selling the amount of iPhones it had ordered.
Well after about a week of speculation and thousands of articles on the subject, nothing has happened to Verizon and I don't think anyone today expects Verizon to write a check to Apple for the unfulfilled purchase order.
Even assuming that BlackBerry does not need all this stuff it has ordered from suppliers, does anyone really think that these suppliers will take BlackBerry to court to fulfill these orders? Even more so, does anyone think that BlackBerry's cash levels will fall as a result of buying stuff it will not need in the future?
I am assuming that many of these suppliers will work out some kind of deal with BlackBerry, if the company tells them it can't deliver on the purchase order. Many of these suppliers have made good money with BlackBerry over the years, and I also assume they have a very good relationship with the company. So even if BlackBerry can't fulfill all these orders, I think something, somehow, will be worked out between them.
I mean, the last thing you want to do is to kill the cow that gives you milk. Sure, you might make more money short term selling the beef, but you will make a lot more money selling milk, if you keep the cow alive for several years.
While I do not doubt that BlackBerry probably has purchase orders that it will probably not be able to fulfill, I also think that BlackBerry is not going down because of bloated inventory.
Suppliers are not monsters and are willing to make changes to original deals when they see their client has had some kind of misfortune, or simply overestimated what it thought it would sell.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.