On Jan 8, we maintained our Neutral recommendation on
). The company reported tepid third-quarter 2013 results with
both the top and the bottom line missing the Zacks Consensus
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Why Kept at Neutral?
Blackberry has recently decided to enter into a 5-year agreement
with the world's leading developer of electronic products and
components, Foxconn. Such a strategic decision will help the
Canadian device maker to target the smartphone market of
Indonesia and other emerging nations. Foxconn will supply
inventories for the smartphones. Moreover, the company has also
raised nearly $1 billion through private placements. The amount
will be invested to promote and produce new handsets.
BlackBerry 10 (BB10)-based Z10 smartphone is now available in
more than 147 countries. BB10 QWERTY devices have been gaining
traction in the last couple of months and are currently accepted
by over 320 telecom carriers across the globe. The Q10 smartphone
is available in 96 countries and will be launched in another 50
countries in the ensuing second quarter.
A major growth product for BlackBerry is its BlackBerry
Enterprise Service 10 (BES10) solution. This is a cross-platform
product interoperable with Apple's iOS and Google's Android.
BES10 provides flexibility, scalability, high security and
cost-effectiveness to its customers. As of now, more than 18,000
enterprises are using BES10.
By offering a convenient, reliable and secure way of accessing
email in real time, BlackBerry has been able to successfully
differentiate its products from the other offerings in the
communications market. BlackBerry commands a strong brand value
in the wireless PDA market, leveraging the popularity of its push
email system. The company holds 2,033 patents ranging from mobile
security to push e-mail in high-end smartphones. Moreover, a
healthy balance sheet will tend to act as a tailwind for the
company going forward.
On the downside, we remain concerned about the company's recent
decision to change the business model of its high-margin services
fees segment. As per the new structure, the company will benefit
from subscribers who opt for services like greater security while
the other customers will generate little or no service revenue
for the company.
Meanwhile, the uncertainties surrounding the company's plan to go
private may lead to more restructuring and divestiture in the
forthcoming quarters. Furthermore, BlackBerry is facing stiff
competition from low-cost smartphone manufacturers, which we
believe will continue to hurt profitability going forward.
Currently, BlackBerry has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other better-ranked stocks in the telecom industry include
). All three stocks currently have a Zacks Rank #2 (Buy).