BlackBerry Ltd (BBRY) DTEK70: Game-Changer or Non-Event?

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The rumor mill is spinning again with BlackBerry Ltd (NASDAQ: BBRY ). Code-named "Mercury," the next BlackBerry device, DTEK70, will reportedly get a Feb. 25 launch date. And BBRY stock holders probably do not care at this point.

BBRY Stock: BlackBerry Ltd (BBRY) Stock Being Underestimated by Investors

Source: WEi WEi via Flickr

BlackBerry is rebranding itself as a software company, but its stock is up a mere 4.3% in the last year. By comparison, Apple Inc. (NASDAQ: AAPL ) is up nearly 25% in the last year while Nokia Corp (ADR) (NYSE: NOK ), which exited the Windows Phone market and focused on networking, fell 33%.

Still, the DTEK70 release is important for BBRY.

BlackBerry and TCL Partnership

BlackBerry outsourced its entire hardware development and manufacturing with TCL . Early signs are positive that "Mercury" will win customers, especially in the business space. BlackBerry said that it is 100% in developing software solutions. TCL's "Mercury" build offers a secure Android operating system and has a physical keyboard. The company earns IP and royalty revenue for each device TCL sells.

On its conference call in December, BlackBerry described the TCL deal:

This licensing model allows BlackBerry to generate ongoing high margin royalty revenue from a device software based on the number of units sold. We have a pipeline of additional opportunities that are focusing on, including a late discussion in India that are ongoing."

Decent Price to Performance

BlackBerry priced the budget DTEK50 in the right range but did not win the mainstream market. DTEK60 demonstrated the company's ability to make a solid, high-performance phone at mainstream prices. DTEK70 is even more practical for business users. Rumored to run on a Qualcomm, Inc. (NASDAQ: QCOM ) Snapdragon 635 or Snapdragon 821, the device will have just 4.5 inches of screen real estate.

This is the magic number for DTEK70: The device may sell for around just $350. At that price and size, business users who crave for higher productivity will snap up this phone when it is launched.

Profit Margin

BlackBerry CEO John Chen will not allow the company to sell devices at a loss. Assume profit margins in the range of 25%-50% for TCL. When the costs of software development are included, the profit margin for BBRY may run above 50%-60%.

Launch Date

On its blog, BlackBerry said it will give more details about the smartphone at the Mobile World Congress show. The event runs from Feb. 27 to March 3.

Interest in "Mercury"+ "BlackBerry" jumped:

Click to Enlarge Source:

Game Changer or More of the Same?

Past BlackBerry Android devices did not give the company much revenue growth. In the third quarter, the $172 million in software services revenue accounted for 57% of the company's revenue.

The TCL licensing deal, though, is a game-changer for the software company. DTEK70's development costs are all shouldered by its partner. BlackBerry gets a cut in the sales through the software licensing. High profit margins from software sales will translate to more profits for the company.

The one big catch is that BBRY and TCL must advertise and promote this upcoming device. BlackBerry made $12 million in operating income in the third quarter.

Profit Model for DTEK 70

Assuming TCL pays a 10% royalty on the profits of the $350 device, or $20 per device, BlackBerry could earn the following:

Units Sold per quarter Profit 100,000 $ 2,000,000


$ 5,000,000 500,000 $ 10,000,000

Selling 500,000 units a quarter would match the company's third-quarter operating income.

Bottom Line on BBRY Stock

The smartphone market is still wide-open for small players like BlackBerry. Previously released Android devices demonstrated the company could deliver on supplying a highly secure, bug-free operating system. The inexpensive DTEK70 targets the business user.

With the rumored price and phone specifications, BlackBerry may have an unexpected winner.

As of this writing, Chris Lau was long BBRY. Follow him on Twitter .

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The post BlackBerry Ltd (BBRY) DTEK70: Game-Changer or Non-Event? appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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