Blackberry Ltd: If This Happens, Blackberry Stock Could Soar

BlackBerry LtdThis Could Be Big for Blackberry Stock

Will BlackBerry Ltd (NASDAQ:BBRY) stop making smartphones? That’s one of the big questions that will affect Blackberry stock’s performance when it announces its quarterly results on September 28.

Shutting down the smartphone business, as rumors suggest, would also imply a formal closure of its hardware business. The only reason this will not happen is if the hardware unit is profitable, in which case the prospects are still good for Blackberry stock.

At a recent event in Toronto, Blackberry’s CEO John Chen was not specific, however he said that the company’s restructuring was “two thirds of the way” complete. This has only accentuated the rumors over the closure of the hardware business. This would ultimately benefit Blackberry stock because it has been losing money. Blackberry can still profit from technology licensing agreements associated with that division.

End of Blackberry Hardware Not a Sure Thing

There are rumors that Blackberry will introduce a new phone in 2017. It’s apparently called “Rome.” Still, the same rumors suggest that this might be a rebranded Alcatel phone, which would, therefore, corroborate the prospects of Blackberry abandoning its own phones. (Source: “BlackBerry DTEK60 leaks via promotional image,” Mobilesyrup, September 27, 2016.)

Blackberry stock is trading at $7.88 per share. It has gained six percent in the past five days as rumors of its intention to give up smartphones have gained traction. The uptrend should continue, therefore, if this is confirmed.

Indeed, the division known as “Mobility Solutions” was Blackberry’s main revenue generator in the first quarter of fiscal 2017 (announced June 23) at CA$152.0 million, or 39% of the total. Still, operating results remained negative at -$21.0 million on a gross margin of $12.0 million. Instead, the “Software and Services” segment, driven by instant messaging solutions and enterprise mobility management—as well as the QNX Software Systems Limited platform—are where Blackberry makes its profits now and where future growth is originating.

BlackBerry anticipates a  30% growth over the fiscal year for this division, excluding any acquisitions. Prospects are less successful for the hardware. The CEO had hinted that terminating the hardware decision was on the table. The favorable prospects for BBRY stock become clearer, considering that while BlackBerry sold half a million smartphones in the last quarter (less than 0.1% of the global market), it sold a record 15 million phones in 2010, its peak year. (Source: “BlackBerry phones face thumbs down,” Financial Times, September 26, 2016.)

Blackberry appears ready to give up on hardware.

The CEO said that the impact would be minimal for employment while freeing hardware engineers and technicians to work on the Internet of Things (IoT). Still, even if profitable, it’s doubtful that Blackberry has anywhere close to the clout to win back enough of a share of the handset market to make any difference to BBRY shares.

Once the market leader in high-end phones, the Canadian firm has since been overtaken by Apple Inc. (NASDAQ:AAPL) and “Android” manufacturers like Samsung. It tried to gain back some customers by adopting Android itself, giving up the very proprietary operating system that established its reputation. But that still failed. Each quarter was marked by losses amid disappointing sales.

Therefore, should Blackberry announce the end of its smartphone business, Blackberry stock may react favorably. Many observers have urged BlackBerry to stop focusing on hardware, devoting more resources to software solutions, which continues to shine. By abandoning the mobile industry, BlackBerry would have the opportunity to become a profitable business in a few months.

So look for the bullish trend to continue if Blackberry decides to focus on software. Last August, John Chen said the company could see profitability again by next February as a result of more software licensing. (Source: “BlackBerry launches Hub+ on Google Play store to lure Android users,” The Globe & Mail, August 3, 2016.)