BlackBerry's Z10 launch — including a 1 million order for the smartphone — has spurred a good bit of optimism about the company's future.
Rest assured, BlackBerry is still expected to report a fourth quarter loss on Thursday. There are also serious questions about BlackBerry's service revenue in the future. And it's uncertain whether BlackBerry can navigate the "bring your own device" trend as Samsung guns for it. Toss in the fact that a U.S. Z10 launch came after the fourth quarter ended, and there's a decent bit of uncertainty.
However, there's a theory that the worst is over for BlackBerry and that the company will be able to support itself. BlackBerry may not be the No. 3 platform in the smartphone market, but it can certainly fill a niche.
Wall Street is expecting BlackBerry to report a loss of 29 cents a share on revenue of $2.84 billion. Based on current estimates, BlackBerry is expected to lose money every quarter in fiscal 2014 too, but become self-sufficient based on cash flow.
Morgan Stanley analyst Ehud Gelblum typifies the recent optimism about BlackBerry. Gelblum isn't widely bullish on the company, but did upgrade shares of BlackBerry. Here's why:
The shift to BlackBerry 10 will raise average selling profits and gross margins.
Service revenue will fall with BlackBerry 10, but many analysts expect a dramatic fall. Anything less will help the company's bottom line.
BlackBerry can move existing customers from BlackBerry 6 and 7 to BlackBerry 10 and do well.
The company's device business is valued at zero.
OK, so that's not a ringing endorsement of BlackBerry, but an indicator that pessimism is a bit overdone. The primary theme from Gelblum is that BlackBerry can be a strong niche player. He said in a research note:
In contrast to our prior thinking, we now believe there may be room in the handset market for niche midrange players and a base valuation for these vendors as Win8 has lacked traction, and even LG and Samsung appear to be seeking alternate OS strategies.
Simply put, BlackBerry 10 won't land iPhone or Android converts, but can keep the company's base intact.
Gelblum's argument makes sense. If the Z10 can hold the fort, BlackBerry's next device with a physical keyboard could really keep customers in the fold. Let's face it: BlackBerry's move to go with the all-touch Z10 and hold back the version with a physical keyboard makes little sense. The base wants a keyboard.
Other analysts are moderately upbeat about BlackBerry's fourth quarter. Consider:
Wells Fargo analyst Maynard Um said BlackBerry likely sold 1.5 million units of BlackBerry 10 devices out of 6.63 million units total.
Um added that 130,000 PlayBooks were sold.
BlackBerry's recent announcement that there was a 1 million unit order for the Z10 went to a distributor or carrier based on real demand, according to Jefferies analyst Peter Misek.
Secure sandboxing branding — Secure Work Space — will provide another revenue stream and be announced in June.
Misek estimates that BlackBerry can be a player in mobile device management software. He also noted that BlackBerry may become the preferred MDM provider for AT&T in the future.
Not every analyst is cautiously optimistic about BlackBerry's enterprise future. Macquarie analyst Kevin Smithen noted that Samsung's Knox sandboxing technology included in the Galaxy S4 could thump BlackBerry's Z10 momentum. He said:
At the Galaxy S4 event, we spoke to several mobile procurement people from large financial and consumer products companies who claimed to be trialing the Z10. They appeared to be impressed by the GS4 and all commented that they may delay a decision on the Z10 until they can properly evaluate the new Samsung device.
If Smithen's findings become a trend, it's no wonder BlackBerry is taking aim at Samsung.