Last Friday, BlackBerry announced weak revenue and margins due in part to soft BB10 shipments. Additionally, high-margin service revenue appears poised to decline for the next several quarters. With BB10 launch momentum slowing, some analysts see virtually no operational catalysts on the horizon and expect cash burn to begin to accelerate. Reiterate
In its first full quarter of Z10 sales, BlackBerry 10 shipments totaled 2.7 million, below Street consensus of 3.3 million. Consolidated gross margins of 33.9% were below estimates of 41.8% and were down from 40.1% in Q1’13. Although margins were impacted slightly by the Venezuelan service revenue situation, implied hardware gross margins appear be ~15%.
BlackBerry lost 4 million subscribers in Q1, ending the quarter with 72 million. We would note that BBRY’s subscriber figures now include BB10 users, even though the majority of them do not produce service revenue.
Including the $72 million related to the Venezuelan currency situation, total service revenue of $870 million declined 13.2% YOY and 8.1% sequentially. Going forward, the company expects service revenue to decline by a single-digit percentage sequentially.
BlackBerry added $200 million in cash during the quarter, but was helped by a working capital benefit of $276 million. Due to increased inventory levels needed for the launch of new devices, some analysts are forecasting cash burn for the coming quarters.
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