BlackBerry shares continue to fall amid analyst downgrades, operational woes

TORONTO – BlackBerry’s plan to slash its workforce by some 40 per cent and take a nearly $1-billion writedown after disappointing sales of its Z10 smartphones, could help make it more attractive to a potential buyer, analysts said Monday.

“The results clear the way for a buyer to get a material discount on Blackberry’s assets,” CIBC analyst Todd Coupland wrote in a report to clients.

Its stock is now worth about half what it was in January, when the company was still called Research In Motion and preparing to launch its much-anticipated new generation of smartphones with the BlackBerry 10 operating system.

However, BlackBerry sales have been disappointing and competition from Apple, Samsung and other smartphone makers has intensified.

BlackBerry shares (TSX:BB) were down 62 cents or nearly seven per cent at $8.46 on the Toronto Stock Exchange following a drop of more than 15 per cent on Friday after BlackBerry announced it was cutting 4,500 employees and shipped far fewer of its smartphones in its most recent quarter.

The shares traded above $18 in January ahead of the launch of the first BB10 products, which include the Z10 touchscreen model and Q10 model with a physical keyboard.

“Given the failed BB10 launches, our view is the most likely outcome is a takeover.” Coupland wrote in his report.

“Our view is that with these results and a board ready to consider bids for all or parts of Blackberry makes a sale of the company quite likely.”

He noted that interested buyers could include other smartphone makers, carriers, private equity firms and even co-founder Mike Lazaridis, who stepped down as co-chief executive in 2011.

The New York Times reported on the weekend, citing sources, that Lazaridis has approached two U.S. private equity firms about making a possible bid.

BlackBerry formed a committee earlier this year to consider strategic alternatives, which could include the possible sale of the company.

The strategic review by the company came after BlackBerry’s new line of smartphones failed to catch on with consumers.

BlackBerry also said over the weekend that it was hitting pause on the rollout of its popular BlackBerry Messenger service to Android and Apple devices after an unreleased version of the software for Android was posted online.

Customers who have already downloaded BBM for iPhone will be able to continue to use the software, however the unreleased Android app, which caused problems for users, will be disabled.

“Our teams continue to work around the clock to bring BBM to Android and iPhone, but only when it’s ready and we know it will live up to your expectations of BBM,” the company said in a post on its blog.

Scotiabank analyst Gus Papageorgiou, who maintained a $13.20 price target on the stock, said the sales results and job cuts are bad news for BlackBerry, but not as bad as it looks.

Papageorgiou noted the job cuts will likely bring the company back to profitability and noted that BlackBerry’s services business did better than he expected.

“We expect some form of corporate transaction to occur that will benefit shareholders,” he wrote in a note to clients.

However, U.S. investment firm Jefferies slashed its price target for BlackBerry shares to US$8 from $15 and lowered its rating to “hold” from “buy.”

Jefferies analyst Peter Misek says that potential buyers for the company will be price-sensitive due to the shrunken size of BlackBerry’s handset business.

He said there’s value in the BlackBerry operating system, BlackBerry Messenger services and patents but “the handset business is now an albatross.”

On Friday, the company said it plans a writedown of up to $960 million in the second quarter, primarily from poor sales of its BlackBerry Z10 touchscreen smartphones.

It will also book a $72-million restructuring charge related to changes in its operations, which include previous layoffs.

BlackBerry says it expects to post a loss of US$950 million to $995 million for the fiscal second-quarter. It also projected US$1.6 billion in sales, far short of analyst expectations of about US$3 billion.

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