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Still Neutral on BlackBerry

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As of Sep 5, we maintain our Neutral recommendation on BlackBerry Ltd. , ahead of its second quarter 2014 financial results.

Why Kept at Neutral?

BlackBerry 10 (BB10)-based Z10 smartphone is now available in 147 countries. BB10 QWERTY devices have started gaining traction in the last couple of months and are currently accepted by over 320 telecom carriers across the globe. Q10 smartphone is available in 96 countries and will be launched in another 50 countries in the ensuing second quarter.

A major growth product for BlackBerry is its BlackBerry Enterprise Service 10 (BES10) solution. This is a cross-platform product interoperable with Apple’s iOS and Google’s Android. BES10 provides flexibility, scalability, high security and cost-effectiveness to its customers. As of now, more than 18,000 enterprises are using BES10.

By offering a convenient, reliable and secure way of accessing email in real time, BlackBerry has been able to successfully differentiate its BlackBerry products from the other offerings in the communications market. BlackBerry commands a strong brand value in the wireless PDA market, leveraging the popularity of its push email system. BlackBerry holds 2,033 patents ranging from mobile security to push e-mail in high-end smartphones.

Moreover, strong cash position and a debt-free balance sheet will tend to act as tailwinds for the company going forward.

On the downside, we remain concerned about the company’s recent decision to change the business model of its high-margin services fees segment. As per the new structure, the company will benefit from subscribers who opt for services like greater security while the other customers will generate little or no service revenue for the company.

Furthermore, BlackBerry is facing stiff competition from low-cost smartphone manufacturers, which we believe will continue to hurt profitability going forward.

Currently, BlackBerry has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other stocks in the telecom industry include Nokia (NOK - Free Report) , AT&T, Inc. (T - Free Report) and Verizon Communication (VZ - Free Report) . All three stocks currently have a Zacks Rank #3 (Hold).

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