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Still Neutral on BlackBerry

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On Jan 8, we maintained our Neutral recommendation on BlackBerry Ltd. . The company reported tepid third-quarter 2013 results with both the top and the bottom line missing the Zacks Consensus Estimate.

Why Kept at Neutral?

Blackberry has recently decided to enter into a 5-year agreement with the world's leading developer of electronic products and components, Foxconn. Such a strategic decision will help the Canadian device maker to target the smartphone market of Indonesia and other emerging nations. Foxconn will supply inventories for the smartphones. Moreover, the company has also raised nearly $1 billion through private placements. The amount will be invested to promote and produce new handsets.  

BlackBerry 10 (BB10)-based Z10 smartphone is now available in more than 147 countries. BB10 QWERTY devices have been gaining traction in the last couple of months and are currently accepted by over 320 telecom carriers across the globe. The 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 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. The company holds 2,033 patents ranging from mobile security to push e-mail in high-end smartphones. Moreover, a healthy balance sheet will tend to act as a tailwind 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.

Meanwhile, the uncertainties surrounding the company’s plan to go private may lead to more restructuring and divestiture in the forthcoming quarters. 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 better-ranked stocks in the telecom industry include Nokia Corp. (NOK - Free Report) , Apple, Inc. (AAPL - Free Report) and KT Corp. (KT - Free Report) . All three stocks currently have a Zacks Rank #2 (Buy).

In-Depth Zacks Research for the Tickers Above

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KT Corporation (KT) - free report >>

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