BlackBerry Ltd’s device commercial enterprise well worth $zero and have to be shut down to assist stock, says analyst

BlackBerry Ltd. have to close down its tool business, a move that could help improve the stock, says a veteran analyst as he initiated coverage on the inventory this week.

Gus Papageorgiou, analyst with Macquarie Capital Markets Canada, said in a note to customers that he recommends investors stay faraway from the inventory till BlackBerry’s software program and offerings commercial enterprise end up increase engines for the inventory. He does not see that happening for several quarters, but.

Papageorgiou initiated insurance of the agency with a sell rating, giving it a 12-month goal of $8.70. The stock became down Thursday morning by means of 3 cents, or 0.35 per cent, to $8.sixty three at the Toronto stock exchange.

•          

“the continuing decline of the service commercial enterprise and unsure future for handsets provide sturdy headwinds for the inventory,” the analyst stated. “we'd avoid the stocks in the mid-term.”

chief govt John Chen instructed journalists earlier this 12 months that his goal is to make BlackBerry’s hardware business profitable as early as September, and that it's far in all likelihood the enterprise will close it down if that fails.

BlackBerry pronounced in April that it extra than doubled software program and licensing revenue in its economic fourth quarter, while it continued to look steep declines in handset income. BlackBerry sold just six hundred,000 smartphones at some stage in the length, notwithstanding the a great deal-hyped release of its new Android tool, the Priv. five years ago, the organization averaged 13 million sales inside the same zone.

Papageorgiou stated that shutting down the hardware business would remodel BlackBerry into a far higher margin software program corporation, one that could sooner or later go back to growth.

“We believe the market would applaud the organization exiting the tool enterprise,” he said. “Exiting the handset commercial enterprise would depart the agency with plenty higher gross margins.”

A shutdown of the handset division, however, might lead to another round of activity losses. The enterprise currently has four,534 personnel — notably down from its height years of 20,000 — and Papageorgiou estimates that slightly fewer than 10 according to cent of these are related to BB10, the enterprise’s preceding operating device and phone line.

“We consider that some of these personnel should in all likelihood be repurposed within the enterprise,” Papageorgiou notes.

The analyst additionally casts doubt that any enterprise is willing to shop for the suffering hardware department. at the same time as hypothesis has abounded for years that BlackBerry will be an acquisition goal, the need of restructuring the corporation to be a software-only enterprise is an obstacle to any deal.

“At this stage we do not accept as true with there is tons upside if the business is bought and management is in all likelihood biased to wait till the software program business is greater and extra treasured to conduct any sale,” he said.