BLACKBERRY LTD. $10 (Toronto symbol BB; Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 526.0 million; Market cap: $5.3 billion; Price-to-sales ratio: 0.6; No dividends paid; TSINetwork Rating: Speculative; www.blackberry.com) has jumped about 50% in the past three months, thanks to its new strategic plan.
In response to weak sales of its new BlackBerry 10 smartphones, the company is cutting 40% of its workforce and selling most of its Canadian real estate, mainly buildings near its Waterloo, Ontario, headquarters. It will lease back some of these properties after the sale.
As well, BlackBerry has signed a new five-year deal with Taiwan-based electronics maker Foxconn. Under this agreement, BlackBerry and Foxconn will jointly develop new smartphones, particularly for fast-growing markets like Indonesia. Foxconn will also assume responsibility for making these phones, which should help BlackBerry better manage its inventories and avoid costly writedowns of unsold phones.
In addition, the company plans to shift away from making consumer products and toward managing mobile phone networks for large corporate and government clients. Due to rising security concerns, many of these customers would rather stick with BlackBerry’s wellprotected networks instead of switching to untested systems.
As well, Facebook’s recent $19-billion U.S. takeover of messaging application Whats- App has drawn investor attention to BlackBerry’s similar BBM service, which has 85 million users worldwide.
A group of private investors, including Fairfax Financial Holdings (Toronto symbol FFH), recently purchased $1.25 billion worth of BlackBerry debentures (all amounts except share price and market cap in U.S. dollars).
These debentures pay 6% interest and mature in 2020. Holders can convert them into BlackBerry common shares at a price of $10.00 each. If all investors were to do so, the total number of shares outstanding would increase by 23.8%.
As of November 30, 2013, BlackBerry held cash and investments of $3.2 billion, or $6.07 a share. That should help it with its restructuring, which it aims to complete by mid-2014.
BlackBerry is still a hold.
