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BlackBerry Ltd (NASDAQ:BBRY) Has One Little Thing to Prove

Blackberry Ltd Venice Android Slider

BlackBerry Ltd , will show off its earnings numbers on Friday September 25. John Chen’s firm has been trading in the doldrums for years, and it’s not what it will take for the market to reward the firm with some kind of value growth. James E. Faucette of Morgan Stanley, in a report put out on Tuesday morning, reckons he knows exactly what BlackBerry needs to do to impress.

Blackberry Ltd Venice Android Slider

Mr. Faucette reckons all eyes will be on software sales growth at BlackBerry on Friday. In his view, BlackBerry may have to start pulling money from its IP by selling it off if it can’t spur growth in its software business. BlackBerry recently opened itself up to licensing deals for its patents, but Morgan Stanley doesn’t think that will be enough to save the firm.

BlackBerry software needs cold, hard cash

BlackBerry, in the view of Mr. Faucette, will need to grow its software sales enough to make up for the losses it’s seeing in other segments. If it can’t arrest the current problems, it’s either going to have to cut spending, something it has done again and again in recent years, or it’s going to have to unlock the value of some of its assets.

He said that more flexibility could only be gained by “liquidating the long-term standalone value the IP portfolio may have.” Though he’s sure that BlackBerry is in dire need of healthy growth in its software business, he’s not quite sure that the firm is going to be able to get it.

Morgan Stanley forecasts a bump in BES 12 sub numbers, but Faucette reckons that may be down to lower prices per user. That means that sales growth may not be nearly as strong as some other voices have intimated.

In a report published Monday RBC Capital’s Mark Sue said that the integration of Good Technology will be a massive boon to BlackBerry. “BlackBerry is rolling up software assets with the Good acquisition. Good brings a platform that helps BlackBerry address some of the work needed on iOS containerization,” he said, but it’s going to be a long time before the firm is able to cash that check.

Don’t focus on BlackBerry hardware

It may excite those with shares to know that BlackBerry ,   is soon going to launch an Android phone, but those buying shares in the firm should ignore that as earnings approach. BlackBerry is a business, and businesses don’t make money with products that don’t exist yet.

The BlackBerry Venice Android project is of great interest, but it’s of no note in the firm’s accounts. Mr. Faucette reckons that BlakcBerry should simply focus on making growth in its software business real. That might turn the firm around and stop its cash burn from forcing asset sales in the medium term.

Mr. Faucette said “We do not think launching Android-based BlackBerry devices will improve prospects, noting maturation of the handset market, the declining industry profit pool and competition from lower ASP models.”

Heading into the release of the numbers Wall Street was, by consensus, looking for BlackBerry to show a loss per share of 98 cents. Sales are forecast to come in at $611M.

BlackBerry is burning cash, not just through its operations, which will likely lose money this quarter, but also through buyouts of other tech firms. If software doesn’t pick up, the firm may have to sell more assets in order to pay for those moves. If that happens, Wall Street may not be all that impressed.

Morgan Stanley has an Equal Weight rating and a $7 price target on shares in BlackBerry.

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