BBRY: Pac Crest Sees Z10 Price Drop Hitting Margins

Shares of BlackBerry (BBRY) are up 5 cents, or 0.4%, at $13.41 despite a negative note today from Pacific Crest's James Faucette, who has had a decidedly skeptical take on sales of the recently introduced Z10 handset, and who writes today that a drop in the price of the Z10 at U.K. retailer Carphone Warehouse, bodes ill for the handset maker's gross profit margin.

Writes Faucette, who has a Sell rating on BlackBerry shares,

In the past 24 to 48 hours, the Carphone Warehouse has lowered the price on the BlackBerry Z10 on 3�s network to �29 per month with an upfront fee of �29 from its original contract launch price of �36 per month�this is effectively a price reduction of ~�160 ($240). Further, Vodafone is now offering a web-only deal for the Z10 for �33 per month down from �36 per month at launch (effective �72/$108 price reduction) [...] The case for BBRY�s recovery has been that in the long run, the company could return to selling high-end handsets that would feature enough profitability that handset profits could more than offset long-term declines in the highly profitable service business. We believe that meaningful price cuts so soon after launch, while probably at the initial discretion of the carriers, is likely to relegate the Z10 to being a mid-tier device with very low gross margins (when BBRY ultimately takes the wholesale hit on pricing) [...] While there is no exact match to the �29 up front and �29 per month deal for the Z10, we would argue that the Z10�s updated price appears more in-line with a mid-range device rather the high-end.