The article was written by Motek Moyen Research Seeking Alpha’s #1 Writer on Long Ideas and #2 in Technology – Senior Analyst at I Know First.

BlackBerry Stock Predictions

John Chen’s promise of two new $400 BlackBerry Android phones being a positive development.

John Chen’s promise of two new $400 BlackBerry Android phones being a positive development. Competitive pricing is always a great strategy to attract buyer interest.

BlackBerry still offers the most secure version of Android.

Government firms and private corporations will always prioritize BlackBerry for their handset needs.

I Know First is currently bullish on BBRY stock movement.

BlackBerry’s (BBRY) stock jumped up a bit (+1.84%) after John Chen revealed his plan to release two $400 Android phones this year. His admission that the $700 BlackBerry Priv was too expensive proved the point I made last year. Competitive pricing is a must before BlackBerry Android phones can succeed.

Survival as an Android-focused hardware company demands that BlackBerry goes with the flow. The trend now is of declining price tags for Android phones. The chart below from Fortune and IDC reveals that the average selling prices (ASP) of Android phones is now at $215.

(Source: IDC, Company Reports)

I am not saying that BlackBerry should now join the $200 Android phone arena. My point is that BlackBerry can never succeed in Android if it only sells $600+++ models.

Corporate Users Prefer Cheaper Android Handsets

According to Chen, the $700 (now reduced to $650) price tag of the BlackBerry Priv was even too pricey for some business customers. The upcoming $400 Android phones from BlackBerry should attract more interest from small and medium enterprises. The $250-cheaper price tags will help corporations and government firms save money.

The main selling point of a BlackBerry handset is its top-notch security features. BlackBerry does not need to compete with the $700 Galaxy S7 phones of Samsung (SSNLF). What an enterprise user needs most is not the most high-end components inside an Android phone. He requires a handset that is not exposed to the security vulnerabilities of the Android operating system.

As long as the $400 handsets perform well in web browsing, document reading, and have a long battery life, they could become popular among business customers. The only important thing is for BlackBerry to give these cheaper Android phones the same security, features like DTEK, Address Space Layout Randomization (ASLR), Pathtrust utility, and BlackBerry Certicom certified-FIPS 140-2 cryptographic protection.

BlackBerry could strip-off the expensive components of the Priv to create a $400 version of it. Replace the Snapdragon 808 processor, reduce the RAM to 2GB, replace the pricey Corning Gorilla Glass 4 and Scheneider-Kreuznach camera optics, and use a smaller display with lower resolution.

There’s Enough Margins On $400 Phones

The new $399 iPhone SE from Apple (AAPL) has an estimated Bill of Materials (BOM) cost of only $160. I believe BlackBerry and its partner Foxconn can build their new Android phones to match the BOM of the iPhone SE. If we calculate that all those special security features cost another $60 more, the BOM will come to $220. Add another $100 for manufacturing/marketing/distribution costs and Blackberry still gets a margin of $80.

A per-unit gross margin of $80 can build up to a substantial amount if BlackBerry Android phones sell in the millions. Even a gross margin of $30 is also acceptable to me. The point is that BlackBerry needs to stop acting like it is still a premium phone brand like Apple.

BlackBerry cannot operate on 40% gross hardware margins because it has long lost its premium brand equity. Samsung lost a lot of the high-end phone business to Xiaomi, OnePLus, and Huawei’s sub-$400 flagship Android phones. Making it big in Android demands that BlackBerry follows the steps of Xiaomi, not Samsung or Apple.

Wireless Carriers Might Also Be More Enthusiastic

The still-high $650 price tag of the BlackBerry Priv is discouraging for many wireless carriers. Sprint (S) declared that it is backing out of its previous commitment to offer the Priv. More tier-one telecom firms are unlikely to support or subsidize the said phone for their postpaid plans.

On the other hand, a $400 Android phone could inspire more carriers to support BlackBerry. The cheaper phones will require lower risk/subsidies from carriers. Aside from heavy advertising, the success of any non-entry-level phone is very reliant on carrier support.

Conclusion

BlackBerry only sold 600,000 phones last quarter. But the company is now expanding its strategy by focusing on more affordable Android phones. This should be a decent reason for brave investors to go long on BBRY. The stock will likely shoot up in price once it can do quarterly sales of 1 million or more phones.

A check on my I Know First account reveals that the near-term algorithmic forecasts are positive for BBRY. There is little risk that the stock will drop below to $6. The 3-month +15.51 algorithmic forecast instead hints that it could go higher than its current price of $7.19.

I Know First algorithm has previously correctly predicted the bearish signal for BlackBerry in this 1 Year Tech forecast from November 16th, 2014 – 2015 with a signal of -1023.61 and predictability of 0.61 BlackBerry managed to return 32.86% in 1 year. The average package performance was none the less amazing with returns of 24.49% (long) and 15.29% (short) compared to a bare 0.66% return from the S&P500.