As BlackBerry mulls going private, analysis sees smaller company being public & profitable

Over the last four quarters, the share of BlackBerry's share of revenue spent on selling, general and administrative expenses, as well as research and development, has greatly exceeded rivals like Nokia and Apple. Those high operating expenses suggest to Maynard Um of Wells Fargo that BlackBerry could succeed — and do so as a public company — if its executives could embrace "the reality of being a smaller company."

"We continue to believe that BlackBerry has a small but loyal following and that it could reduce spending to focus on core target markets," Um said in a note to investors on Friday.

In the last year, 18.8 percent of BlackBerry's revenue has been spent on SG&A, a sum much larger than Nokia's 13.2 percent. Apple has much greater scale than those two companies, but for comparison's sake, 6.3 percent of the iPhone maker's revenue was spent on SG&A.

As for R&D, it took 12.9 percent of BlackBerry's revenue over the last year, compared to 11.3 percent of Nokia's devices business, and 2.5 percent of Apple's revenue.Maynard Um of Wells Fargo believes BlackBerry could become profitable once again if it were to cut spending and focus on "core target markets."

Um's take was given in response to a report from Reuters on Friday, which indicated that BlackBerry officials are "warming up to the possibility of going private." The company is said to be considering the idea, but doesn't have a deal imminent or any plans in place.

But BlackBerry executives and board members are said to believe that taking the company private "would give them breathing room to fix its problems out of the public eye," the report said.

In its last quarterly earnings report in June, BlackBerry posted a loss of $84 million on shipments of just 2.7 million devices running its new BlackBerry 10 platform. The company shipped a total of 6.8 million smartphones, but most of those were legacy devices.

Um said he wouldn't be surprised if BlackBerry does in fact go private or is acquired by another company. But if the Canadian smartphone maker is to succeed, he believes it needs to be "disciplined and quick" in adjusting its cost structure to that of a company with smaller revenue.

Regardless, Um has maintained Wells Fargo's "market perform" rating for BBRY stock, as he's not convinced that BlackBerry management will be able to guide the company out of its downward spiral.

"Any sense of urgency is difficult to determine, given management has not been very visible or vocal with a clear strategy," he said.