Pretty much on the same day as Digitimes reported that BlackBerry boosting its component orders, a directly opposite message was sent by Pacific Crest’s James Faucette. He sees an enormous gap between production and demand; combined sell-through of well below 500,000 Z10 and Q10 models with production remaining above 1.5 million units per month. If true, this would be one of the most massive discrepancies between demand and supply for a smartphone platform in recent years.
However, there is something oddly familiar between the Pacific Crest claim. It sounds very much like a certain February note from the same brokerage. In that note, Faucette projected BlackBerry would ship between 275,000 and 325,000 Z10s during the February quarter. The company ended up shipping 1 million units, over 200% more than Faucette projected. Of course, that is a sell-in number and does not reveal how many units were bought by consumers. But Pacific Crest anchors much of its research on component order checks — and those are supposed to reflect sell-in levels.
That is far from the only weird drama surrounding BlackBerry shipment estimates in recent months. Back in February, Canaccord executed a jaw-dropping cut in its Z10 shipment estimates, slashing the number from 1.75 million to 300,000. This also happened just before the company announced it shipped 1 million phones.
What is going on?
One major factor motivating hysterical research notes and wild estimate swings is simply a raw need for attention. There are too many small and mid-sized brokerages out there. Most clients have slashed the funds they use to pay for research over the past decade, and many hedge funds have the habit of calling analysts with the highest and lowest estimates on the Street and ignoring the middle.
This combination of shrinking research payment pools and attention garnered by outliers has created a perverse incentive. Some smaller brokerages can only get client attention by moving way, way out of the consensus range with sales and earnings estimates. Many analysts no longer even seek accuracy — the only goal is apparently to make a splash that is big enough to get some client calls returned.
As a result, the fringes of Wall Street sell-side research are starting to resemble a carnival sideshow; bearded ladies and lizard-tongued boys scrambling for dimes. The situation is likely to grow only more garish if buy-side compensation for brokerage research continues its grinding slide.