BlackBerry Will Exit the Handset Market: Pro

Although Blackberry just launched its new smartphone model in the U.S., one analyst believes the company will exit the handset market to focus on software and services.

Stiff competition is hurting margins for the smartphone makers, Peter Misek, a Jefferies analyst, told CNBC's "Squawk on The Street" on Tuesday. BlackBerry's handset business is losing money, he said, and Apple has been slow to develop a phablet—a hybrid of a phone and a tablet.

Jefferies has a "buy" rating on BlackBerry shares with a price target of $19.50, which is almost 30 percent upside to the current price.

"Our calls [of Blackberry] are not based on the new Z10, but their software and services business," said Misek. Blackberry's software helps manage iPhone, Android, Blackberry and Windows devices for corporate clients.

"The big announcement yesterday—the one we think the market is missing—AT&T said their enterprise sales force, which is tens of thousands of people, is going to be selling BlackBerry Enterprise Service 10," he said, "We think that is a really big deal and that where the future cash flow is."

BlackBerry shares price spiked on Monday after the announcement AT&T will sell the Z10, but even if the new model sells well in the U.S. the fierce competition makes the profit margins very narrow, Misek said.

(Read More: Samsung, Blackberry and Apple Gear Up for Big Mobile Year)

The launch of the new model was better than expected, the analyst commented, but he does not see the same success in the U.S. as internationally. The Z10 was sold out in the Middle East and Asia and did very well in Europe.

"Ultimately Lenovo or some other manufacturer will buy their handset business," he said, projecting that it will probably happen in the next 12 months.

BlackBerry Z10 and iPhone 5 smartphones
Adam Jeffery | CNBC
BlackBerry Z10 and iPhone 5 smartphones

Apple Price Target Cut

Jefferies had lowered its price target for Apple shares to $420 from $500—one of the lowest on the Street. Misek commented that the institutional investors he talked to believe the current stock price already includes all the negative information about the company. But Misek does not think that is the case.

"We don't think Apple has a right phone for the high end of the market right now," said Misek, referring to 4.5 to 5.5 inch screen devices. "Apple is losing a significant share in that market right now. We don't think they are going to have a product in that market til middle of next year."

He also said there is 25 percent chance of Apple missing its revenue guidance for the current quarter.

Misek said that he was slow to react to phablets gaining traction in the smartphone market and should have lowered the price target for Apple earlier.

"We should have told people to sell in September," he said.

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