BlackBerry remains committed to smartphone business, projects profit this fiscal year

WATERLOO, Ont. – BlackBerry CEO John Chen is hoping to give his company’s hardware business a much-needed boost by licensing its mobile software to other companies.

Currently, there’s been zero revenue from the endeavour, which kicked off last month.

But Chen said he’s been in discussions with some phone manufacturers and set-top box operators who have expressed interest.

“It’s still yet to be proven,” Chen told a news conference following the company’s release of its first quarter earnings for the 2017 financial year, adding “anything is possible.”

He added he’s not opposed to licensing BlackBerry’s security software either if the right deal comes along.

The self-proclaimed “company turnaround guy” said he expects BlackBerry (TSX:BB) to break even or record a slight profit in its new mobility solutions segment, which includes device and software licensing sales, during the third quarter that ends Nov. 30, 2016.

Making the segment profitable this fiscal year is one of the company’s top goals, Chen said.

It’s too soon to project how much revenue the software-licensing venture can garner, Chen said, so to achieve the goal by the end of November, BlackBerry will have to ensure its devices are on track for profitability as well.

The company’s newest phone, the Android-powered Priv, has moved slower than hoped.

During BlackBerry’s first quarter — the second full quarter to include Priv sales — the smartphone segment generated US$152 million of revenue and had a US$21-million operating loss. Chen promised that loss would be significantly smaller in the next quarter.

The company sold roughly 500,000 devices at an average price of US$290 each, he said, which is about 100,000 smartphones fewer than the previous quarter and about 200,000 fewer than two quarters earlier. BlackBerry previously said the company needs to sell about three million phones at an average of US$300 each to break even, though Chen indicated that may change as the software licensing business starts to contribute to revenue.

Chen said the Priv has proved unaffordable to most people, except for top-level executives.

The company plans to release two mid-range, Android-powered phones before its current fiscal year ends Feb. 28, 2017, he said. More information on the devices is expected next month, but Chen said one will only have a touch screen rather than BlackBerry’s traditional keyboard.

The company is trying to reach the market in more innovative ways. It’s currently hosting a pop-up shop in New York City, and Chen said he’d consider more of them around the world if the trial is successful.

“I really, really believe that we could make money … out of our device business,” he said during a conference call with analysts Thursday morning.

Chen previously indicated the company will stop making smartphones if the device business remains unprofitable. While he said he doesn’t believe that will be necessary, the software licensing plan could help make the transition smoother if the time comes.

BlackBerry (TSX:BB) reported a US$670 million net loss in the first quarter of its 2017 financial year, but said its recovery plan for the year remains on track.

BlackBerry, which started reporting revenue by three main segments this quarter, showed operating profits in its other two businesses: US$37 million from software and services, and US$78 million from service access fees.

The company said it plans to boost revenue by 30 per cent in software and services, as well as report an adjusted loss of about 15 cents per share — compared to analyst estimates of a 33-cent loss — this fiscal year.

This quarter, BlackBerry’s loss amounted to US$1.28 per share and included a US$501-million writedown of the smartphone company’s assets and US$23 million in restructuring charges, among other things.

Excluding writedowns, restructuring and certain other items, BlackBerry came close to breaking even with an adjusted loss of US$1 million — which was better than analyst estimates.

But revenue was below analyst estimates at US$400 million under generally accepted accounting principles, or US$424 million with certain adjustments.


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