BlackBerry CEO John Chen. (Hannah Yoon/Bloomberg/Getty)
BlackBerry’s first quarter results for fiscal 2016, released this morning, show BlackBerry is becoming less of a smartphone firm and more of a software company. That’s the goal, anyway. CEO John Chen is now six quarters into his turnaround effort, and while he’s consistently advised patience, today’s earnings indicate the progress he’s made—and what more has to be done.
Software is more important than ever
The most closely watched number in today’s earnings—and for many quarters to come—is BlackBerry’s software revenue, which the company generates from things like its enterprise mobile device management system (BES 12) and its QNX division. That number came in at $137 million—up about 150% over last year. How can that be? BlackBerry is including its technology licensing fees in its software revenue. Chen has vowed to bring in cash from BlackBerry’s large patent portfolio, and he said today the company scored two substantial deals—one with Cisco, and another with a firm he couldn’t name. Chen couldn’t reveal any further details of the agreements either, and it’s unclear how much of that $137-million is due to the licensing agreements, and how much was derived from BlackBerry’s core software business. On a conference call this morning, analysts’ attempts to pry out this information were unsuccessful. “We have grown rather solidly over the core business,” Chen said. The lack of clarity around the number helps explain why BlackBerry’s stock initially popped this morning, but dropped 3.9% throughout the day.
Chen wants to generate $500-million in revenue from software this fiscal year, a goal that becomes even more crucial when you see how BlackBerry’s service revenue is declining. Revenue from services dropped roughly 50% compared to the first quarter last year. The company used to charge fees for access to its infrastructure and other services, but with the move to the BlackBerry 10 operating system, it no longer imposes these fees. As legacy users drop off or upgrade, BlackBerry’s service revenue will continue to fall, and it needs something to make up the difference.
Handset sales are still declining
Although handsets are the most visible part of BlackBerry’s business, it’s becoming one of the least important to its future. The company recognized revenue on only 1.1 million handsets, down 31% over last year. Passport sales have been steady, while the Classic is “ticking up,” according to Chen. The Leap, a touchscreen handset released earlier this year, has been less successful. “Some people really love it. Some people are not so crazy about it,” Chen said. The focus in the coming months will be to boost marketing of the handsets, and Chen still believes the company can be profitable on the hardware side. To that end, he announced two joint development agreements with two Taiwanese manufacturers. This is in addition to an agreement with Foxconn Chen previously arranged to reduce manufacturing costs. Still, he recognizes the company’s future is not about handsets. In May, the company laid off an unspecified number of employees, and has since moved some resources from hardware to the software division.
Profits? Not yet
Despite the positive news around software, BlackBerry still lost money—$28-million on an adjusted basis. But Chen says the company will be profitable (on a non-GAAP basis) sometime in the back half of the year. Again, software will play a big role, and BES 12 sales are showing good momentum. The company announced it signed 2,600 enterprise customers, including the Royal Bank of Scotland. Chen was feeling particularly proud about this, mentioning that competitor MobileIron has bragged in the past about poaching BlackBerry’s clients. “Let me lob one their way,” he said. “RBS is a competitive displacement of MobileIron, and a few other casualties.”
MORE ABOUT BLACKBERRY:
- INTERVIEW: BlackBerry CEO John Chen on the progress of his turnaround
- How Apple, Google and BlackBerry are fighting to control the future of Smart Cars
- Why BlackBerry was smart to ignore Samsung’s offer
- How to invest in the Internet of Things, without the hype
- Legendary CEOs and how their successors fared
