Incredibly, Blackberry may have halted its slide into oblivion, as media outlets are reporting after the company released earnings Thursday. But will it be enough for investors?
Ian Austen had this story for The New York Times:
For BlackBerry, the smartphone company recently known for producing relentlessly grim financial results, the announcement on Thursday of a smaller-than-expected quarterly loss counts as good news. Although BlackBerry’s management stopped well short of declaring a turnaround, the results suggested that severe cost-cutting and efforts to refocus the company might be at least stabilizing the company.
“This is, of course, the very beginning of our task and we hope that we will be able to report better results going forward,” John S. Chen, the chairman and chief executive, told the annual meeting of shareholders shortly after releasing the results. Earlier, he told analysts: “We feel pretty good about where we are.”
Accounting adjustments enabled BlackBerry to report a $23 million, or 4 cents a share, profit for its last quarter. Without those noncash changes, however, the company lost $60 million, or 11 cents a share, during the period.
Writing for CNET, Marguerite Reardon gave CEO John Chen credit for the turnaround in the company’s outlook:
BlackBerry has been trying to find its footing over this past year, after losing ground for years in the smartphone market to Apple and to phones powered by Google’s Android operating system. In November, John Chen took over as CEO and since then he’s been trying to remake the company by focusing on enterprise and software in order to make the company profitable. This strategy has included focusing more on business customers rather than consumers to reduce its dependence on device sales, as well as a focus on the company’s mobile services, such as the BlackBerry Messenger platform.
In addition to focusing on niche markets and its core software strengths, Chen has also led the company in cutting costs. This has included selling property in Waterloo, Ontario, where the company is headquartered, as well as cutting jobs and moving device manufacturing overseas and allowing contract manufacturer Foxconn to take over making its devices.
As the company de-emphasizes its consumer brand and cuts expenses, it is looking outside for partners to cost-effectively fill basic needs for its devices. Yesterday, the company announced a deal with Amazon to make over 240,000Android apps available to BlackBerry 10 customers through the Amazon app store. These apps will include popular ones that BlackBerry was missing in its own store, such as Netflix, Candy Crush Saga, and Minecraft.
Mashable’s story by Christina Warren said the company is still popular with users outside the U.S. and would focus some efforts there:
Last year, Chen announced a partnership with Foxconn to deliver a new handset for the Indonesian market. That handset, the BlackBerry Z3, launched last month in Indonesia. It will be arriving in Vietnam and India in the coming weeks.
The phone is manufactured and designed by Foxconn and Foxconn also handles the inventory. BlackBerry’s margin on each device is approximately 10%.
Chen says that for the hardware business to be profitable, he thinks the company needs to sell about 10 million devices a year. The company sold 2.6 million devices in Q1, but only recognized revenue on 1.6 million, as a result of poor inventory calculations and prior write-downs in previous quarters. If the company can continue to shift that many devices per quarter (assuming it has exhausted its old backchannel inventory), the company should be able to break even on hardware.
But Chen made it increasingly clear that the company is less interested in hardware. Instead, he sees the biggest growth opportunities in the mobile device management (MDM) space. BlackBerry has managed to make moves to gain momentum back against its competitors such as GOOD and Mobile Iron, according to Chen.
Scott Moritz and Christina Pellegrini wrote for Bloomberg that while investors are pleased, the company has a ways to go before it’s actually in the black:
BlackBerry shares surged the most in six months after the company reported a narrower loss in the fiscal first quarter than analysts had estimated. As cost cuts, asset sales and cash preservation help drive Chief Executive Officer John Chen’s turnaround, the company is still planning to reach break-even cash flow by the end of this fiscal year. Chen also expects to return to profitability during the year that ends in March 2016.
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“John Chen is doing a wonderful job so far,” shareholder John Davidson said at the company’s annual meeting in Waterloo, Ontario. “North America is still suffering but some of the other parts of the world are doing quite well. Hoping that he keeps up the good work.”
BlackBerry shares rose 9.7 percent to close at $9.09 in New York, the biggest one-day jump since Dec. 20.
Even with today’s gain, the stock is down 36 percent in the past year, and analysts estimate on average that it will be trading at $7.96 a year from now.
“Obviously I’d like to see the stock price a lot higher, but I don’t think that’s in the cards for a while,” Davidson said.
The fact the company is still struggling with cash flow should give some pause. It’s one thing if customers are flocking to Blackberry’s products, but that doesn’t seem to be the case in the U.S.
What’s even more troubling is that many companies are moving away from their hardware and allowing employees to carry other devices. Getting out of the device business is likely a smart one for Blackberry, especially as others like Amazon move into it. Chen was lauded as one of the few people capable of pulling off a turn around, and Thursday’s results signal he’s moving in the right direction.
