Remember Blackberry? Yeah, apparently not many people do these days. The company has been trying to find something to regain sales, but the turnaround plan doesn’t seem to be working.
The New York Times story by Ian Austen pointed out that the plan to become a software company wasn’t coming together as planned:
BlackBerry’s introduction of two phones aimed at its traditional base of corporate users failed to reverse the company’s slide in the handset market, the company said in releasing its earnings on Tuesday.
BlackBerry, a Canadian smartphone maker, said it sold only 1.1 million phones in its first quarter, a decline of 500,000 from the previous quarter. The company, led by John S. Chen, also reported an adjusted loss of $28 million, or 5 cents a share, on revenue of $658 million, compared with a loss of $60 million, or 11 cents a share, on revenue of $966 million in the period last year.
From the earnings, it was unclear whether Mr. Chen’s strategy of transforming BlackBerry into a company focused on selling software was advancing as quickly as planned. On Tuesday, shares of BlackBerry fell more than 4 percent to $8.81.
Colin Gillis, an analyst with BGC Partners, said that Mr. Chen’s turnaround plan still remained unproved.
Euan Rocha wrote for Reuters that Chen is planning for growth to come from acquisitions:
As the Waterloo, Ontario-based company transforms from being a hardware-driven smartphone maker to a more software-focused entity, all eyes are on the growth it gets from its core device management platform BES12, which manages and secures all manner of traffic on Android, iOS, Windows and BlackBerry devices.
“When the headline hits, you say ‘wow they really blew out that software number, good for them, they’re starting to get some traction’,” said BGC Partners analyst Colin Gillis. “But, of course, it’s not truly $137 million because there is some licensing in there.”
BlackBerry said two new licensing deals, one with Cisco Systems Inc (CSCO.O) and one with an unnamed party, made a “significant contributions” to software revenue in the quarter, but it did not disclose the terms of the agreements. It was also not clear how much they would boost revenue in future quarters.
On a conference call, analysts grilled the company on its business and Chief Executive John Chen vowed to follow up with more details. Chen later told media that overall software revenue growth was roughly around 30 percent year-over-year. However, it was still not clear what percentage of the $137 million in software revenue was recurring in nature.
Chen, who has said he aims to expand software revenue to $600 million in the current fiscal year, said some of that growth is set to come from acquisitions.
Fortune’s Robert Hackett that the once highly profitable company has fallen quite far:
Once upon a time — 2009, to be exact — Fortune ranked BlackBerry the fastest growing company in the world. But the above chart demonstrates how the company has sunk from the euphoric highs of years past. Just four years ago, the company raked in $13.2 million on its devices in the first quarter. This year, that figure plummeted to $1.1 million. (Note: In BlackBerry’s financial calendar, “Q1 2016″ corresponds to the first three months of the standard 2015 calendar year. Readers should accordingly downshift all other quarters, too.)
Despite the funereal trend line and pivot towards software, Chen remains “bullish” on its handset business, believing new models can regain market share from rivals like Apple and Samsung.
“We think we can make money on the phones,” Chen said on an earnings call Tuesday, CNBC reports. “We’ve done a lot of things not only about the design but everything we talked about with manufacturing arrangements to components to everything included.”
The Wall Street Journal story by Dan Gallagher said that while the patent revenue was a positive, it does mask how the company is doing:
The contribution those deals made to BlackBerry’s software line was described as “significant” on the company’s earnings call. But further details were lacking, including timing and flow of future payments.
That BlackBerry is generating revenue from its huge base of patents is a good thing. The deals, though, mask how the core software business is doing. Maynard Um of Wells Fargo estimates software revenue would have been $74 million for the quarter without those deals—falling short of expectations.
BlackBerry has staked its future on software, as its device business still loses money and its high-margin services segment continues to shrink rapidly. Hitting its $500 million target for software revenue this fiscal year looks more achievable in light of Tuesday’s results.
In this case, though, winning isn’t enough if that entails the company buying its way across the finish line with acquisitions or by cashing in some of its patent chips. For BlackBerry, it really does come down to how it plays the game.
But no matter how adept the strategy, it’s unlikely that investors will give the company much more time to execute. The company had two good deals to show in the quarter and not much else good that seems to be happening. And for tech investors, not innovating is the biggest sin.
