BlackBerry’s Android bet is still looking for its big payoff

23 Dec 2015 | Author: | No comments yet »

BlackBerry Inc shares leap as earnings beat expectations on software gains.

BlackBerry reported a narrower third-quarter loss than analysts estimated as software revenue kicked in from its acquisition of Good Technology, helping offset the struggling handset business. BlackBerry’s transformation into a software-first company picked up speed in the third quarter as growth beat analyst projections with a smaller loss than had been expected.BlackBerry BBRY 12.18% reported a smaller-than-expected fiscal third-quarter loss on Friday and its first quarter-to-quarter revenue gain in over two years, indicating turnaround efforts may be gaining traction.WATERLOO BlackBerry shares got a boost in pre-market trading on Friday from a quarterly report showing the smartphone company’s revenue was above expectations and its loss was far less than anticipated. Despite a generally positive quarter with $557-million in revenue, ahead of an expected $488.8-million, in the early press release and chief executive officer John Chen’s initial investor summary the company couldn’t bring itself to deliver the bad news on hardware.

The company’s revenue in the three months ended Nov. 28 was $557 million US, which is $64 million above the general estimate and up from $548 million US a year ago. BlackBerry is making progress toward a goal of $500 million in annual software revenue by March 2016, a key part of chief executive John Chen’s plan to move the company away from relying on shrinking handset sales. “That’s encouraging – that tells me they’re on track to hit their $500 million target,” said John Butler, an analyst at Bloomberg Intelligence. Analysts had been watching to see if the Priv, BlackBerry’s newest phone and the first to run on Google’s Android operating system, would take off. “Maybe next quarter, maybe a quarter later, but we’re in that ballpark now.” Once that point is reached, strategic options become available, Mr Chen said. Excluding a noncash credit tied to a change in the value of debentures, restructuring charges and other one-time items, the company posted a loss of $15 million, or 3 cents a share.

Quarterly revenue fell 31 percent to $548 million from a year earlier, but rose 12 percent from the prior quarter, after nine consecutive quarters of declines. Initial stock market reaction to the quarterly report was positive, and the price was up five per cent as the company began a conference call with analysts.

Hardware was about 40 per cent of revenues, which makes it about $222.8-million in the quarter, flat as a share of revenue compared to the second quarter. It sold 700,000 devices in the latest quarter down from about 800,000 in the prior period, but average selling prices (ASPs) on devices jumped to $315 from $240. I anticipate this will result in sequential revenue growth in our software, hardware and messaging businesses in our software, hardware and messaging businesses in Q4.” BlackBery stock closed Thursday at $7.80 US on the Nasdaq market, which handles most of the BlackBerry trading volume, and at $10.89 on the Toronto Stock Exchange. Chen emphasized that the first 60 days of U.S. sales were limited by a carrier exclusive deal with AT&T, and it won’t be until February before the phone is in 31 countries.

Still, analysts led the investor Q&A with questions about why BlackBerry remains in the hardware business at all with these kind of numbers. “My first goal is to get devices in break-even. Due to the higher ASP and expansion of availability, Chen is optimistic the company’s hardware division will break even in the company’s fiscal fourth quarter. BlackBerry’s QNX unit, which makes infotainment systems used in millions of vehicles, said earlier this week it was partnering with Luxoft Holding Inc. to work on semi-autonomous driving technology like that used by Tesla Motors Inc.

BlackBerry 10, the company’s proprietary operating system for smartphones, is expected to receive an update in the first quarter of 2016, and another later in the year. It’s hard to imagine, however, the company will keep the platform around if the Android-powered handsets continue to remain attractive to customers. At this moment in time I’m looking at getting to break even and begin adding value.” BlackBerry hasn’t been a serious force in hardware since 2012, when it sold about 7 million phones a quarter, which was already a decline from its peak in 2011 when its worst quarter was 11.8 million devices. During the call, the primary focus of conversation in relation to hardware was surrounding Android and the company’s ability to bring security and privacy to the platform. At one point, Chen noted “look for us to expand on this concept,” in reference to the success the company was seeing with its first Android device.

Chen was also eager to point out this quarter was also the first time that the declining service access fee business was offset by growth in the rest of the companies software operations.

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