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BlackBerry posts lower-than-expected revenue, still ‘solid quarter’

John Chen, BlackBerry

BlackBerry CEO John Chen at the launch event for the Passport. Sept. 24, 2014.

Updated on Sept. 26, 2014, 11:53am EST to reflect analyst comments and more details from BlackBerry’s earnings call.

BlackBerry Ltd. posted its second quarter results on Friday morning, saying it has generated $916 million in revenue – a lower figure than the $950 million analysts had been expecting, according to a report from Bloomberg.

However, the Waterloo, Ont.-based smartphone maker took a loss of just two cents per share, beating out analysts’ expectations of 16 cents loss per share. The company also pointed to wins in sales of its smartphones, selling 2.4 million devices during the quarter ending Aug. 30. BlackBerry also boosted its BlackBerry Messenger (BBM) service from 85 million users in Q1, to 91 million users this past quarter.

The company also holds $3.1 billion in its cash and investments balance, with Chen expecting it to break even or to have a positive cash flow at the end of this fiscal year, or even by the end of the third quarter.

With the boost in revenue, mostly thanks to smartphone sales, as well as company layoffs and restructuring, the embattled handset maker hopes to be back on track towards profitability in fiscal year 2016. BlackBerry CEO John Chen said this was a “very solid quarter,” thanks to turning a profit from its hardware business and by cutting back on using its cash for its day-to-day operations.

He added the company’s revenue was on the “low end” of its expectations, in part because of its focus on margins, as well its plans to move from selling software licences to subscription-based pricing.

“The last couple of years, we’ve had some turmoil. That is now behind us and we’re going out to each of our customers,” he said, during a call with analysts Friday. “I don’t want to jinx myself, but winning back, we’re starting to see that in many, many places, especially with very big companies … The company is stabilized and we have good cash positions, good technology and roadmap, and we’re starting to win [customers] back.”

Where BlackBerry is hoping to shine is through its enterprise plays, as Chen has said the company now has less of a focus on reaching consumers. Earlier this week, BlackBerry unveiled its latest smartphone, the Passport, with a 4.5-inch square screen, targeted towards enterprise users. Its touted as being more efficient for users reading and editing documents. It also features a physical QWERTY keyboard, which may help users who need to send a lot of emails and messages for work.

So far, the company has sold 200,000 Passport devices, with pre-orders selling out on BlackBerry.com and Amazon.com within hours of its launch. This is the third phone BlackBerry has launched this year, with the other two being the Z3, a budget phone, as well as the Porsche Design P’9983, an ultra high-end phone with a $2,000 price tag. The smartphone maker still has yet to release the BlackBerry Classic, another phone set to come out before the end of 2014.

Still, BlackBerry is taking steps to move more towards enterprise software, instead of hardware, as a way of adding to its coffers. The company is hoping to move from software licensing to subscription-based pricing for products like EZ Pass, and it is hoping features like BBM Protect, BBM Meetings, and BBM Money will start bringing in some money as well.

During his call with analysts, Chen said he expects BBM, as well as BBM Blend, a data-sharing feature announced this week, to generate $100 million in revenue for the company in fiscal year 2016.

Carl Howe, an analyst and vice-president of data sciences at 451 Research, said BlackBerry seems to be in a more promising position than before.

“They seem to be doing better,” he said. “Their losses have been trimmed, so they’re making more progress towards making money.”

Howe pointed to BlackBerry’s enterprise plays, like the release of the Passport and the focus on EZ Pass and BlackBerry Enterprise Server (BES) 12, as reasons to be more optimistic about the company’s outlook. He also added it’s a “tough call” as to whether investors and BlackBerry customers should be concerned about the company’s lower-than-expected revenue this quarter.

“They’re still making their way back, they didn’t have new products for this earnings announcement. So we shouldn’t have expected the trajectory to change yet. So I think the jury is out on the revenue number,” he said.

Still, Carolina Milanesi, analyst and chief of research at Kantar Worldpanel Comtech, says she’s skeptical that BlackBerry is making the right play to enterprise customers.

“I think that some of the comments that John Chen made at the [Passport launch] event earlier in the week … It might be kind of a detachment from reality as far as what the enterprise market is looking for and the challenges they might have. He was still talking about how lots of people carry two phones,” she said.

“That was true two or three years ago. Not now.”

She added it may still make sense for BlackBerry to pursue a small segment of the enterprise market, like doctors and lawyers, as they will be attracted to BlackBerry’s reputation in security. But many enterprise users have switched to Apple and Android phones, especially as Apple and Google try to appeal to that market as well – and so what BlackBerry is currently doing may be too little, too late.

“They’re showing the right signs. I wish that we had them a year and a half ago. I think they spent too much time trying to figure out where they wanted to go, and too many mixed messages. And that time is not going to come back,” Milanesi said.

“They’ve lost that opportunity as they tried to figure out what they wanted to be by looking at the devices and not the bigger picture. And I think that time could have made a big difference for them.”

The company is set to unveil its BES 12 update on Nov. 13, in an event in San Francisco, Chen said today. He added that’s when the company will discuss more of its strategies and its road map going forward.

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