BlackBerry shares slide as software business hits a snag.

TORONTO • BlackBerry Ltd.’s recent rally took a sharp turn Friday after it revealed it earned less quarterly revenue than analysts expected, casting renewed doubt over its ability to grow its software business fast enough to keep investors happy after its exit from hardware.

The Waterloo, Ont. company enjoyed a stock price spike of more than 60 per cent since the beginning of the year, buoyed by strong fiscal year- end financials in March, a US$ 940 cash influx from a dispute with Qualcomm Inc. over royalty payments, a deal with Ford Motor Co. and bullish predictions from respected analysts.

But its stock fell Friday after it reported slowerthan- expected growth in its software divisions, pulling in total revenue of US$244 million compared to estimates of US$265 million. The New York-listed shares ended the day at US$12.86, down 12.28 per cent.

It’s a reality check for investors who, in their desire to see the Canadian company return to its former glory, apparently didn’t heed cautionary statements from CEO John Chen. He previously said he didn’t expect BlackBerry to rocket straight up after it completed its transformation to software from its once iconic handsets, which it abandoned making in-house last year.

Plus, BlackBerry’s four main business lines — enterprise software and services, embedded software such as QNX in- car systems, Internet of Things devices such as Radar truck tracking, and licensing of its brand and software for devices including smartphones — are increasingly competitive. It’s up against major players including International Business Machines Corp. in the enterprise game and just lost Toyota Motor Corp. as a customer to an open source platform called Automotive Grade Linux.

Still, Chen reiterated guidance that BlackBerry’s software business will grow at or above market rates of 10 to 15 per cent, pointing to major deals with France’s central bank and Fedex in a conference call with investors. Yet he left analysts questioning how long they’ll have to wait to see growth in BlackBerry’s new business lines.

“Which piece of the business gets us to that double digit growth for year?” BMO Capital Markets analyst Tim Long asked on the call, pointing to lower growth in the enterprise market. “Is that business just maturing and tough to find growth?”

Chen insisted that’s not the case. The problem isn’t its product, he said, rather, the need to ramp up its distribution channels and get more aggressive at marketi ng. “We j ust don’t have enough people working on more deals. It’s as simple as that,” he said.

For the first time, BlackBerry broke down how much revenue it earns for its software endeavours. Enterprise software brought in the lion’s share at US$ 92 million, up from US$82 million last year. Next, its technology solutions ( including Radar) earned US$ 36 million up from US$35 million. Finally, its licensing deals — such as the percentage it gets when manufacturers sell Black- Berry- branded handsets — brought in US$32 million up from US$25 million.

Revenue from handsets and service access fees, however, continued their steep decline. Both are expected to fall to zero — handsets in the next quarter or two, while service access fees will decline at an expected rate of 25 per cent per quarter until they disappear.

But Chen remained positive. He expects stronger growth in the second half of its fiscal year and plans to use some of the Qualcomm windfall to acquire companies that will expand its reach.