BlackBerry ‘can get back on track’, CEO says
WATERLOO, ONT. — John Chen doesn’t want to celebrate alone.
“I hope you share in our small celebration of a successful quarter,” the smartphone maker’s CEO said on a conference call with analysts Thursday.
But even on a day when BlackBerry shares surged 9.3 per cent to $9.84 on the TSX — the highest close since March 27 — Chen recognizes the turnaround is still a work in progress.
“Whether we can get back on track, we believe we can,” Chen said at the company’s annual meeting.
“Whether we get back to an iconic state, I don’t know, but we certainly will try. Certainly there are a lot of opportunities and assets in the company.”
Analysts said Thursday’s quarterly results showed encouraging signs, but there’s still work to be done.
“Services declines are slowing, handsets are nearly profitable, a new round of hardware is about to be launched, and enterprises are giving BlackBerry a chance,” said RBC Capital Markets technology analyst Mark Sue.
“However, execution is key and there’s much that needs to be launched by the end of the year.”
Last year was about cleaning up the balance sheet, Chen said. Now, BlackBerry will start looking towards positive cash flow with the aim of reaching break even by fiscal year 2016.
One prong of BlackBerry’s strategy will be new handsets, including the Z3, the BlackBerry Classic and the BlackBerry Passport.
The Z3, a budget-friendly touchscreen phone targeting emerging markets, was launched in Indonesia in May.
Based on its success, BlackBerry rolled out the phone in Vietnam this week, and has plans to launch it in India and six other countries.
But it is the Classic device, with the belt that includes a small trackpad, that Chen was most excited about.
He said Thursday, to the chagrin of BlackBerry designers, that this element from older devices was key.
But while the bulk of the revenue in the short term will be from devices, it will be enterprise and services that will boost BlackBerry’s growth and profitability in the long run, Chen said.
For example, the company has a “reasonable plan” to generate $100 million in revenue off of its BlackBerry Messenger (BBM) service. That includes BBM Protected, its new secure instant messaging service for the enterprise crowd, the BBM Money mobile payments platform, as well ad placement on its BBM channels, he said.
With the rollout of these new products scheduled in the second half of the year, and some services beyond that, Chen said there could be a “trough”.
But he is optimistic that BlackBerry will break even or be profitable by the end of the fiscal year.
Analysts agreed that Chen’s turnaround program was starting to bear fruit, but, remained skeptical about demand for BlackBerry’s offerings.
“We’re encouraged by BlackBerry’s slower cash burn (excluding one-time cash windfalls),” Morningstar analyst Brian Colello said in a note to clients.
“But in the long term, we remain much more concerned about end-market demand for the company’s handsets and services. We didn’t see much from this earnings report to lessen our concerns.”
BlackBerry reported net income of $23 million US, or 4¢ per share, on revenue of about $966 million, the company announced on Thursday.
The net income includes non-cash items associated with the change in fair value of its $287 million in debentures and pre-tax restructuring charges of $226 million.
Excluding these one-time adjustments, its adjusted loss for Q1 2015 was $60 million or 11¢ per share.
That’s an improvement from the adjusted loss of $67-million, or 13¢ a share, BlackBerry posted a year earlier when revenue was $3.1-billion.
Its cash situation improved, too. BlackBerry reported cash and investments of $3.1-billion at the end of the fiscal first quarter, on the back of some major cost saving and cash-generating measures under Chen, such as selling the bulk of BlackBerry’s Canadian real estate holdings and outsourcing production to Taiwan’s Foxconn.
The company said Thursday it doesn’t expect that figure to drop below $2.5 billion at any point in fiscal 2015.
“All areas of our business are making good progress … bottom line, we feel good,” Chen said.