BlackBerry to export design of hardware
Company is pursuing outsourcing agreements in China and India
WATERLOO, ONT.— BlackBerry says it is through with making its own smartphones, announcing a strategy Wednesday to outsource in-house hardware design to manufacturing partners, although CEO John Chen says the company is not abandoning the device business.
“I’m still in devices, but in a profitable way and in the right way that is more about software and intelligence,” chief executive John Chen told reporters.
The smartphone pioneer released secondquarter fiscal 2017 earnings Wednesday that showed a greater than expected revenue decline on sliding device sales.
BlackBerry, which reports its results in U.S. dollars, says it had a $372-million net loss in the three months ended Aug. 31, equivalent to 71 cents per share.
However, adjusted earnings were break-even due to improving profit margins, as well as an adjusted increase in software and services revenue.
The Waterloo, Ont.-based company said it achieved a record-high 62-per-cent margin as it shifts from hardware to a focus on higher-margin secure software licensing deals. It also increased its earnings per share guidance on expectations of further margin gains.
Chen said the hardware design outsourcing to be completed by the end of BlackBerry’s fiscal year will strip away risks associated with managing hardware inventory, adding that the company is pursuing end-to-end hardware outsourcing agreements in markets including China and India.
Chen said fewer than 100 BlackBerry employees will be affected by the move from in-house hardware design.
“I’m still in devices, but in a profitable way and in the right way that is more about software and intelligence.” JOHN CHEN CEO, BLACKBERRY
BlackBerry also announced a partnership with Indonesia’s largest telecom carrier, which will design, manufacture and promote BlackBerry-branded devices in the country, running BlackBerry’s secure Android software and applications.
Chen said BlackBerry will receive an undisclosed royalty payment on each of the higher-end devices sold in Indonesia under an agreement, which could be largely replicated in other markets.
BlackBerry will continue to introduce new phones for enterprise and consumers in countries such as Canada and will continue to bear promotional responsibility until outsourcing deals can be established.
Chen said handsets designed and built for other markets could be sold by carriers in Canada, adding that outsourcing partners have a legal ob- ligation to maintain a BlackBerry standard in design and quality.
“Consumers should notice no difference,” Chen said.
He added that BlackBerry’s propri- etary BB10 phone operating system will receive at least one more update, although the Priv Android device will be BlackBerry’s last in-house designed phone.
“This is the completion of their exit,” said Colin Gillis, an analyst at BGC Partners. “Chen is a software CEO, historically. He’s getting back to what he knows best: higher margins and recurring revenue.”
“We are reaching an inflection point with our strategy,” Chen added, saying the strategy could actually increase the number of Black Berrybranded phones sold as manufacturers license the name in emerging markets.
Although BlackBerry’s latest phone, the DTEK50, was almost completely outsourced, the move is a big symbolic step for a company that once reached a market value of $80 billion. Today, it’s $4.3 billion.
BlackBerry shipped only 400,000 phones in its fiscal second quarter, half what it sold in the same period last year.
But BlackBerry said software and services revenue more than doubled in the quarter from a year earlier to $156 million. Still, software revenue was down from the previous quarter’s $266 million, which Chen blamed on patent licensing deals that didn’t carry over to the quarter.
Revenue in the second quarter was $325 million, falling short of analysts’ projections for $390 million.
For the full year, BlackBerry expects a loss of 5 cents or to hit breakeven, compared with what it said was a current consensus of a 15-cent loss.