BLACKBERRY SALES TAKE A HIT
‘Financial house is in order,’ CEO says
WATERLOO, ONT. John Chen, who spent the last year pruning BlackBerry Ltd.’s expenses, promised to spend the next one sowing seeds that he hopes will yield a muchneeded crop of sales.
But if the company’s latest results released Friday are any indication, the turnaround specialist has his work cut out for him.
BlackBerry’s fourth-quarter sales tumbled 32 per cent from the same period last year to $660 million US, falling short of the Street’s already dismal $783.1 million estimate. Income from a patent sale plus a $29-million tax recovery helped lift the ailing Waterloo, Ont.-based company to a surprise adjusted profit of four cents per share, its second-consecutive beat on the bottom line after a streak of six consecutive quarterly losses.
Chen stressed to analysts and shareholders during Friday’s earnings call that after months of floundering near the brink of a sale or extinction, BlackBerry’s “financial house is in order” and his efforts as chief executive officer to revitalize the one-time technology giant are beginning to bear fruit.
“I feel comfortable in my winning chances more so than a year ago, partly because of product, partly of the sales force, partly because of our partners and partly because quite many (people) are starting to feel good about us being around,” Chen told reporters at the company’s offices. “A year ago, that was a problem, I will admit to that. That’s why making money and generating cash is so important.”
Shares of BlackBerry rose 16 cents or 1.72 per cent Friday to $9.46 in New York.
In the three months ending Feb. 28, BlackBerry’s legacy hardware business contributed even less to the total sales mix than last quarter, generating roughly $274 million, or 42 per cent of revenue, from roughly 1.3 million smartphones. Of note, conservative supply chain management pushed back the launch of BlackBerry’s higher-margin Classic device in Europe and the U.S. until mid-quarter.
The company employs an accounting policy called “sell through,” which defers the recognition of revenue until its devices are sold to the customer from a wireless carrier. Doing so reduces the likelihood of prematurely recording a sale that could be returned later, a method Chen described as “a very good safeguard against what was stuck in the channel,” which for BlackBerry has been a barrage of old models.
“Does that introduce volatility? Yes, because you sell in two steps. It’s a disadvantage to us,” Chen said. “Selling into the channel (to the wireless carrier) does not finish the sale. If the end user doesn’t turn on the phone, I don’t see the pin — then I can’t take the revenue.”
When asked if he would consider revising the policy to record sales much sooner, Chen said “that is something I work on all the time,” but the company would “need to establish some records first,” meaning he would need to first see consistent consumer demand for his devices.
Chen highlighted that BlackBerry’s nascent software business jumped 20 per cent in the quarter to $67 million, which still represents just a 10th of total sales. However, the segment’s annual sales of $234 million were flat compared to last fiscal year. He held steady on his promise to more than double its contributions in fiscal 2016 to $600 million, including $100 million from its BBM mobile messaging service, which he conceded Friday is “slightly behind in monetization.”
But since the software arena is fiercely competitive, analysts are skeptical that BlackBerry will be able to achieve such a feat. Chen called the target “reachable” and told reporters that he plans to use some of the company’s $3.27 billion in cash, equivalents and investments to strengthen its relationship with carriers, hire staff and “acquire a company,” noting that “acquisition is part of our strategy this year.”
Phase 2 of Chen’s turnaround plan certainly won’t be easy — and there will be skeptics along the way.
In a note to clients Friday, Morningstar analyst Brian Colello called BlackBerry’s latest results a “mixed bag,” adding that he was “encouraged” by the progress of its software business. Colello, who rates the company’s stock the equivalent of a hold, still sees the hill Chen has to climb as steep.
“We maintain our thesis that BlackBerry’s hardware and software turnaround will offset its rapidly falling legacy service revenue,” Colello wrote, “but won’t be enough to result in a stable, highly profitable company in the long run.”