BlackBerry bullish on future
CEO vows tech giant will grow, make money despite sharp decline
WATERLOO, ONT. BlackBerry Ltd.’s software couldn’t pull in enough revenue to offset losses in the first three months since the former smartphone titan formalized its retreat from the device-making business, but CEO John Chen asserted Tuesday that his company will make money this year and grow faster than its competitors next year.
The Waterloo, Ont.-based company reported a loss for the fifth consecutive quarter, surprising analysts with a sharper-than-expected drop in revenue from dwindling handset sales and service fees. Yet it also revised its outlook to expect an adjusted profit this year instead of previous estimates it would break even at best.
The improved outlook helped push BlackBerry shares up three per cent in early Toronto trading. It closed at $10.02, down 32 cents or 3.09 per cent Tuesday.
“We’ll make money this year. Nobody believed us in the beginning as you can see, but this quarter we delivered a good surprise,” Chen told reporters. “To the extent we can help it, we don’t have any intention to lose money going forward.”
Chen, who has led BlackBerry through its fall from the top of the smartphone industry to become a security-focused enterprise software player with an interest in transportation, believes the turnaround is complete. Still, BlackBerry posted a net loss of US$117 million, or 22 cents per share, on revenue of US$289 million in its fiscal third quarter ending Nov. 30. Last year, it reported a loss of US$89 million, or 17 cents per share, on revenue of US$548 million.
Chen, however, said he believes the adjusted earnings of US$12 million, or two cents per share, is the “right” number. BlackBerry has ended all its obligations with suppliers and manufacturers of parts, products or capacity when it comes to making its own hardware and doesn’t expect more writedowns related to the exit, he added. Now his focus is on growth and a future that relies on software.
The company is on track to hit its annual software growth target of 30 per cent, Chen said, and expects it will continue to grow by about 15 per cent next year.
“Our goal is to grow faster than the market,” he said. “If the market is indeed growing at 10 to 12 per cent and the upper end is 15 per cent, we will come in at 15 per cent or slightly better.”
While Chen wouldn’t predict when its non-adjusted earning would become profitable, he expects revenue to start growing again by the next year fiscal year.
Enterprise software is its biggest growth area, he said, citing a roster of new high-profile enterprise software customers including Bombardier, Toronto Hydro, the Government of Canada and Marathon Oil.
The next bucket of growth comes from QNX and BlackBerry Radar, its trucking logistics software. BlackBerry recently signed Titanium Transportation, a trucking company with more than 1,200 trailers, and on Monday announced a research-centre for autonomous cars in Ottawa where it will invest $100 million over five years. There’s no public money involved, but Chen said BlackBerry is trying to form a partnership with the government on the issue.
Radar charges a small upfront fee followed by a monthly fee for monitoring and service, so Chen expects that cash to kick in longerterm. Autonomous car technology should make money by 2019, but he hopes it will start pulling in cash as early as 2018.
Chen expects the third major revenue source will be in licensing software for smartphones to other manufacturers. BlackBerry is in late stage negotiations with a partner in India in a similar deal as it made with China’s TCL and Indonesia’s BB Merah Putih, he said. The first smartphones from the Indonesia deal are scheduled to ship around Chinese New Year, so the mobility solutions division should start making money by April or May, Chen said. Margins in this line of business are expected to be around 90 per cent.
Service fee revenue fell by about 25 per cent this quarter. Chen anticipates this category will fall to near zero within the next two years.
For the first time, BlackBerry refused to reveal how many smartphones it sold even though it launched the DTEK60 this quarter.
“I’m not going to go into that. It took a very hard decision to pivot to software and services, which I believe is the right thing for the shareholders,” he said. “We are not focused on cellphones.”
Last quarter, BlackBerry sold 400,000 devices. The cost of goods sold dropped by half this quarter. As for the last BlackBerry device with a keyboard, Chen said it’s coming early next year — perhaps at consumer electronics trade show CES in January.
We’ll make money this year. Nobody believed us in the beginning as you can see, but this quarter we delivered a good surprise.