BlackBerry posts second straight earnings gain

BlackBerry’s turnaround continues, as the company reported a second straight quarter of profit on last Friday, along with expectations of sustained profitability throughout the coming year.

“Our financial viability is no longer in question,” CEO John Chen declared in a conference call, even as he admitted the company is only halfway through a long transition. He also predicted sustained profitability in the current fiscal year that started March 1.

Profits for the quarter that ended Feb. 28 were 4 cents a share, up from profits of 1 cent a share for the previous quarter.

On the negative side, revenues were $660 million, down from $793 million the previous quarter and $976 million in the same quarter last year.

BlackBerry has increasingly focused on moving revenues to software from its traditional hardware stronghold, even though it still plans to introduce four smartphones during 2015. The revenue breakdown for last quarter was heavily weighted for hardware with 42% for hardware and 10% for software. Services, however, accounted for 47% of revenue.

Software revenue was $67 million in the last quarter. While relatively small, that represented a 20% increase from a year ago, BlackBerry reported.

That mix is still too heavy on hardware, according to Gartner analyst Ken Dulaney, who has been one of BlackBerry’s harshest critics.

“BlackBerry remains dominated by hardware, both in device sales and licensing revenues that come from older BlackBerries,” Dulaney said. “To succeed in hardware, you must sell millions of devices to consumers and I don’t think this is going to be a fertile area for BlackBerry anytime soon.”

Dulaney also questioned how well sales of newer BlackBerry smartphones like the Passport and Classic are doing. BlackBerry didn’t discuss sales of specific smartphone models, but reported 1.3 million smartphones sold in the last quarter, with the average sales price jumping to $211, up from $180 in the previous quarter.

In early March at Mobile World Congress in Barcelona, BlackBerry introduced the full-touch BlackBerry Leap smartphone with a 5-in. display.
Chen defended various software initiatives at BlackBerry, including BlackBerry Experience Suite, a portfolio for security, communication, productivity and collaboration that works across iOS, Android and Windows tablets. He said carriers globally are partnering with BlackBerry to distribute software capabilities to customers, along with new smartphones.

“We have the best carrier support worldwide that we’ve seen in a number of years,” Chen said on the call.

BlackBerry also recently announced a partnership with Google to support Android for Work and the BlackBerry Enterprise Service (BES) 12 cloud service.

Chen said the company has sold software to 2,200 customers, including enterprises such as Delta Airlines, the government of Canada, SAIC and HSBC.

But even with the relatively new BES 12 and other software selling to customers, Dulaney said, “We continue to see our Gartner clients calling in and moving to alternatives.”

The reason, Dulaney said, is that business customers have already installed alternative mobile device management (MDM) software and are happy with the result. “They don’t see changing their hardware and MDM vendor to BlackBerry as a strategic move and they have other priorities,” he said.
A lot of ground was lost by BlackBerry before Chen arrived there in November 2013, Dulaney said. “John Chen is a good manager and doing his best, but the hole they are in is a deep one created by his predecessors,” Dulaney said. “His track record on turnarounds is good, so we’ll see.”

Analysts had expected BlackBerry to report a small quarterly earnings loss of up to 4 cents on Friday, so the earnings gain shows how BlackBerry can surprise the market.

To that point, Chen said he has seen analyst estimates of upcoming earnings losses of from 8 cents to 13 cents per share, which he admitted could be “somewhat reasonable,” he said, “you can be sure we intend to do better.”

While he has worked toward completing a corporate restructuring affecting BlackBerry workers, he added that the best way to improve morale and productivity is by stabilizing the company financials. “Today, the morale of the company is a lot better than a year ago and probably still needs to be a lot better than it is today,” he said. “I’m comfortable with our productivity, but it would be nice to have more money to spend.”

Chen summarized the call with three takeaways: “Number one, I hope you’ll agree with me that our financial house is order… Second, we are seeing traction with devices and they are quite well received by carriers. Third, with software momentum, we do have to make investments, both with products and distribution…

“We’re a little ahead of our turnaround milestone, but only half-way through [to] stabilizing revenue. Transitions like this are never easy and smooth