By Ben Dummett
BlackBerry Ltd. on Friday posted a surprise third-quarter
operating profit as cost-cutting continued to pay off, but Chief
Executive John Chen's track record as a turnaround expert remains
on the line after the smartphone maker's revenue dropped 34% and
fell well short of expectations.
Mr. Chen assumed the top job at BlackBerry a little more than a
year ago, after reviving the fortunes of Sybase Inc. and selling
the California company to SAP SE in 2010 for $5.8 billion. Mr. Chen
is aiming for similar success at BlackBerry, first by returning the
smartphone maker to profitability by cutting costs and outsourcing
device manufacturing, and then by reigniting sales with
mobile-security software and services and new devices.
The latest quarterly results suggested the first part of that
strategy is working. BlackBerry's quarterly loss narrowed sharply
in the latest period, and the company generated its first operating
profit in nearly two years. But the weak top-line performance
showed that winning new business remains a challenge.
The revenue number "obviously to us is not satisfying," Mr. Chen
told analysts on the company's earnings conference call.
"Sustainable profitability can only come from revenue growth," he
said.
BlackBerry is moving about 200 of its employees into the field
to help boost sales, while at the same time relying on AT&T
Inc.'s wireless unit, Verizon Wireless, Vodafone Group PLC and
other partners to help distribute its new devices and security
software.
The real fruits of those efforts aren't expected until next
year, Mr. Chen said. "To see that revenue growth we probably need a
couple of [more] quarters," he said.
Investors were also disappointed; sending the shares down 4.2%
to $9.65 in recent trading in New York.
BlackBerry reported a net loss of $148 million, or 28 cents a
share, compared with a hefty loss of $4.4 billion, or $8.37, a year
earlier. The year-earlier results included sizable asset-impairment
and inventory charges related to its unsuccessful expansion into
the consumer-device market.
BlackBerry earned 1 cent a share on an adjusted basis, better
than the loss of 5 cents that analysts were predicting, according
to a Thomson Reuters poll. But revenue came in at $793 million,
well below analyst expectations for revenue of about $932
million.
Earlier this week, BlackBerry launched its newest smartphone.
The Classic is meant to lure back customers with traditional
BlackBerry features like a physical keyboard and trackpad. The
launch came after the third quarter ended Nov. 29, but the company
is counting on the Classic and another phone, the Passport, to help
fuel revenue growth. Launched in September, the Passport is more of
a niche device aimed at professional users such as doctors.
Mr. Chen said orders for the Classic exceeded the initial
200,000 preorders the company received for the Passport, but he
didn't specify the number of Classic orders or update order figures
for the Passport.
The company said it recognized hardware revenue on about 2
million devices in the latest period. BlackBerry needs to sell 10
million phones a year to make a profit from the device business. In
the first nine months, the company recognized revenue on a total of
5.7 million phones, indicating it needs to generate revenue on 4.3
million phones in its fourth quarter for this business to make
money.
Some analysts suggested that will be a struggle for this fiscal
year and next.
"For me, it's aggressive," as the company is still waiting for
AT&T to start selling the Passport device in the U.S. and "we
still have to wait for the reception of the Classic," said Ramon
Llamas, an analyst at research firm International Data Corp.
BlackBerry also is betting on doubling software revenue to $500
million in the next year fiscal year to fuel growth, driven largely
by sales of the latest version of its mobile device management
technology that companies use to oversee employee devices on their
corporate networks. The product was launched in November, so it
isn't expected to generate significant revenue until next year. But
in a positive sign for the product, BlackBerry said it would end an
incentive program aimed at encouraging enterprises to adopt the
offering earlier than planned, due to strong interest.
The offering "has been very well received," generating 100%
growth from the last quarter, Mr. Chen said.
Write to Ben Dummett at ben.dummett@wsj.com
Access Investor Kit for BlackBerry Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CA09228F1036
Access Investor Kit for SAP SE
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007164600
Access Investor Kit for AT&T, Inc.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US00206R1023
Access Investor Kit for SAP SE
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US8030542042
Subscribe to WSJ: http://online.wsj.com?mod=djnwires