Blackberry Reports : Why the BlackBerry Classic is critical to the new BlackBerry CNET Review

BlackBerry (BBRY) shares were sharply lower in early trading. The struggling smartphone maker reported a surprise profit in the third quarter, but a big miss on revenue. Sales were down more than 33% from a year earlier.

TORONTO, Dec 19 (Reuters) – BlackBerry Ltd on Friday reported a small adjusted third-quarter profit and returned to positive cash flow, but shares fell as revenue declined more than expected.

Revenue fell to $793 million from $1.19 billion a year earlier, falling short of expectations. Analysts expected $931.5 million.

BlackBerry’s Nasdaq-listed shares fell 5.6 percent to $9.50 in premarket trading.

Cash flow was positive $43 million in the third quarter, while the company had negative cash flow of $36 million in the second quarter. BlackBerry had said it was targeting break-even cash flow by the end of the fiscal year in February 2015.

  • Cowen (Market Perform) likes BlackBerry’s margin improvement and BES license growth – ahead of the BES12 launch, BES10 licenses roughly doubled Q/Q to 6.8M, aided by the EZ Pass migration program (to be ended soon). “Software growth remains the critical driver of the long-term turnaround.”
  • S&P (Hold): “We are encouraged by a return to positive cash flow, reflecting margin improvement from cost cutting efforts. We see BBRY growing its mobile device management business … We anticipate BBRY focusing on growing its software offerings and expect its hardware business to remain at depressed levels.” MDM software rival MobileIron (MOBL +6.6%) is up strongly.

Colin Gillis, tech analyst at BGC Partners in New York, said BlackBerry Chief Executive Officer John Chen did a good job controlling expenses to boost the company’s cash pile.

“The fact that he overachieved by turning cash flow positive this quarter. That’s a great milestone,” said Gillis. “It gets easier from here.”

Excluding, a one-time non-cash debenture charge and restructuring charges, the company reported a profit of 1 cent a share. Analysts polled by Thomson Reuters I/B/E/S expected a loss of 5 cents.

The Waterloo, Ontario-based company reported a net loss of $148 million, or 28 cents a share, in the quarter ended Nov. 29. That compared with a year-earlier loss of $4.4 billion, or $8.37 a share.

BlackBerry launched its long-awaited Classic smartphone on Wednesday, hoping to help win back market share and woo customers still using older versions of its physical keyboard devices. The phone resembles its once wildly popular Bold and Curve handsets.

Hint: It’s not about smartphone sales volume or market share.

The BlackBerry Classic, as its name implies, is a throwback to the company’s glory days. But the smartphone plays an important role in BlackBerry’s future.
BlackBerry hopes the Classic will drive interest and adoption of the company’s services and software.
Josh Miller/CNET
Wednesday’s BlackBerry Classic event kicked off like most other phone launches: a video played to hype up the BlackBerry name, CEO John Chen made a few remarks and then pulled out the Classic for a photo opportunity. But as the presentation went on, it was clear whom the company was targeting: the IT guy working in a highly regulated business.

The conversation dashed past the typical walkthrough of the Classic’s features, with a healthy chunk of time spent on the phone’s enterprise software capabilities. Guests touting the business possibilities included chief information officer for Citco Fund Services, the founder of Niederhoffer Capital Management and the chief operating officer of Ontario-based Mackenzie Richmond Hill Hospital.

It’s a far cry from Alicia Keys, the pop music sensation BlackBerry once played up as its “global creative director.”

CNET review: BlackBerry Classic – great keyboard, cramped screen

The change in tactic is part of BlackBerry and Chen’s attempt to transform the company from a device maker into one more reliant on software and services. Services such as BlackBerry Messenger and its mobile device management platform, BES 12, are the future, but the company still needs BlackBerry phones to keep it in the mobile game — and generating revenue.

“They need devices to underpin the core value propositions,” said Charles Golvin, an analyst at Abelian Research.

A familiar face

The BlackBerry Classic takes its design cues from the BlackBerry Bold franchise — the last flagship BlackBerry line that resonated with consumers. With its familiar trademark keyboard, it serves as a bridge for diehard BlackBerry users still typing away on their old Bold and Curve phones and gives them a reason to upgrade to the new BlackBerry 10 operating system.

While the smartphone was clearly designed to cater to BlackBerry’s existing base, the company hopes to attract new users, touting the physical keyboard, messaging hub and longer battery life as attractive characteristics.

“I invite a lot of people who haven’t used BlackBerrys before to have a try at it,” Chen said. “I think you’ll like it and be surprised by it.”
But with a new generation of users weaned on touch-screen iPhones and Android devices, it’s unlikely that many will take a chance on a platform that still lags behind on games and other personal apps.

“We shouldn’t delude ourselves into thinking they will go after a broad appeal,” Golvin said. He added the only potential customer growth could come from attracting former BlackBerry users into switching back.

“It’s wishful thinking,” said Avi Greengart, an analyst at Current Analysis.

Interest in BlackBerrys has waned over the years. Over the past five years, it went from a peak of a fifth of the market in 2009 to just below 1 percent in the third quarter, according to Gartner.

A quiet launch?

But BlackBerry isn’t competing anymore in the mainstream smartphone market, a rough-and-tumble arena where Apple’s iPhone reigns supreme and rivals such as HTC’s One M8, LG’s G3 and Samsung’s Galaxy S5 battle for second place. While Chen has said his goal was to run a profitable smartphone business, that doesn’t necessarily equate to huge volumes.

Just look at the BlackBerry Passport. The smartphone was launched with much fanfare in September, but aside from early preorder numbers, it has largely faded. AT&T, which vowed to carry the smartphone, won’t carry it until next year. Analysts regard the Passport as more of a novelty.

 

Given the demand from hardcore BlackBerry users, the Classic may get different treatment. But Chen declined to comment on whether AT&T and Verizon Wireless would provide marketing support for the Classic, which launches in the quieter post-holiday period in January. BlackBerry is taking orders for the Classic now on its own website, selling a version compatible with AT&T and T-Mobile for an off-contract price of $449. AT&T and Verizon haven’t provided specific availability and pricing.

Regardless, the BlackBerry devices play an important role. They remain a major financial pillar, making up 46 percent of the company’s revenue in the fiscal second quarter. The company reports its third-quarter results on Friday.

More critical is the role the phones will play in convincing big businesses to switch to BlackBerry services, according to 451 Research analyst Chris Hazelton. While BES12 is able to manage multiple mobile devices, including iPhones and Android smartphones, the BlackBerry Classic gives the companies reason to upgrade their systems.

BlackBerry is offering the Classic with different enterprise and security bundles, an example of how it hopes to make money off of its security aspect. It’s a sweet spot that Chen, who boasts a strong history with enterprise software companies, wants to get the company moving toward.

“It is very much enterprise focused at this point, and that’s absolutely the future of the company, which I think is a good thing,” said Jan Dawson, an analyst at Jackdaw Research.

Chen also has a more ambitious vision for devices, which goes beyond smartphones. “It’s also the precursor for the whole [Internet of things] market,” he said. “I don’t look at devices as just a phone business. I look at it as much broader downstream.”

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s