Glimmers of hope as BlackBerry beats forecasts June 23 2014

Smartphone maker narrows losses as cost cutting takes effect, but revenues and handset share still falling

By Caroline Gabriel

There are glimmers of hope for BlackBerry, which for the first time in years reported better than expected results, though it remains in the red. CEO John Chen, the well respected technology veteran who was brought in last year to rescue BlackBerry, says the company is now stabilized and he can turn his attention to growth and a realistic program to "save the patient".

BlackBerry shares leapt by the largest amount in six months as the firm reported a loss of 11 cents per share for the fiscal first quarter (ended May 31), far better than the 25 cents consensus forecast from analysts. Revenue also beat estimates, though it fell to $966m from $3.07bn a year earlier. Adjusted operating expenses were down 57% in the quarter from a year ago. Net income was $23m, reversing a loss of $3.1bn in the year-ago period, and excluding a one-time accounting gain and certain restructuring charges, its adjusted loss was $60m or 11 cents per share. BlackBerry has $2.7bn in cash and short term investments. Long term debt fell to $1.34bn from $1.63bn in the final quarter of the last fiscal year.

Chen said he was on target to reach break-even cashflow by the end of this fiscal year (by the start of March 2015), and to return to profitability during the ensuing fiscal year. "I am really at the tail end of our restructure programs," Chen said on the analyst call to discuss the results. "Right now, everything that I'm doing is judiciously starting to lay the groundwork for revenue growth for next year."

The CEO, who took the helm in November, has cast aside the self-delusion and over-optimistic promises of his predecessors and been cautious in his outlooks, though last month he said the chances of successful turnaround had risen to 80:20 (from 50:50 soon after he took over). He has taken a long cold look at BlackBerry's ailing business, though he has refused to ditch the smartphone business. Although most of the company's opportunities lie in its still-strong enterprise influence and its mobile management platforms, there seems to be a sentimental attachment to the once-iconic handsets. However, their cost structure has been transformed by outsourcing most of the models to Foxconn of Taiwan.

This is one of many moves made by Chen to bring BlackBerry's costs in line with its diminished fortunes. In many ways, his program of the past six months has looked like an effort to make the firm an attractive acquisition again, though the CEO insists his aim is to make BlackBerry viable as an independent entity, even in the world of BYOD (bring your own device), to which its device business adapted so poorly. "We're a viable company, we have a strong balance sheet, we have lots of cash, and now we are starting to focus on growth," he said in an interview.

Success in that goal will depend on going beyond cost-cutting, the source of most of the improvements so far, as Chen recognized in his talk about growth. If the program of job cuts, asset sales and other cost reductions is nearing its end, this fiscal year will be critical to prove that there is still organic growth left in BlackBerry, particularly in important platforms such as secure email, the multivendor BlackBerry Enterprise Server, and in services such as BBM messaging.

It will also, surely, mean the end of the handset business, which is still disintegrating.

BlackBerry recognized revenue on 1.6m smartphones in the quarter, partly because of the introduction of the lower priced Z3 phone in Indonesia, a prime market for the firm, last month. Although slightly better than analysts had expected, the firm's global shipments are projected to fall by almost 50% this year to about 9.7m units, according to IDC forecasts.

That would mean a market share of 0.8% in 2014, down from 1.3% last year and 19% in 2010 - and this could slide further to 0.3% by 2018, said the researchers, though it seems hard to believe that BlackBerry would still be in the hardware business by then. Chen has said one of his tasks is to ensure that services growth is sufficient to replace lost hardware revenue (hardware was still 39% of the total in the quarter). If his plans succeed, once this new balance is achieved we may finally see the death of the famous phone.