‘Ottawa’ John Chen Not Giving up on Creating a BlackBerry with Mass Consumer Appeal
BlackBerry Ltd. CEO John Chen is ignoring calls to exit the hardware business and betting the leaner smartphone segment will stop losing money by September, even as revenue from the company’s software business surpassed dwindling smartphone revenue for the first time.
The former smartphone titan posted a US$670 million net loss in the first quarter of fiscal 2017, with a US$21 million loss in the smartphone segment. But it nearly broke even when excluding a massive writedown on its shrunken smartphone business and other charges — news investors rewarded by bumping the stock up 3.6 per cent Thursday.
Chen is frustrated that people keep asking him about hardware (he’d rather talk about the record $166 million revenue in the software segment), but as much as they call him “delusional” and “defiant” Chen said he intends to serve the customers — mostly governments — that still want BlackBerrys.
“The last thing I would do with those customers is leave them high and dry,” he said.
Chen believes he can make money in hardware by designing phones and outsourcing the manufacturing, and he said people will know by the start of the third quarter “whether I’m kidding myself or not.”
“We’re no longer making any hardware, we’re a hardware design house,” he told reporters Thursday, after the company’s earnings announcement.
BlackBerry sold 500,000 smartphones in the quarter ending May 31, compared to 600,000 last quarter, 1.1 million in the first quarter of 2016 and a peak of more than 13 million in Q1 2012. Sales have been poor for the latest device, the Android-based Priv, due to its high price tag.
Chen previously said he needed to sell three million phones this year to break even, but he tempered that number due to his a new strategy to license software from the company’s devices, be it the hub or the power management features, to other phone manufacturers to pad the bottom line. The new initiative hasn’t made any cash yet, though Chen said he’s in talks with a manufacturer and a company that makes set-top boxes.
He’s even willing to license BlackBerry’s security software — with the right deal, he said, “anything is possible.”
Chen reiterated that BlackBerry has two mid-range smartphones in development that it intends to release before the end of the fiscal year. He promised to unveil more details about the devices in July, and later told reporters the cheaper of the two would have an all-touch screen.
The new phones will be targeted to the business market until the segment is back on two feet, Chen said. But he doesn’t see BlackBerry’s future as being just a niche phone, and isn’t giving up on developing a phone that has mass appeal.
“I wouldn’t tell anybody that I’m going to give up the consumer world,” he said.
He told shareholders at Wednesday’s annual general meeting that his “No. 1 objective” is to return the device business to profitability, but clarified Thursday that it’s one of three top priorities, which also include the maintenance of positive cash flow and the growth of the software and service segment.
Software revenue climbed eight per cent, a record for the segment that topped the $152 million earned from smartphones. Chen expects the software business to grow 30 per cent over the course of the year.
The software and service business includes mobility management for enterprises, secure alert systems for organizations including the U.S. Coast Guard and the Canadian Parliament, and QNX.
BlackBerry’s move to bundle such services has been “extremely well received” and attracted more than 560 customers, up from 90 in just 90 days, Chen said.
Overall, BlackBerry reported quarterly revenue of US$424 million, lower than the US$470 million analysts predicted. Revenue from service access fees, the third segment of BlackBerry’s business, dropped 20 per cent and is expected to decrease another 20 per cent next quarter.
But BlackBerry predicts a non-GAAP earnings per share loss of about US15 cents for the full year, half of the US33 cents loss analysts are predicting. Chen said this is based on high margins in the software business.