Blackberry begins to harvest revenue growth from software biz

Profile picture for user slauchlan By Stuart Lauchlan December 20, 2015
Summary:
Blackberry CEO John Chen's still set on trying to hit breakeven in the handset business, but it's the software arm that's showing signs of life.

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John Chen's not done with handsets yet

Is there life in the old dog yet? BlackBerry’s pitch to transform itself from smartphone manufacturer to enterprise software company might just be showing signs of success with the firm turning in a 12% sequential revenue rise for its third quarter.

Now, before we get too carried away, while the company delivered GaaP revenues of $548 million, that is still down over a third year-on-year. But BlackBerry also managed to reduce its losses, down from $148 million in the year-ago quarter to $89 million for this year.

But the really important number for Wall Street was the $162 million in revenues attributable to software and services. That’s more than double the $74 million reported in the second quarter., with CEO John Chen repeating a full-year commitment of $500 million in software and serves revenues.

He pointed to increased uptake among enterprise customers:

We had over 2,700 customer wins in the quarter, with strong performance in the regulated industry. In financial services, we have major wins with HSBC, the Depository Trust and Clearing Corporation and Berenberg which happens to be an AirWatch replacement. These are all cost platforms and HSBC is an enterprise-wide deployment.

One of the largest law firm in the world, Skadden Arps, is expanding its use of WatchDox, highlighting the strength of our secure content platform in the legal industry. In the quarter, we also saw continued investment from our government customers, including the United States Department of Defense, the DEA, the Drug Enforcement Agency, who uses by the way the BBM Protected and St. Louis County for AtHoc.

Secure voice technology is a relatively untapped market for the enterprise, said Chen:

What we have been seeing, the growth rates are very high, the interest levels are extremely high. In fact, we started with government agencies and major governments like the German government and so forth. It's now being requested, our presentation, all over the world in the government space.

The company’s enterprise ambitions will be furthered by the acquisition of Good Technology. Chen said:

There is probably over 20,000 customers between Good and BES that are in the enterprise space.

Chen is also adamant that customers understand Blackberry’s direction and strategic plans, particularly in relation to the Good acquisition:

I've been talking to a lot of customers -- and although I've been talking to customers mainly in the financial vertical personally, in financial vertical and governments and customers and they are all very excited. I mean, I have not heard one customer and tells me, I don't know what in the world you guys are doing. So they understand the road map. They are very positive about this combination.

Handsets still

Despite the emphasis on software, Blackberry does still have skin in the handset game, most notably launching Priv last month, its first phone powered by Google’s Android mobile operating system.

Chen says that the first 30 days have seen a lot of interest in the new device, but is aware that there’s a window of opportunity here that will close:

In about Mobile World Congress time, we will see introduction of new technology from our competitors. We have maybe a midlife kicker coming in around that time, but I expect ourselves to have to reduce our price to be competitive.

We do have some unique features at Priv, as being well-received especially in the security world, in the privacy world. But we obviously won't fool ourselves to expect that they will continue to maintain the high prices that we could get today. So we have our natural trend and a model that goes through 12 months out and then after 12 months, we're going to have to re-examine that.

Chen remains intent on getting the devices business to breakeven point before being open to any considerations of getting out of that market completely:

You really couldn't do anything strategically if, as a business, that continued to lose money and so forth.

But I think we're really in the shouting distance of that. Maybe next quarter, maybe a quarter later, but we're in that ballpark now. I've been very vocal about the fact that, if I can't get there, I would not keep taking my investors through that and so that, that I will continue to maintain.

There are many other strategic options, if we want to explore. But at this moment in time, where I'm looking at it, I could get to breakeven and I could start making money.

My take

Signs of life or the twitch of a death rattle?

It’s a question that will only be answered over the coming months.

Certainly the software focus appears to be gaining some traction of its own. 

As for the handset business, well…how many people do you know who are excited about Santa leaving them a Priv this Friday morning?