A good day for BlackBerry - miracles do happen!

Profile picture for user slauchlan By Stuart Lauchlan June 19, 2014
Summary:
BlackBerry's turned in a surprise profit, making Wall St think there might be some life in the old dog yet. But CEO John Chen concedes that there's a long way to go in turning around the firm.

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John Chen and his Passport

While Amazon was stealing the smartphone headlines yesterday with its Fire offering, BlackBerry stole some of the thunder by announcing it had reached a licensing deal offer some 240,000 Android applications from Amazon's app store on its Blackberry 10 devices.

More than that, the firm hinted that there might be life in the old dog yet by turning in a surprise $23 million profit against an $84 million loss a year earlier.

But before anyone cracks open the champagne,  this was a result of cost-cutting and higher profit margins which offset a massive 69% drop in revenues, which sank to $966 million.

Still, Wall Street took the profit news as an indicator that CEO John Chen’s turnaround strategy is delivering results just over 6 months on from its inception and sent the stock price up 13%.

The company sold 2.6 million smartphones during the first three months of this year, down sharply year on year from 3.4 million.

But BlackBerry wants to shed its dependence on selling smartphones in favor of software and services targeted at enabling enterprises to manage their fleets of mobile devices.

That said, hardware isn’t going away either. Come September, the Blackberry Passport will launch, a 3.18-inches wide phablet with a chunky keyboard. Overall, Chen reckons he can see the hardware arm breaking even:

We are getting very close to making money or at least break even on hardware. Not quite there yet but close and so I think our timing of what we talk about, sometime in 2016, will be the right timing.

Service first

But the critical thing to note is that for this latest quarter, 54% of revenues came from services and that’s the number that Chen wants to emphasise and see growing.

To that end, the EZ Pass program was launched in March to switch over business customers to its BlackBerry Enterprise Service (BES) 10 offering for free, including new customers poached from the competition.

To date, more than 2,600 customers have registered under the program, but this won’t have any material bottom line impact until 2016 when those subscribers begin to pay support fees.

Nonetheless, Chen is pleased at the uptake:

On BES front, the enterprise server front, we have a very strong uptick of the EZ Pass program. Over 2,600 customers have registered with us. We have issued 1.2 million plus, meaning, more than 1.2 million licenses, and over 10% of those licenses were traded in from competitive MDM platforms, most notably, from Good Technology and Mobile Iron.

The EZ Pass is important to our future monetisations. Because we accept licenses paid us already of the old BB7, 5 and 10 and we also allow trading for competitor licenses, customers, if they buy into our robustness and security, it is going to cost them no more money to use our new technology versus [if] they have to leave us and go out and pay yet a bunch of other licenses to other people.

So that’s a very powerful argument. I have stopped, stopped is a wrong word, I was able to convince a number of major customers that they should have at least tried out our BES12. It cost them nothing to do so and I was successful in some cases which of course, I’m pleased with that.

Not that everyone's convinced just yet, concedes Chen, but he's already looking ahead to BES 12:

I don’t want to tell you that yeah, we’re gaining everybody back. I think that will be an over-exaggerated statement. But on the other hand, I think my success rate is ticking up.

With BES 12, we have six beta customer installation completed in Europe and North America, and we have six more in the plans starting July. Feedback has been very positive regarding our features, functionality and stability.

But as noted above, it’s going to be some time before BES subscribers need to part with cash. Chen argues:

They will have to pay us support fees starting January 1 of 2016, but this would be a very strong base for us to upsell a lot of things.

When they expand in their enterprise to cover iPhone, iPad, Android, and whatever they like to cover and win those, then of course each device is $19 a year. And then we would like to provide them a capability to really up the game in security. When that happens, then they have to trade in for the gold [subscription] and the gold is $60 a year subscription. Then we obviously will recognize some of those $19 value of the silver.

The whole strategy is to create a big enough pace so we could offer value-added services that are on the monthly subscription base.

It’s all about giving the CIO one throat to choke when it comes to device management, he adds:

Even as my BlackBerry users, there [is a] mix. People are using iPhone, iPad. I see a lot of the combination of BlackBerry devices and iPad out there. Some people might be using a Windows phone, some people may be using an Android phone.

You look at everybody else in the market, and the CIO can securely manage with one infrastructure for the BES12. I think they will be very enticed to move everything on to it. That’s my thinking about it - and I tested out with enough big company CIOs that nobody had challenged me on that.

Exploring the Amazon

Of the Amazon deal, Chen explains:

Going forward the significance of this agreement will allow free BlackBerry up and our resources up to go after secure enterprise class applications. This partnership addressed the key issues with customer adoption of BlackBerry 10 devices, which was the availability of an expensive application ecosystem. The Amazon Appstore will be preloaded with the BlackBerry 10.3 app and available through a maintenance release for all existing Blackberry 10 devices.

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Amazon's smartphone rival

There’s a developer spin here as well:

For the enterprise apps developer, especially with our Internet of things vision, they are very keen and working with us, mostly because of the security nature of all our components.

The Amazon developer ecosystem and the tools they have and the ability to reach out to a lot more people and customers, are a really welcome thing for our own developer space. I like to think that everybody wins in this.

My developers, I help them to open up the market, whatever they do helps my BB10 World because of the Amazon relationship. Amazon loves it because they get more subscribers so to speak and user base and more searches. I love it, because I don’t have to spend the money on the consumer side and I can focus on my enterprise side. The enterprise loves it, because there will be more focus. haven’t found a negative angle to this.

On the wider question of negativity surrounding the Blackberry brand in general, Chen again argues that he’s turning the tide, albeit slowly, with customers:

When we have a chance to lay out our plans and visions, the majority of the time, we get them to support us to stay there. What I have found is people like to stay with BlackBerry. They were concerned a little while back and I need to try to regain back their confidence. I cannot tell you 100% that is the case. Some of the cases unfortunately when I showed up is it’s a little too late.

The CIOs trust BlackBerry more than a lot and the fact that we have…secure standards that CIO would rather stay with us. [The tendency to move away] had to do with the fact that they believe the company's liability was in question. I think as we sit down and talk through them and show it in our financials and the progress, the customer said, ‘Thank God, I mean, we don’t want to change.

My take

OK, let's not get carried away. One half-decent quarter doesn’t signify a turnaround - and the profit reported owes more to cost-cutting and organizational restructuring.

But not a bad day for BlackBerry, all things considered. And it’s been a while since we could say that.