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Remember BlackBerry? The one-time giant of smartphones has gone through tumultuous times over the past six years, and become a much smaller software company. Its results last week showed just how small: third-quarter revenues were $226m (£169m), its lowest three-monthly total since 2004, with an operating loss of $258m.
The Canadian company’s chief executive, John Chen, is a turnaround specialist who believes that the future is in self-driving cars, where automakers and software firms alike see huge promise. It is investing hope in QNX, which it bought in 2010: a maker of software that underpins car entertainment and data systems.
That is a long way from the early 2000s, when BlackBerry was one of the world’s biggest smartphone makers and Apple had yet to launch the all-conquering iPhone. A failure to adapt to trends like keyboard-less devices was its undoing as iPhones and Android phones took off. Then came a calamitous multi-billion bet on a new phone operating system, BB10, in 2013. It abandoned handsets altogether last year and the road ahead remains rocky – not least due to the state of its finances.
Nonetheless, analysts see potential in the ashes. The stock jumped from $11 to over $12 last week, as investors liked what they found in the figures: for instance, a new record for revenue from software and services, at $199m. BlackBerry stock is now back at levels it hasn’t seen since mid-2013.
“It’s pretty impressive, beating on both the top and bottom lines,” Ali Mogharabi, an analyst at research firm Morningstar, told Reuters. “The growth specifically in enterprise software is good to see.”
Chen was quietly famous in the business world for having saved Sybase, which had looked in 1998 as if it might wither away. Chen saw that the would-be database company had lost out badly to Oracle, and decided to focus on the “unwired enterprise” – mobile services. That decision allowed Sybase to regain its primacy in new markets; it was sold to the enterprise software giant SAP for $5.8bn in 2010, compared to its market capitalisation when Chen took over of $362m – a 16-fold growth in value in 12 years.
But can he do it again at BlackBerry? In many ways Chen is repeating the formula that saved Sybase: look for new opportunities while letting what remains of the customer base cover other costs. Thus he has focused on the software side, where operating margins often beat 50%, unlike hardware, which often struggles to get into double digits.
Speaking after the results, Chen pointed to new contracts with the US and Dutch governments, and with Nato. BlackBerry’s purchase in September 2015 of Good Technology, which writes software for remote management of smartphones, means it no longer relies on selling its own handsets but can administer everyone else’s. He also suggested that patent licensing could bring in $100m over the financial year – essentially free money, as the patents were often acquired years ago.
But the biggest move may be on “embedded” software, where QNX is a crucial part of a much bigger trend of making cars and other vehicles that run almost entirely on software.
BlackBerry has signed deals with Ford and automotive parts makers such as Denso, Delphi, Bosch and Scion. Talking to the Wall Street Journal, Chen said: “The auto sector is our best chance at revenue growth.” QNX is able to handle real-time events and multiple demands in a way that software used on smartphones or PCs cannot; more than 60 million vehicles were using QNX by the end of 2015.
But most of them were using it for entertainment systems; Chen wants more. “Infotainment is a handful of dollars apiece,” he said. “We’re trying to enhance that with higher ASP [average selling prices] by getting into different components … All the design [contract] wins, whether with Denso or Delphi, they’re in these areas that’s beyond just traditional infotainment systems. This is why I feel bullish about the overall business on a longer term in terms of growth.”
However, that’s in the future. Chen hasn’t pulled the company out of its revenue dive yet. Despite the focus on more profitable software, profit remains elusive. Since its slide started in the summer of 2011, BlackBerry has made a net loss of $7.3bn, and though $4bn of that was a huge writedown on unsold handsets in autumn 2013, the situation has not improved much since. In the previous financial year, it made a net loss of $1.2bn.
For the three quarters of this fiscal year, net profit is $415m – but that includes an whopping $815m payment related to a dispute with chipmaker Qualcomm over handset and chip royalties, and a $137m payment to Nokia over a patent row. Overall, BlackBerry is $678m better off from those disputes: but that shows how far the rest of the business is from profit.
Even so, the positive sentiment from analysts and investors is pushing up the stock, and some think that if Chen can push it into profit and get the shares up to the $16 level, the business might even be attractive to a buyer – with Samsung and Oracle having expressed interest in recent years.
So far, the price hasn’t been right. But with Chen in charge, having weathered the past few years, there could be a surprise in store in 2018.
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Green shoots at BlackBerry? Fallen phone giant turns its hand to softwarehttps://goo.gl/hgRNT9
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