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    After BlackBerry’s Rough Q2, Analysts Weigh In on Its Outlook

    By
    Todd R. Weiss
    -
    September 25, 2015
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      BlackBerry

      Amid efforts to transform its business, BlackBerry continues to turn in disappointing financial results, with non-GAAP revenue of $491 million for its fiscal 2016 second quarter, down 47 percent from $916 million in the same period a year ago.

      BlackBerry reported a non-GAAP loss for the quarter of $66 million after adjustments, which resulted in a loss of 13 cents per share, according to the company’s Sept. 24 announcement. The second quarter ended Aug. 29.

      The $491 million in revenue was substantially less than the consensus estimates of $610.6 million expected by analysts polled by Thomson Reuters, according to a report by Investor’s Business Daily. The second-quarter revenue is also down from the $658 million posted in the first quarter of 2016.

      BlackBerry’s latest earnings numbers don’t mean that the company is in dire straits, according to several IT analysts who spoke with eWEEK.

      The company has quite a lot of cash and can “hold out for quite a while,” said Ken Dulaney, an analyst with Gartner. “The stock is not going to go much lower. I think that everybody knows that the hardware business is going to go away [eventually]. I suspect that the stock has already accounted for that.”

      BlackBerry Executive Chairman and CEO John Chen is trying to make the company into a software company, just like he did when he was at Sybase, said Dulaney. “You’ve got to give him more quarters to show where the company is going, where Chen is trying to take it.”

      Such a strategy and shift is hard to do with Wall Street monitoring the company’s moves, he said. “I expect that he’s going to continue to see more losses here” over the next few quarters. “Like Microsoft, once you fall below that 5 percent [market] share, the [software] developers don’t want to bother with you,” which has hurt BlackBerry’s application support.

      BlackBerry reported non-GAAP software and services revenue of $74 million, which was fueled by 33 percent growth in software licensing revenue.

      “I am confident in our strategy and continued progress, highlighted by our fourth consecutive quarter of year-over-year double-digit growth in software licensing revenue and sixth consecutive quarter of positive free cash flow,” Chen said in a statement.

      Amid the difficult financial numbers, Chen also confirmed recent rumors that the company will introduce its own Android-powered “Priv” smartphone in the coming month as it tries to regain market share for its handset business. The Priv is “named after BlackBerry’s heritage and core mission of protecting our customers’ privacy,” Chen continued. “Priv combines the best of BlackBerry security and productivity with the expansive mobile application ecosystem available on the Android platform.”

      Patrick Moorhead, principal analyst with Moor Insights & Strategy, said that BlackBerry’s second-quarter results show progress but that the company is “coming from a very, very low point where any progress is good progress.”

      What’s needed, he said, is a shift away from BlackBerry’s hardware roots. “Their new Android phone will help, but BlackBerry really needs to cut their losses and exit the hardware business and/or adopt an [original design manufacturer] sourcing model” where it designs its products and has a third party build and market them, said Moorhead.

      “BlackBerry needs to lean into their strengths, which is their software, services, and security and downplay their hardware weakness,” he said. “They should commoditize all BlackBerry hardware to drive the rest of their business.”

      Chen “is probably going to make it, but he’s got a rocky road with Wall Street for a few more iterations,” said Gartner’s Dulaney. “I think he knows what he’s doing, but we’ll just have to wait it out.”

      Bill Menezes, another Gartner analyst, told eWEEK that BlackBerry’s “quarterly results seem to underscore the concerns many have about Blackberry’s ability to create a sustainable new business model based on software-related services. As always though, look at the long-term trend, not just quarterly results.”

      In April, BlackBerry launched its $275 touch-screen Leap smartphone, which replaced the traditional BlackBerry physical keypad with a touch-screen aimed at getting the company’s devices into the hands of younger mobile professionals. In December 2014, BlackBerry launched its $449 BlackBerry Classic smartphone, which followed closely behind the company’s unveiling of its $599 BlackBerry Passport smartphone for enterprise users in September 2014.

      In March, the company announced that by the end of 2015 it will offer much of its software that today runs on its BlackBerry smartphones for use on Android, iOS and Windows smartphones and tablets as it looks to broaden its reach into the enterprise, even when companies are using competing devices. The project, called the BlackBerry Experience Suite, is seen as a way for enterprises and small businesses to bring enterprise-class applications to their end users from a trusted partner such as BlackBerry.

      Todd R. Weiss
      As a technology journalist covering enterprise IT for more than 15 years, I joined eWEEK.com in September 2014 as the site's senior writer covering all things mobile. I write about smartphones, tablets, laptops, assorted mobile gadgets and services,mobile carriers and much more. I formerly was a staff writer for Computerworld.com from 2000 to 2008 and previously wrote for daily newspapers in eastern Pennsylvania. I'm an avid traveler, motorcyclist, technology lover, cook, reader, tinkerer and mechanic. I drove a yellow taxicab in college and collect toy taxis and taxi business cards from around the world.

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