BlackBerry’s Q3 Earnings Report Offers Little Comfort: 10 Reasons Why

By Don Reisinger

John Chen, BlackBerry’s interim CEO, said that after taking huge restructuring charges, the company now has a clean balance sheet and enough cash to move forward with a renewed focus on smartphones and mobile services for enterprise customers. He has tried to reassure partners and customers that “we’re no longer worried about whether we’re going to be around” as a mobile device maker.

It’s hard to say just how difficult the third quarter must have been for BlackBerry when one considers that it sold 4.3 million smartphones worldwide during the period. However, the big story is that the company was only able to book revenue on 1.9 million BlackBerry smartphones shipped during the period, down from the 3.7 million units delivered in the previous quarter. That’s bad news.

It’s hard to not be concerned about BlackBerry when one considers the company generated just $1.2 billion in revenue during the period. During the same quarter last year, BlackBerry’s revenue was $2.7 billion. More than half of BlackBerry’s business has simply gone up in smoke.

To make matters worse, BlackBerry posted a massive loss during the third quarter. The company reported that it lost $4.4 billion, compared with a $9 million profit it reported during the same period last year. The loss was due mostly to a write-down of “long-lived assets,” but even BlackBerry’s gross margin showed a $1.3 billion loss. It’s bad news all around.

A key tenet in BlackBerry’s plans for rebirth is the move toward emerging markets. The company’s CEO John Chen said he believes BlackBerry can be competitive in markets in which people are just starting to invest in smartphones, due to the company’s ability to keep costs low. It should be interesting to see how that pans out.

BlackBerry also announced with its earnings that it inked a deal with Foxconn that will see the product maker develop and manufacture certain BlackBerry devices over a period of five years. That should free up BlackBerry to focus on product design and not incur the heavy cost of manufacturing.

BlackBerry 10 might be the operating system that Chen and his team want to push, but it’s having some trouble attracting new customers. In fact, BlackBerry revealed that out of the 4.3 million smartphones it sold during the third quarter, 3.2 million were running BlackBerry 7. That doesn’t bode well for BlackBerry’s chances of succeeding in developed countries in 2014.

Blackberry appears to be focusing heavily on software and services. In fact, the company was quick to point out that 60 percent of its revenue came from services and software. It also believes that BlackBerry Enterprise Server, BlackBerry Messenger and other apps will help grow its bottom line in the coming years.

Listening to John Chen speak would make anyone believe that BlackBerry actually feels confident in its ability to succeed in the coming years. In a statement on Dec. 20, Chen said that he’s proud of what his company has accomplished over the last month and a half and believes that it will deliver “improved financial performance next year.”

This talk of losses and falling sales would make anyone assume that investors will continue to bail out of BlackBerry stock, right? Think again. As of Dec. 20, just hours after Blackberry released its earnings, the company’s shares were up 14 percent to $7.11. By that measure, at least investors seem buoyed by Chen’s assurances and are willing to give Chen and his management team time to work through a successful turnaround.