BlackBerry's Q3 Revenue Up as Software Sales Rise

The company's software sales increased to $154M, up almost three times the $57M in software revenue posted one year ago.

BlackBerry, BlackBerry Priv, revenue, Q3 FY2016, AtHoc, smartphones, security software, John Chen, WatchDox

BlackBerry brought in total revenue of $548 million in the third fiscal quarter of 2016, including $154 million from software and services, as the company continues its transition from a mobile phone hardware company into a mobile security software business.

That $548 million in GAAP revenue is up substantially from the $490 million the company took in during the second quarter, but is much lower than the $793 million in revenue that it reported for the third quarter of fiscal 2015.

In its third-quarter earnings call on Dec. 18, the company also reported a GAAP loss of 17 cents per share on a loss of $89 million. The company narrowed its loss from $148 million one year ago, when it also posted a loss of per share loss of 28 cents. In the second quarter, the company posted a profit of $51 million and earnings per share of 10 cents.

BlackBerry's non-GAAP figures showed total revenue of $557 million and a non-GAAP loss of $15 million or 3 cents per share for the third quarter, which ended Nov. 28.

The GAAP figures reflect accounting adjustments for the quarter, including pre-tax charges of $38 million related to restructuring and acquisition costs, stock compensation of $14 million, and amortization of acquired intangibles of $18 million, according to the company.

"I am pleased with our continued progress on BlackBerry's strategic priorities, leading to 14 percent sequential growth in total revenue for Q3," John Chen, the executive chairman and CEO of BlackBerry, said in a statement. "We delivered accelerating growth in enterprise software and higher revenue across all areas of our focus."

Charles King, an analyst with Pund-IT, wrote in an email reply to an eWEEK inquiry that "Good things come in software and services packages, with the company's revenues from those sources more than doubling quarter over quarter. That allowed BlackBerry to still post a loss, but one far smaller than analysts anticipated," which was good news for the hardware and software maker.

"As a result, the company earned some good will and breathing room," King said. "If it can keep those revenues growing, a BlackBerry turnaround could become one of the top stories of 2016."

The third-quarter figures were reported 22 days after BlackBerry's first-ever Android enterprise smartphone, the Priv, was released on Nov. 6. The Priv features a 5.4-inch curved glass display, a 1.8GHz Qualcomm Snapdragon 808 hexa-core processor, 3GB of RAM, a slide-out QWERTY keyboard and a touch-screen display, all intended to entice new users who want a different kind of phone with touch-screen capabilities. The company is hitching much of its future hardware business on the new device, which is selling well, according to BlackBerry. Sales of the phone will be expanded to 31 countries by the end of February, according to Chen.

The Priv was announced by BlackBerry in September in hopes that it will help the company reclaim some of its hardware market share that it has lost to Android phones and Apple's iPhones. BlackBerry, which has stood fast with its own operating system for its products for years, is making a huge shift by releasing an Android phone, but it is in a position of having to try something new to remain relevant as a smartphone maker.

"BlackBerry has a solid financial foundation, and we are executing well," Chen said in his statement. "To sustain our current direction, we are stepping up investments to drive continued software growth and the additional Priv launches; I anticipate that this will result in sequential revenue growth in our software, hardware and messaging businesses in Q4."

GAAP hardware revenue for Q3 was $214 million, up slightly from $201 million in Q2 but down substantially from the $361 million posted in Q2 one year ago.

BlackBerry's business has been changing in the marketplace and Chen continues to transform the company into a software company to find new revenue growth after its hardware business shrank.

To bolster its security software business, BlackBerry has been on an acquisition streak through much of this year. In July, it acquired AtHoc, which provides secure, networked crisis communications for a wide range of clients, including governments, the military, enterprises and first responders.

The AtHoc acquisition followed BlackBerry's purchase of secure enterprise file-sync-and-share vendor WatchDox in April; its purchase of Movirtu, a UK startup whose specialized software enables a smartphone to have more than one phone number in September 2014; and its July 2014 acquisition of Secusmart, a German software company that specializes in anti-eavesdropping and high-security voice and data products and services.

BlackBerry's fall from dominating the enterprise smartphone market has been swift and stunning.

In early 2006, before the first iPhones appeared from Apple, half of all smartphones sold were BlackBerry models. By 2009, though, its share of the global smartphone market was down to 20 percent. The company continues to face growing competition from Apple, Samsung, Google and others.

In the first quarter of 2015, BlackBerry's worldwide market share fell to 0.3 percent, compared with 78 percent for Android and 18.3 percent for iOS, according to a recent report from IDC. Windows Phone has a 2.7 percent market share.