Financial Performance

Doubts Over Software Growth Hit BlackBerry

The company stumbles in its bid to transition from a mobile device maker to a software vendor.
Matthew HellerJune 23, 2015

BlackBerry shares fell more than 4% on Tuesday amid uncertainty over whether its first-quarter results really showed that its mobile-device-management software business is picking up.

The company reported that software and licensing revenues increased more than 150% in the first quarter to $137 million, surprisingly strong numbers that fueled an 8% rise in the stock before the market opened Tuesday. BlackBerry has made a big bet on transforming itself from a hardware-driven smartphone maker to a more software-focused entity.

The Q1 results were initially viewed as “a sign that BlackBerry’s mobile-device-management software is gaining traction with enterprise customers,” The Wall Street Journal reported. The company’s core device management platform, BES12, manages and secures traffic on Android, iOS, Windows, and BlackBerry devices.

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BlackBerry’s overall revenue tumbled 32% to $658 million in the quarter ended May 30, from $966 million a year earlier. Quarterly revenue fell short of analyst projections, which was $683 million.

But the stock fell in afternoon trading, closing down 4.2% at $8.81, after Wall Street analysts questioned how much of the software growth came from recurring revenues, as opposed to one-time licensing payments.

“When the headline hits, you say ‘Wow, they really blew out that software number, good for them, they’re starting to get some traction,’ ” BGC Partners analyst Colin Gillis told Reuters. “But, of course, it’s not truly $137 million because there is some licensing in there.”

BlackBerry said two new licensing deals, one with Cisco Systems and one with an unnamed party, made “significant contributions” to software revenue in the quarter, but it did not disclose the terms of the agreements.

“Licensing revenue tends to be more unpredictable than the core BES sales” because it’s not always recurring, said Desmond Lau, an analyst at Veritas Investment Research.

BlackBerry CEO John Chen told reporters that overall software revenue growth was roughly around 30% year-over-year. “However, it was still not clear what percentage of the software revenue was recurring in nature,” Reuters said.

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