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BlackBerry earnings show devices in jeopardy, EMM growth

BlackBerry's phone business is still on the hot seat after the launch of the Priv last month, while the company shifts its focus to growth areas including software and EMM.

Last month's launch of the BlackBerry Priv hasn't lifted the company's phone sales nearly enough, causing a shift in focus toward enterprise mobility management and software offerings instead.

During the BlackBerry earnings call last week, the companybeat analysts' estimates for the first time since CEO John Chen took the helm of the company in November 2013, illustrating its success at transforming to a software-focused company.

It completed its $425 million acquisition of Good Technology in early November, a heavy investment in a well-respected and tenured enterprise mobility management (EMM) vendor, said Eric Klein, director at VDC Research Group in Natick, Mass.

"It was a smart transaction made out of necessity to give BlackBerry a chance to transition into a software company," Klein said. "Acquiring Good Technology was a key way to get there."

In addition to expanding its customer-base, Good Technology fills in voids in BlackBerry's EMM portfolio with Good Dynamics and more advanced content management capabilities. Both BlackBerry and Good are prominent in regulated industries such as government, finance and healthcare, which makes BlackBerry a more dominant player in those markets with this deal.

During the BlackBerry earnings call the company boasted that it now has a 19% market share in the EMM space after the Good Technology buy. The company also reported 43% year-over-year growth in software license revenue for the quarter.

While the company isn't in as dire straits as it was prior to Chen taking the helm, BlackBerry isn't out of the woods yet said Bob Egan, CEO and chief analyst of the Sepharim Group in Falmouth, Mass.

"Identity management is still a hole in their portfolio and we see a lot of players investing there," Egan said.

BlackBerry device business in jeopardy

While it is headed in the right direction in its shift to becoming a software company, its mobile business is in trouble, Egan said.

"They will continue to struggle in the phone business," he said. "I don't think they will still be in the phone business a year from now."

During its earnings call, BlackBerry reported approximately $222.8 million in hardware revenue, down from $361 million in the year-ago quarter. About 700,000 BlackBerry smartphones were sold during the three month stretch ending on November 28, down from 1.9 million smartphones in the same span last year.

Its first Android smartphone, a high-end device called the BlackBerry Priv, launched on November 6.

Chen emphasized he is bullish on the upcoming quarter in regards to the Priv, as revenue numbers for the phone business were up from the prior sequential quarter. The device has been well received, Chen said, attracting existing BlackBerry customers, some Android users and a small percentage of iOS customers. The CEO hopes to be able to continue to sell the phone at its high-end price until new devices launch from competitors at Mobile World Congress in late February.

I don't think they will still be in the phone business a year from now.
Bob Eganchief analyst, Sepharim Group

Though he's still optimistic, Chen did admit that pulling the plug on the phone business is not out of the question if the company can't turn a profit.

"My first goal is to get us into a break even position in the device business," Chen said on the call. "You couldn't do anything if it was a business that continued to lose money... If we can't get there, I would not keep taking my investors through that."

Switching its flagship phone to the Android OS not only attracts Android users and bolsters the BlackBerry app ecosystem but also lessens the operating cost of building the phone, which helps the company reach its goal of at least breaking even on the segment.

The company believes it may be able to reach this goal in the coming quarter as it will be expanding the number of carriers that support the phone. The device is exclusively carried on AT&T for at least the first 60 days of its release. After hearing interest from several enterprise customers, Chen said he's "comfortable" that there will soon be an uptick in sales.

"I'm going to continue to drive it," Chen said of the Priv. "I think there's a good chance that we'll do well in the device business and we'll continue."

BlackBerry reported $548 million in revenue for the third quarter of fiscal year 2016, down from $658 million in the year-ago quarter. The company still has more than $2.7 billion in cash to continue making strategic investments and M&A deals in order to continue its transition into a software-focused company.

Ramin Edmond is a news writer with TechTarget's End-User Computer Media Group. Contact him at redmond@techtarget.com.

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After viewing BlackBerry's earnings, do you recognize the company more for its phones or its software today?
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Three things wrong with Chen: 1. Why take 2 years to make the Priv? A good manager of the company would not take 2 years or more to make the Priv under the same situation as Chen. 2. Why make the Priv knowing that it is not going to be a factor in the company's turnaround effort? is Chen just passing time waiting for the rabbit to hit a tree? 3. Does Chen know that Blackberry is still in a crisis? Chen acts like a indecisive slowpoke doctor unable to revive a patient sliding into death. Chen cannot afford such an approach, but he is slow especially when compared to Steve Jobs. Chen ranks low among others.
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