Questions persist over BlackBerry’s future, but CEO John Chen vows to fight on

Blackberry phone (Photo from Blackberry’s official Facebook page)

WATERLOO, Ont. – Whatever enthusiasm still existed for Blackberry’s recovery in the smartphone market appears to have faded, at least for now.

From financial analysts to BlackBerry investors, few seemed impressed with the latest details on Tuesday as the company delivered another quarter of losses that sparked a new round of questions about how quickly it hopes to recover.

The annual shareholders’ meeting in the company’s hometown of Waterloo, Ont., didn’t do much to raise spirits either, despite CEO John Chen’s occasional attempt to lighten the mood.

“Please turn off any device which is not BlackBerry,” Chen quipped as he opened the meeting, a subtle reminder that even the company’s most loyal supporters might not be carrying a BlackBerry smartphone any longer.

Wherein recent years the annual meeting was an epicentre of passion – generating bursts of applause from supporters and moments of tension between executives and a few shareholders – this year the audience almost seemed exhausted.

After all, it has been a long and turbulent journey towards what Chen hopes will be a turnaround of BlackBerry’s fortunes, though he admits there are still many hurdles to overcome.

Some of the biggest ones were laid bare in the first-quarter financial results, as the company grew its software and licences business, but at a pace that would not offset the decline of its smartphone sales.

BlackBerry (TSX:BB) posted an adjusted loss of US$28 million or five cents per share, worse than analyst expectations of a three-cent per share loss, according to a survey by Thomson Reuters.

Revenues of $658 million were about $21 million softer than analysts anticipated.

Investors made their dissatisfaction clear in the company’s stock price, which dropped about 3.9 per cent, or 44 cents, to C$10.88, while on the Nasdaq market its shares were down 39 cents to US.

81

Chen was hired in late 2013 to reshape BlackBerry, cut costs and lead an effort to find a better footing in the highly competitive technology industry. Before he took the job, he helped turn software company Sybase into a profitable operation focused on mobile business technology.

Over the past year and a half, Chen has focused on transitioning BlackBerry away from falling handset revenues and towards sales in its software business.

What has puzzled some analysts is his unwavering determination to keep its handset business alive, since even he acknowledges the fading popularity of the devices has been “a problematic area’ of its financial results, despite high-profile launches for the BlackBerry Passport and Classic models.

On Tuesday, Chen reaffirmed his intention of hanging onto phones through new manufacturing agreements with Compal Electronics and Wistron Corp., both of which operate lower cost facilities in Taiwan.

“I don’t want to give up the hardware business,” he told shareholders. “I think there’s a shot at still making money in it.”

The company, which only recognizes revenue on devices when they’re sold to customers, booked revenue on 1.1 million BlackBerry smartphones during the latest quarter, a steep drop from the 2.6 million phones sold in the same period a year earlier.

That has left analysts on edge.

“The problem continues to be with the (phone) demand,” said Brian Colello, a technology analyst at Morningstar.

“They’re still failing to reach an increasingly low bar.”

Also Tuesday, the company announced a deal with network equipment manufacturer Cisco (NASDAQ:CSCO) that will see BlackBerry receive unspecified patent licence fees as part of a long-term agreement.

Further details on the agreement weren’t disclosed, which left some analysts concerned over whether BlackBerry was propping up its software division with revenues that won’t last.

“In a turnaround there’s a lot of uncertainty,” said Desmond Lau, a technology analyst at Veritas Investment Research Corp.

“Investors prefer to see something more consistently trending on the upswing – as opposed to one good quarter, one bad quarter, one mixed quarter.”

While many questions persist, Chen is remaining steadfast in his goal to bring software revenue to US$500 million by March of next year.

He’s also not looking to sell BlackBerry to another company any time soon.

“Oh no, not at this price,” he said, in response to a question about whether the company was looking for suitors.

“We’ve put in a lot of hard work and put ourselves in the position to fight.”