BlackBerry takes a loss for the first quarter, devices sales struggling, software sales strong

BlackBerry takes a loss for the first quarter, devices sales struggling, software sales strong
For its fiscal quarter ending May 31st, BlackBerry announced it took a net loss of $670 million, largely due to taking a charge against a long-standing asset impairment, which accounted for $501 million of that loss.

Goodwill took a hit, adding another $57 million in red ink, and finally, $41 million in inventory had to be written off as well.

Asset impairments can be anything from technology obsolescence, or a decline in utility of a manufacturing facility. The goodwill write-down is something BlackBerry has been dealing with since it found itself flat-footed against the iPhone 10 years ago.

The $41 million in inventory puts a black mark against CEO John Chen’s commitment to make the hardware side of the business profitable again. On the bright side, software and services revenues were up from the previous quarter, from $153 million to $166 million.

However, overall revenue of $400 million missed targets of $471 million by a Canadian mile, down 13% from last quarter. Despite these setbacks, Waterloo has managed to trim forecast losses on a per-share basis by better than 50%.

BlackBerry is preparing to bring two new Android-powered devices to market this year, both should undercut the BlackBerry Priv’s price-point.

source: Fox Business

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30 Comments

1. LeSerpentVincent

Posts: 66; Member since: May 30, 2016

Time for BB to exit smartphone as well :)

9. Dr.Phil

Posts: 2362; Member since: Feb 14, 2011

I would have said last week you may be right. If come September they don't sell enough devices then they could make their exit. However, after hearing what John Chen had to say on the matter I doubt that will happen. He indicated that he has started licensing their technology to other manufacturers and has stated that he is not really losing money on making the hardware. They don't make the hardware in house, instead using Foxconn and other OEMs to actually make it. They just design the hardware and put in their software. So, it's possible they could keep the hardware part of the company open and just produce a small amount of devices each year. The problem with the Priv was that it was too high of a price for what the device offered. I think they learned a huge lesson with this and the next two devices will be a much better fit in the $400 price range.

12. meanestgenius

Posts: 22049; Member since: May 28, 2014

Exactly. With BlackBerry completely outsourcing the building of the hardware to ODM's like Foxconn and Winstron, and BlackBerry just designing the phone, they have all but eliminated hardware costs associated with building smartphones.

17. Johnnokia

Posts: 1158; Member since: May 27, 2012

Inventory writedown is still very high $41 million, and this came from hardware. Most of the shareholders in yesterday meeting were angry because of Chen's insistence on keeping a cash bleeding business. He will be out of the company if he keep the company shrinking that way.

19. RH234

Posts: 52; Member since: Aug 21, 2013

Outsourcing production also means less profit margins as manufacturers charge by volume. As BlackBerry sales continue to shrink, the more expensive each unit will cost to produce and manufacturers may not even bother producing for BlackBerry if they can't meet that minimum order. On the flip side, shareholders like Prem Watsa will likely force the Board to give up Hardware and focus on software to get the share price back up to over 10 bucks a share so he can convert the $1 billion debenture into shares which is earning 6% annual interest. While 6% may seem decent, global markets have risen by more than 35% in the past 3 years. At some point Fairfax shareholders will want to see returns from their average purchase price of $16 BBRY shares and holding on to that precious Hardware division is keeping the share price down IMO. A whopping 33% of Fairfax's supposedly diversified portfolio are in BBRY stock and with no dividends in the horizon.

2. Arthurhkt

Posts: 723; Member since: Apr 19, 2012

Duh, trying to introduce a Android devices which such a high price is where they lost their fight. I mean there is so much Android flagship devices out there which is better value than it.

3. Android_Lollipop

Posts: 155; Member since: May 05, 2015

TRUE.

4. RH234

Posts: 52; Member since: Aug 21, 2013

The disturbing trend in BlackBerry's hardware sales is they've fallen by 100,000 units in each of the past three quarters to the current 500,000. With Samsung and Apple releasing new phones in the second half of this year, I won't be surprised if the 100,000 unit sales drop per quarter continues or maybe more.

5. Obádárà

Posts: 217; Member since: Nov 02, 2015

... THIS IS WHAT HAPPENS WHEN AN OEM IS NOT IN LINE WITH THE MARKET TREND BY SATISFYING THE END USER. THE END RESULT IS A LOOSE~LOSS ~LOST AND FINALLY WIND UP...

6. meanestgenius

Posts: 22049; Member since: May 28, 2014

BlackBerry's hardware sales are suffering. That is an understatement. There is no denying this. If it's next two Android offerings don't reverse this trend, they may no longer offer smartphones, which would be tragic indeed. Chen has been smart enough to pull BlackBerry out of making the phones themselves. They now only design the handsets, and leave the building of them to ODM partners, to further reduce the costs incurred from being in the handset business. On the bright side, BlackBerry's transition to a software focused company is going quite well. Revenue is up on the software side, and they are now going to license other parts of their software, like BlackBerry Hub. They will also be licensing other parts of their technology, like their Paratek technology. They have had many high profile wins concerning those using their software from governments and regulated industries, like the government of Canada, Macquarie University (education), Great Western Railways and Salt Lake City Airport (transportation), The U.S.Senate, The Pentagon Force Protection Agency, The California Dept. of Justice and the United States Coastguard (government), to name a few. BlackBerry has also gotten a huge customer win with Buckeye Partners, one of the largest independent liquid petroleum operators in the U.S., and others. On the Automotive side, their QNX software continues to grow and be the market leader in the Automotive infotainment industry, adding Carmel Automotive to their portfolio of customers. TL;DR: BlackBerry has become a software and licensing focused company, and handsets, while still important to complete BlackBerry's end to end solution, have truly taken a backseat.

8. Arthurhkt

Posts: 723; Member since: Apr 19, 2012

Well, as long as there still a BlackBerry brand phone, that would be okay for me. Seriously Chen, could you please just release another BlackBerry 10 phone?

10. meanestgenius

Posts: 22049; Member since: May 28, 2014

I agree. I still want a BlackBerry branded phone as well. And while I was going through the interviews that Chen has done concerning BlackBerry's latest ER, I noticed that with BlackBerry now moving the smartphone part of their business into what they call Mobility Solutions, it also includes Device Software Licensing. Since device software licensing is included in Mobility Solutions alongside smartphones, we could see BlackBerry's Mobility Solutions segment be profitable on a whole, even if smartphones sales are low. That would help to ensure that we will be seeing new BlackBerry branded smartphones in the future, and in addition to the two new Android handsets that are slated to come out. But I would love to see a new BB10 handset released. It just isn't financially feasible right now.

11. fyah_king unregistered

Why? The bb10 ain't selling, bro.

14. meanestgenius

Posts: 22049; Member since: May 28, 2014

While BB10 handsets aren't selling in droves, they still offer a great deal. No device to date is as secure as a BB10 handset, no device multitasks as well as a BB10 handset. The level of productivity to be gained from a BB10 handset, and there is still a niche market for them. Those of us that have actually used BB10 handsets know just how good they are.

21. Mxyzptlk unregistered

It's not selling enough to justify another BB10 device.

7. jellmoo

Posts: 2588; Member since: Oct 31, 2011

I honestly believe that there is a place for BB hardware. Despite the Priv being a pretty cool device, it was niche, ridiculously expensive, and didn't fit well with other carrier offerings. I think BB needs to move away from using carriers as the middleman and go straight to B2C and B2B offerings. Keep the cost relatively low, the featureset solid, and emphasize software, which is their core strength. Business devices don't need to be power houses, they just need to be fluid and secure.

16. meanestgenius

Posts: 22049; Member since: May 28, 2014

While BlackBerry does need to maintain some type of carrier presence (not that carriers are pushing BlackBerry branded handsets), Chen has stated that the new team in place that's in charge of getting smartphones to the masses is doing exactly as you suggested: focus on B2C and B2B offerings. They are opening up new distribution channels to augment traditional carrier channels.

18. jellmoo

Posts: 2588; Member since: Oct 31, 2011

I actually think that carriers hinder their progress more than help though. By keeping the carrier out, they can better support their devices with rapid fire security updates. Granted, a lot of my reasoning has to do with the terrible way that Canadian carriers stocked, sold and promoted the Priv. I think even an OEM partnership could be a solid deal for Blackberry. Imagine something like a Blackberry edition of the Galaxy S7 (random example, though previous partnerships with Samsung make it slightly more believable). Added Blackberry value software and security on top of an already established and popular device. Despite their struggle with hardware, I think that BB remains a very flexible company that can try a few different things to see how they work. Their days as a dominant smartphone maker are almost certainly over, but they have other areas of expertise within the field to fall back on, which can't really be said for other companies in a similar position.

20. Mxyzptlk unregistered

This is why I said blackberry should sell universally unlocked phones and bypass the carriers. They need to be realistic and not expect people to pay $700 for a phone from a niche OEM.

23. jellmoo

Posts: 2588; Member since: Oct 31, 2011

It would be one thing if they could expect top notch carrier support, but that just isn't the case. Sell unlocked, offer rapid fire security updates, offer compelling deals to B2B customers that buy in bulk, and target the mid-range at a somewhat attractive price.

34. Mxyzptlk unregistered

Exactly. That's pretty much what Google does with the Nexus program and what Motorola did with the Moto X. They aren't going to be able to compete with such fierce competition. Believe it or not I can probably guarantee you if blackberry released an unlocked blackberry for about $199 to $249 they would easily be able to get momentum and get back up and running in the handset business.

24. meanestgenius

Posts: 22049; Member since: May 28, 2014

I agree. As I said, carriers aren't pushing BlackBerry handsets. Still, if even a few carriers have BlackBerry devices displayed, those individuals that wish to purchase one will know that they're around to do so. It would be great if BlackBerry were able to outsource hardware production to an OEM as well, besides hardware being totally outsourced to Foxconn and Winstron like it is now. I agree, BlackBerry won't become a dominant smartphone player again, but they don't have to. Selling smartphones to their core audience at a reasonable price is all they need to do, especially, as you said, they have other areas of expertise to fall back on to keep the company afloat and profitable. It's not like BlackBerry is totally dependent on handset sales, like other companies in the smartphone field. BlackBerry has the "luxury" of being able to pull out of smartphones completely, and still be a viable, relevant company selling software, licensing and services. And with hardware totally outsourced and BlackBerry only designing it now, they have reduced the costs incurred by building hardware and maintaining inventory tremendously. That's a very smart move.

26. meanestgenius

Posts: 22049; Member since: May 28, 2014

We can also look at it like this: Hardware accounted for 36% of BlackBerry's sales this quarter. Software, which is on the rise since the previous quarter, accounted for 39% percent. The shift in focus is working for BlackBerry. There is one company out there, for example, that's far too dependent on smartphone sales. They accounted for over 60%!of that companies sales. If that company pulled out of making smartphones, they'd fall flat on their face and be out of business. The smartphone-dependent business model is no longer a sustainable one. Chen was smart to have already shifted BlackBerry's focus back to its strengths, which is software and services, security and licensing. He was also smart enough to have BlackBerry handsets be enterprise phones-only now, but they'll still be available to the average consumers that want them.

13. Crispin_Gatieza

Posts: 3137; Member since: Jan 23, 2014

Regardless of price, the Priv was just another Android handset. In this global economy it is very hard to compete with the inexpensive offerings from China, as evidenced by HTC, Sony and other established Android OEMs. BlackBerry needs to ditch Android, concentrate on its money-making software business, release BB10 handsets for its core customers and have someone else manufacture them. Sometimes the best team doesn't always win as the Golden State Warriors will attest. Nobody's ever questioned BlackBerry's quality or security prowess. That being said, it's time to declare the consumer market closed and focus on Enterprise and Governments. They're still loyal and handing out new contracts (Pentagon and US Air Force to name a few).

15. meanestgenius

Posts: 22049; Member since: May 28, 2014

I don't see BlackBerry ditching Android, as Chen has stated that their enterprise customers want Android, just a more secure version of it. While the PRIV certainly didn't break any sales records, BlackBerry has proven that they can do something with Android that no one else has been able to properly do, and that's secure it. Enterprises will go for that. Chen has stated in the interviews he's done after the earnings report and on the earnings call that BlackBerry is solely focused in selling handsets to enterprise and government (their core customers), but will still make them available to those consumers that want them.

22. Mxyzptlk unregistered

That's what I said in the beginning. Stick to software and b2b because they are pretty much done in the consumer market. They can't compete against the big guys and they should have known the Priv wasn't going to sell at the price it was at.

30. xq10xa

Posts: 810; Member since: Dec 07, 2010

BB just needs to make phones with midrange specs and a decent camera. They need to push their security as much as possible and use that as a main attraction along with a $300-$400 price range. They need something like LG Stylo 2, K7, K10, Samsung J7, Samsung J1, Moto X Pure, One Plus 2 type of phone. Something midrange and something a little higher but not quite flagship. $399.99 and something like $349.99. They would sell so many. Plus outsource and bam.

32. RH234

Posts: 52; Member since: Aug 21, 2013

There's no point selling phones if they don't advertise. So much has been said about how productive BB phones are but BlackBerry the Company has been totally unproductive advertising and marketing their phones to the public.

33. meanestgenius

Posts: 22049; Member since: May 28, 2014

Totally agree with you there on the advertising and marketing. It's been an abysmal effort on the part of BlackBerry concerning marketing and advertising to the consumer market. Most of their marketing and advertising has been towards enterprise and government, which is their core market. But maybe they are looking to change that a little, at least as far as for those that want a BlackBerry branded handset: http://crackberry.com/blackberry-opens-new-pop-store-new-york This will also help in making people aware of their products, there just needs to be more of it. Still, I think BlackBerry is served best by selling phones to their core market, but a little advertising for consumers can only help at this point.

35. Nine1Sickness

Posts: 896; Member since: Jan 30, 2011

For the first time I thought Blackberry had something good in the Priv, then out slides the keyboard.

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