- BlackBerry has seen a drastic decline in its revenues and profits from its peak
- Since arrival of John Chen as new CEO BlackBerry has reversed the declining trend
- Success of Passport and Enterprise Software Management will define BlackBerry’s future
Last week BlackBerry (NASDAQ:BBRY) released its latest smartphone, “Passport”, which is believed as the once prominent smartphone makers last ditch attempt to stay in the handset business. CEO John Chen announced, “We will make money on the handset — if we don’t, we’ll have to get out.” Later last week the company also reported it Q2 2015 result. The earnings result was a mixed bag. While the company reduced its operating losses drastically, the sales growth was disappointing.
In the last six years the company has seen its share price decline from $140 to $10.23 today, a decline of over 90%.
Source: BlackBerry stock chart by Amigobulls
From being one of the largest sellers of smartphones, BlackBerry has lost out to the likes of Apple (AAPL) and Samsung. BlackBerry’s revenue has declined from $5.55 billion in Q4 2010 to $916 million in the latest quarter. The revenue breakdown for the quarter was approximately 46% for hardware, 46% for services and 8% for software and others.
Also See: Blackberry Revenue chart by Amigobulls
BlackBerry’s market share has also declined drastically. In the latest quarter BlackBerry sold just 2.1 million devices compared to quarterly sales of 15 million devices in 2010. Total smartphone sales in the second quarter 0f 2014 was 301 million according to a report published by IDC. According to Mr. Chen BlackBerry needs to sell 10 million devices a year for its handset unit to become profitable.
The arrival of John Chen as CEO has been a turnaround of sorts for the company. The share price has almost doubled from $5.75 per share in December 2013 to $10.23. Blackberry has reduced its EPS loss to $ -.02 per share in Q2 2015, handsomely beating the analysts’ estimate of $ -0.17. This was primarily due to reduction in operating expenses. BlackBerry has beaten analysts consensus EPS estimates for the third quarter in row.
After taking over CEO Chen has focused on reducing costs and improving efficiency. BlackBerry’s handset business has also turned around in the latest quarter. The turnaround was due to supply chain efficiency and improvement in distribution channel. In his conference call with analysts Mr. Chen also emphasized that the company will be more focused on margins as BlackBerry turned down low margin contracts during the quarter.
The million dollar question is whether “Passport” will serve as a passport for BlackBerry’s handset devices revival or not? The unique, square shaped device has sold more than 200,000 units since launched on September 24th. The device sports a QWERTY keypad, a throwback to the previous BlackBerry smartphones. Passport has a battery backup of 30 hours along with 3GB of RAM and 32GB of storage space. Passport is priced at $599 without a contract in the U.S, which is slightly cheaper than Apple’s iphone6 and Samsung’s Galaxy S5. According to Chen, Blackberry is targeting sales of 10 million smartphones in fiscal year 2015.
BlackBerry is steadily shifting its focus from handsets to enterprise software management, focusing of mobile device management (MDM), BBM unit and QNX operating system. One of the reasons why BlackBerry captured the smartphone market was its encrypted mailing and messaging services. The encryption allowed secure communication without any fear of hacking or security agencies dropping in to listen to your conversation. Its secure messaging services made it popular in the government circles, especially the department of defense. Mr. Chen has also announced BlackBerry’s target to double its revenues from software division, which is likely to be driven largely by BlackBerry Enterprise Services technology or BES 12.
BlackBerry’s mobile device management division faces competition from three startups Good Technologies, Airwatch and MobileIron. With 80,000 enterprise customers BlackBerry is three times the size of all the three competitors combined, making it the leader in MDM space. Considering that all the three competitors are in billion dollar club BlackBerry’s valuation of $5.25 billion looks cheap. What makes the valuation look even cheaper is that Blackberry has around $3.1 billion in cash. The company has drastically reduced its use of cash in operations from $255 million in previous quarter to $36 million.
The future prospects of BlackBerry is dependent on success of Passport and more importantly on its Enterprise software management solutions.