BlackBerry Q1 results should shed light on shift from handsets to software

BlackBerry Chief Executive John Chen with Passport. Handout/BlackBerry

WATERLOO, Ont. – BlackBerry reports first-quarter financial results on Tuesday, with expectations angled towards disappointment as the one time smartphone leader continues to shift focus from handsets to its software business.

“All eyes will be on the software revenue line, which needs to show an upward trend to support management’s ambitious turnaround goals,” Bank of Montreal analyst Tim Long said in a recent note to investors.

“Whether the numbers hit or not, we hope management provides enough metrics to get some transparency on the underlying trends in the software-oriented recovery.”

Chief executive John Chen has been pushing forward with a plan to make Blackberry a sustainably profitable company again after years of losing ground to more innovative smartphones, particularly from Apple and Samsung.

READ MORE: BlackBerry considering release of Android-powered smartphone

Chen has maintained a target of reaching US$600 million in revenue from BlackBerry’s software sales business, which includes a premium version of its BBM services and other offerings angled towards business customers.

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BlackBerry’s famous smartphones are a separate challenge for the company as it gradually shifts them to a lower priority even as it keeps the phones as an important piece of its larger business.

Last month, Chen laid off an unspecified number of employees in its device operations, which make the hardware, software and applications for its phones.

Those cuts came as a surprise to analysts because Chen had said less than a year ago that BlackBerry had come to the end of three years of layoffs.

RBC Capital Markets analyst Mark Sue highlighted the company’s ability to deliver new phones on time and make cost reductions, both of which he believes are short-term solutions.

But he remained concerned about the company’s long-term trajectory.

“It’s hard to cut your way to glory,” he said in a note.

READ MORE: Failure of ‘Storm’ smartphone dealt major blow to BlackBerry: Balsillie

Smartphones like the reissue of the BlackBerry Bold, Classic and Passport haven’t been hot sellers, which has added extra pressure to make good on Chen’s turnaround plan.

Raymond James tech analyst Steven Li estimates the company shipped 1.4 million units to stores, a decline of 13 per cent over the same time last year. BlackBerry doesn’t recognize revenue on those devices until they’re sold to customers.

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“The Passport remains a niche product and even a full quarter of contribution from both Passport and Classic may not have seen significant traction in a competitive market,” Li said.

The company is expected to report revenues of US$646.82 million for the quarter, according the consensus estimate of analysts surveyed by Thomson Reuters.

Adjusted earnings are forecast at a loss of US$15.9 million or two cents per share, with the net loss estimated at US$28.9 million or five cents per share.

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