BlackBerry's revenues from licensing software and technology to enterprises have become a bright spot in the company's continuing financial recovery.
The company reported software and technology licensing revenues of $137 million for BlackBerry's first quarter, a 150% increase over the same quarter a year ago.
Overall revenues, however, were $658 million, well below the $966 million from a year ago. BlackBerry also reported a 5 cents per share earnings loss for the quarter, greater than the 3-cent loss predicted by Wall Street analysts.
"While there's a lot of work to be done in the next four to six quarters, we're definitely on solid financial footing," CEO John Chen said during a question and answer session on a webcast. "We're making good progress on distribution, on product portability and there's solid growth in the software business...On the software side, we're obviously quite pleased with the quarter."
For the entire fiscal year, which ends in February 2016, Chen predicted that software revenues could hit $500 million, not including another $100 million from BlackBerry Messenger.
In another step expected to further BlackBerry's software position, BlackBerry and Cisco announced they had entered into a long-term patent cross-licensing agreement covering their respective products and technologies. Terms were not disclosed.
"Cross-licensing is an effective way for technology companies to assure freedom of operation and help remove concerns about patent litigation," said Dan Lang, vice president of intellectual property at Cisco, in a statement.
Chen ticked off a series of new customers for his company's latest software products, including BlackBerry Enterprise Service (BES) 12 and its Enterprise Mobility Management (EMM). He said many customers are in government or financial sectors and unwilling to disclose their vendor relationships, but he did name Royal Bank of Scotland as a new customer.
"RBS is an important win..for [our] mobile management," including for all BYOD [Bring Your Own Devices] across iOS, Android and BlackBerry, Chen said. "RBS chose us for our superior cross-platform security."
Overall, Chen said, BlackBerry had 2,600 enterprise customer wins in the quarter, and around 40% were new customers who had not already used previous BES products.
When asked to react to a recent lowered ranking from Gartner analysts on BlackBerry's EMM products, Chen said, "We respectfully disagree with their view...we have a lot more installs and licenses than a lot of our competitors and a much broader set of technologies." A senior BlackBerry executive recently had criticized the Gartner "magic quadrant" findings in a blog post.
Chen also touted a recent announcement that Intel has used BlackBerry's QNX operating system to accelerate the development of automotive technology for advanced drive assistance systems, digital instrument clusters and infotainment systems. "That Intel picked QNX speaks volumes about our technology," Chen said.
Given recent acquisitions, including WatchDox, Chen said BlackBerry is trying to cover all bases for enterprises. "We could one day envision doing it all in one platform and I don't think anybody could compete with us," he said. WatchDox provides secure enterprise file sync-and-share software to allow users to protect, share and work with their files on Android, iOS, Windows Phone, BlackBerry and PC platforms.
Hardware still BlackBerry's biggest revenue source
While software was a high point for BlackBerry, the biggest source of revenue is still hardware, which comprised 40% of the $658 million in the first quarter. Services accounted for 38%, and software and technology licensing made up 21%.
The hardware revenue was based on sales of about 1.1 million BlackBerry smartphones, with an average selling price of $240.
BlackBerry recently entered into joint development and manufacturing agreements with Wistron Corp. and Compal Electronics, in addition to an existing manufacturing partnership with Foxconn. The new agreements are designed to reduce time-to-market for new devices and leverage economies of scale.
Even so, hardware has been a consistently sore subject for BlackBerry. For the new BlackBerry Leap smartphone, with a 5-in. touchscreen, it is "too early to tell" how the market will respond, Chen said. "Some people really love it and some are not so crazy about it," Chen conceded.
Meanwhile, the earlier BlackBerry Passport with its touchscreen and physical keyboard has been "selling steady," he said. "People still buy it...We have to bring the awareness of these devices up."
Chen emphasized, again, a stronger reliance on software over hardware. "We're not overly concerned" with hardware, Chen said. "More of our focus at the company right now is on expanding the distribution for software, and we're excited with selling software through carriers and once it's online, that's good leverage."
He predicted profitability for BlackBerry in the second half of the current fiscal year, partly with greater emphasis on software. "We do need to remove $100 million to $200 million in spending in hardware and divert it to software."
Three analysts were generally upbeat about BlackBerry's first-quarter showing in software.
"Certainly, the BlackBerry turnaround is not complete," said Jack Gold, an analyst at J. Gold Associates. "Their aggressive target for software sales for the fiscal year may not be met, but they are moving in that direction. All in all, I'd say the progress they are making is slower than many had hoped for, but they are making progress nonetheless in moving from a primarily hardware-focused company of a few years ago to a software-focused one..."
Gold said he was pleased BlackBerry is close to slightly positive cash flow. "The predictions of their imminent demise are overstated. If you have money in the bank and are at or near profitability, you can stay in business for a significant time."
Carolina Milanesi, chief of research at Kantar WorldPanel, called the software results "encouraging" in the overall BlackBerry picture.
Patrick Moorhead, an analyst at Moor Insights and Strategy, had harsh advice even as he admitted the software revenue improvement was important. "BlackBerry needs to exit the hardware market and get on Android or Windows Phone immediately," Moorhead said. "Few developers want to write to their BlackBerry ecosystem and that's the kiss of death in the new world."
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