Even though BlackBerry was able to eke a small profit this quarter, perhaps the optimism surrounding CEO John Chen may be a bit misguided, as the company continues to struggle with declining revenue.
Fiscal third-quarter adjusted earnings were 1 cent a share for BlackBerry, up from a loss of 2 cents in the prior quarter, indicating that Chen and his team are continuing to work on the cost structure.
However, revenue fell 34% year over year to $793 million, well below the consensus estimate of $932 million. The company recognized revenue on approximately 2 million smartphones, a number that has continued to shrink since Chen took over for Thorsten Heins.
BlackBerry shares fell 7% during the pre-market session on Friday morning.
Making matters worse is that BlackBerry, which is in the midst of trying to turn itself into a company focused more on services, saw services revenue fall 42% year over year. Though this segment greatly helps the company’s margins (gross margin for the quarter as a whole was 52%), segments contracting by nearly half is not encouraging, no matter what the share price has done over the past twelve months.
Though the situation still remains leak bleak for Chen and his team, not all is bad. The company’s cash balance, which makes up nearly 60% of its market cap, increased by $43 million to $3.1 billion, as the company continues to work on generating sustainable positive cash flow. “We achieved a key milestone in our eight quarter plan with positive cash flow. We also attained another important milestone in the release of our new enterprise software products and devices,” Chen said in the earnings release. “Our focus now turns to expanding our distribution and driving revenue growth.”
Those last few key words from Chen, about driving revenue growth, are the hardest thing to do for a technology company that has become an afterthought in consumers eyes. For all the work BlackBerry has done with BES and its service portfolio, handset sales still made up 46% of revenue this quarter. The company has recently launched two new phones, the BlackBerry Classic and the BlackBerry Passport. With the average selling price (ASP) on hardware falling to roughly $182 per unit, that’s not an encouraging sign, given ASP was well over $200 a year ago.
Chen has done a lot of heavy lifting in getting the company to start generating cash, but getting the top line to start growing again is another issue, and one that may require more patience than Wall Street has.