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BlackBerry to Stop Making Smartphones, Focus on Software Business

BlackBerry to Stop Making Smartphones, Focus on Software Business

By Gerrit De Vynck, Bloomberg | Updated: 28 September 2016 19:19 IST

Highlights

Revenue in the quarter was $352 million, missing estimate of $390 million
BlackBerry has completely outsourced smartphone design and production
The company plans to end all internal hardware development

BlackBerry Ltd. reported fiscal second-quarter sales that missed analyst estimates and said it will stop making its iconic smartphones and focus on its software business. The shares rose in premarket trading in New York.

Key points
Fiscal second-quarter earnings per share, excluding some items, was flat, compared with analysts' average estimate of a loss of 5 cents. Revenue in the quarter was $352 million, missing estimates of $390 million (roughly Rs. 2,592 crores). Software revenue was $156 million (roughly Rs. 1,037 crores), more than double what it was in the same period last year, but down sequentially from $166 million last quarter. Shares gained 6 percent to $8.35 in early trading. BlackBerry enters joint venture with Indonesia-based BB Merah Putih to make and distribute BlackBerry-branded devices. Chief Financial Officer James Yersh was replaced by Steve Capelli from Sybase, a company now owned by SAP SE that BlackBerry Chief Executive Officer John Chen used to run.

The big picture
BlackBerry has completely outsourced smartphone design and production, a process that Chen had been doing piecemeal since taking over as CEO almost three years ago. Analysts had been holding their breath for the news after Chen said September was his deadline for making the chronically money-losing device business profitable. BlackBerry's device business, which it calls "Mobility Solutions," will focus on developing applications and an extra-secure version of Google's Android operating system that it can license to other companies.

"Our new Mobility Solutions strategy is showing signs of momentum, including our first major device software licensing agreement with a telecom joint venture in Indonesia," Chen said in a statement. "Under this strategy, we are focusing on software development, including security and applications. The company plans to end all internal hardware development and will outsource that function to partners. This allows us to reduce capital requirements and enhance return on invested capital."

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