Software is key to the company's future.

By Aaron Pressman
June 23, 2017
June 23, 2017

Shares of Blackberry have had a tremendous year, jumping 61% through Thursday’s close. The former smartphone king’s transition into a mobile security and communications software provider seemed to be working, and the company won a big cash award from a competitor.

But CEO John Chen’s story came apart on Friday, when Blackberry reported that last quarter’s sales came in much lighter than Wall Street was expecting. And the problem was centered in the new software segment, where the number of customers also dropped from last quarter.

In software, adjusted sales totaled $169 million, up just 2% from last year and about $15 million less than Wall Street expected. And Blackberry said it had orders from 3,000 customers, down from 3,500 the previous quarter. The sales slight increase didn’t make up for the 76% plunge in hardware revenues, to just $37 million. Blackberry last year licensed the right to make phones with its brand to to Chinese manufacturer TCL Communications, which introduced a new model called the KeyOne in February.

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With new questions about the software strategy emerging, investors got antsy and and that’s led to a big sell-off on Friday, with the shares down 11% to $9.86 in afternoon trading.

The rally really kicked off in early April, when its share pried was mired under $8, after Blackberry won a royalty arbitration award of $815 million from Qualcomm qcom . That’s small potatoes for the dominant maker of mobile chips for smartphones, but it represented nearly one-quarter of Blackberry’s bbry stock market value at the time. And the win prompted further optimism that Chen could fuel his software drive with more resources.

Apparently, it’s going to take longer than a few months for that to happen.

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