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TechBlackBerry

Yup, BlackBerry is now a software company

By
Jason Cipriani
Jason Cipriani
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By
Jason Cipriani
Jason Cipriani
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June 23, 2015, 1:43 PM ET
BlackBerry Ltd. Unveils The Square-Screened Passport Smartphone
John Chen, chief executive officer of BlackBerry Ltd., displays the new Passport smartphone during a product announcement in Toronto, Ontario, Canada, on Wednesday, Sept. 24, 2014. The square-screened Passport is BlackBerry's first major new device slated for a global introduction since Chen set out in November to turn around the company by shifting away from the consumer market toward business and professional users. Photographer: Hannah Yoon/Bloomberg via Getty ImagesPhotograph by Hannah Yoon — Bloomberg/Getty Images

Forget the Passport.

Forget the Classic, Leap, and Z30.

You can even even ignore the strangely-named Porsche Design models—the P’9983 and P’9982.

Blackberry (BBRY) of Waterloo is now a software company, not a phone company. And its “win” column for its fiscal first quarter 2016 is full of licensing, enterprise customer, and cross-platform management successes.

That means, in layman’s terms, software.

Speaking on the company’s earnings call on Tuesday, BlackBerry CEO John Chen repeatedly drew attention to growth around BlackBerry’s coding efforts—its partnerships, its new customers, and most of all, its revival of BlackBerry Enterprise Server, or BES, the beating heart of its classic mobile devices.

Chen said BlackBerry “had 2,600 enterprise customer wins,” meaning new customers for BES 12 in the quarter. Roughly 40% of those were new customers, he said; while the other 60% came from those who’ve switched to BlackBerry Enterprise Server (BES) 12 through its EZ Pass program, which fast-tracked (and made free) upgrades to the company’s newest operating system.

Another win: $137 million in revenue came from software and licensing agreements; up 150% from the same quarter last year.

Chen chalked up BlackBerry’s acquisition of WatchDox, an enterprise file-sharing service, as another victory for the company. It closed a deal with the security firm in May.

Stealing the Royal Bank of Scotland from competitor MobileIron, was yet another win, thanks to its cross-platform mobile management solution.

All software related. All a “major win” to Chen.

What’s not in the win column, however, is the company’s hardware business. The company “recognized” handset sales of 1.1 million units, with the average selling price (ASP) of $240. Hardware sales held a slim lead in revenue, accounting for 40% of the company’s $658 million quarterly revenue. Services accounted for 38%, while software and technology licensing reported 21% of revenue.

Chen summarized his approach to making the handset business profitable again in his opening statements: “A few key actions were taken in the quarter. Number one, we have reduced our spending in hardware through some level of reorganization. Number two, we moved some hardware resources to our software and our [Internet of Things] effort.”

Towards the end of the call, Chen stated he wants to move “about $100 to $200 million dollars spent on hardware and divert that into software.” BlackBerry CFO James Yersh was quick to make it clear he expected the actual number to be on the lower end of the spectrum.

It’s hard to grow a hardware business without investing money in said business, and while it’s likely to ruffle feathers of BlackBerry’s loyalist, the diversion of resources makes sense. According to the International Data Corporation, BlackBerry’s current smartphone market share is abysmal.

Additionally, he said the devices announced at Mobile World Congress in March are still on track for release later this year. Disappointingly, no mention was made regarding the possibility of said devices running Android instead of BlackBerry’s own mobile OS as has been rumored.

Despite the cuts, Chen promised a new effort to bring more awareness to BlackBerry’s devices this quarter through a new marketing campaign. But, with the company’s emphasis now on software, it’s hard to envision the campaign being successful.

Once the envy of smartphone manufacturers across the globe, it’s clear BlackBerry’s handset business is now an afterthought. And it may be better for it.

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