BlackBerry continues to push its transformation into a focus on software over hardware, although it hasn’t given up on hardware just yet, as is proven by its latest executive hire. Management still expects software revenue to grow 30% in fiscal 2017, which implies that it will meet or exceed $680 million, although there’s plenty of debate about whether they can pull it off.
Update on BlackBerry’s software efforts
BMO Capital Markets analyst Tim Long recently met with BlackBerry Chief Financial Officer James Yersh to speak about the ongoing transition to a software focus. He believes the most important piece of the software business is the MDM/ EMM space, which he sees as being a very large addressable market with “several hundreds of millions of devices” in it.
Long believes integrating Good will help the struggling Canadian company build on its roughly 20% market share in this area, which leads the industry. He also believes Watchdog and Secusmart could help BlackBerry improve its average revenue per user in the software space and reported that Yersh highlighted QNX as an area of particular strength with “more moderate growth.”
Another bright area for the company is patent monetization, the BlackBerry executive told Long. The company recorded $120 million in intellectual property revenues in the first year it made patent monetization a focus. Long expects IP revenues to decline this year, partially because management is trying to restructure their deals to include recurring revenue streams, and such deals typically take more time to close.
Yersh also emphasized that the company’s cash position is still strong, and Long expects it to keep buying back shares to offset dilution from options. He also believes BlackBerry might buy back its $1.25 billion convertible debt toward the end of 2016 because it bears a high interest rate of 6%.
Service access fees, hardware still challenging for BlackBerry
It’s no secret that Service Access Fees continue to be a drag on the company’s results, although this year Long believes this will be less of an impact by the end of the current fiscal year as by then, SAF revenues should be less than 15% of total revenues. He noted that the declines impact some maintenance software revenues as well.
Hardware is also still a problem for BlackBerry, which also isn’t a secret. Based on CEO John Chen’s comments in September, Long expects a decision about whether to keep the hardware business, sell it, close it, or partner with another company on it within the next five months. He also believes that not only has the hardware segment been a drag on earnings but that it also increases risk to the company’s working capital.
BlackBerry shares declined 0.41% to $7.25 in afternoon trading on the NASDAQ.
