How BlackBerry Ltd (BBRY) Plans To Become Profitable By FY2016

How BlackBerry Ltd (BBRY) Plans To Become Profitable By FY2016
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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) CEO John Chen reiterated that he aims to make the company profitable by FY2016, which ends February 2016. Chen says BlackBerry will reach cash flow break-even by the end of the current fiscal year. Goldman Sachs analyst Simona Jankowski held a meeting with John Chen to discuss how he plans to make the company profitable. Goldman Sachs has a Neutral rating on the stock with an $8.80 price target.

BlackBerry to reduce cash burn over the next few quarters

To break even, Chen said BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) will have to bring down quarterly opex to $500 million, compared to $577 million in the February quarter. The Waterloo-based company will have to increase its gross margins from 36% in FY2014 to 40%, and achieve annual smartphone sales of at least 10 million units compared to just 1.3 million units in the latest quarter.

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BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) ended FY2014 with $2.7 billion in cash, after burning $700 million in the fourth quarter. John Chen expects to bring down the cash burn over the next few quarters. BlackBerry has already made significant efforts to cut its manufacturing obligations, including tie-ups with Foxconn Technology Co., Ltd. (TPE:2354) and Wistron. The company is also likely to benefit from the real estate and tax tailwinds in the current quarter. The Canadian company is selling its real estate assets. The company expects tax refunds of about $400 million in the current quarter.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) remains focused on enterprise customers. John Chen has slashed fees, and is currently trying to differentiate from rivals in the mobile device management (MDM) market. Its key sources of differentiation include application provisioning, security and identity management, and communications with BBM and secure voice. BlackBerry is set to launch BES12 in November this year. And the company has already started its EZ Pass program, which allows an enterprise to upgrade to BES12 from BES10 or a competitive offering for free.

BlackBerry ups the game with QNX and BBM

As far as its QNX operating system is concerned, BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) has already won the Audi dashboard, which should start generating revenues in 2016. Apple Inc. (NASDAQ:AAPL) has entered the market with its CarPlay. Google Inc (NASDAQ:GOOGL) is another major rival. BlackBerry currently monetizes QNX as a software license. But the ailing Canadian company plans to broaden the QNX platform by adding its own or third party services such as infotainment, safety features, tire pressure, etc.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) is looking for ways to monetize its BBM messaging service. Earlier this month, the company added many new features, including ‘stickers’, to BBM. As it already has a secure NOC infrastructure, the Canadian company is considering mobile payments, commerce, and identity management to generate revenues. It’s not a part of BlackBerry’s “2-year recovery plan,” but a direction BBM may take.

BlackBerry Ltd (NASDAQ:BBRY) (TSE:BB) shares were down 0.14% to $7.35 at 12:16 PM EDT on Thursday.

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