BlackBerry maintains enthusiasm for smartphones despite lacklustre sales

WATERLOO, Ont. – A drop in smartphone sales in BlackBerry’s fourth quarter, despite the launch of the Priv, hasn’t dampened the company’s enthusiasm for its hardware business.

BlackBerry (TSX:BB) said Friday it sold about 600,000 smartphones over the three-month period ending Feb. 29 — 100,000 fewer than it did in the previous quarter. That came even though it released the Priv, its first Android-powered device, with much fanfare last November.

Apple, on the other hand, sold nearly 75 million phones in its first quarter of 2016 that ended Dec. 26, 2015.

BlackBerry has a lot riding on the Priv as some industry watchers anticipate its success or failure will dictate whether BlackBerry continues to make smartphones.

Executive chairman and CEO John Chen admitted hardware revenue fell short of the company’s expectations. But he said he remains optimistic about the company’s future in the smartphone market.

“I still believe that we have a shot at it,” he said during a conference call with investors in Waterloo, Ont., where the company is headquartered.

“Hopefully, I’m not naive.”

In fact, Chen said he plans to release another smartphone that would also run on an Android operating system to replace BlackBerry’s Z10. The company is aiming to put out the phone for $300 to $400 by September, less than half the cost of a Priv, according to BlackBerry’s website.

Chen said he is hopeful the company will at least break even in its smartphone business by September. It needs to sell about three million Privs for an average price of about $300 to break even on the product, he said.

But if BlackBerry’s smartphone segment continues to dial up losses come September, Chen said he will consider exiting the hardware business.

“I will let the math and the market tell me that,” he told a media roundtable later.

Chen partly attributed the drop in phone sales in the last quarter to lengthy contract negotiations with major cellphone carriers that pushed new distribution deals, like one with Verizon Wireless, into the next quarter.

BlackBerry plans to tackle distribution, which Chen identified as the main issue, to help increase sales. He said he wants to target more carriers’ enterprise clients, like governments and banks.

The Priv is now available in 34 countries, he said — up from four since the previous quarter.

BlackBerry’s other businesses performed better in the last quarter. Its software and services revenue was up 106 per cent for the same quarter year over year.

One of the company’s priorities is ramping up this segment of its business and it is projected to grow about 30 per cent this fiscal year, which began March 1, Chen said. He suggested this could tie into hardware sales.

BlackBerry reported a US$238 million net loss in its fourth quarter, with much of the red ink attributed to costs related to restructuring and acquisitions. The loss amounted to 45 cents US per share.

After adjustments that exclude the restructuring and acquisition costs, the loss was three cents per share — less than analyst estimates of 10 cents per share.

Revenue was US$464 million, including a writedown of deferred revenue associated with recent acquisitions. Without that, it would have been US$487 million.

The revenue was below analyst estimates of US$563 million, according to Thomson Reuters.

BlackBerry shares were down nearly eight per cent to settle at C$9.74 on the Toronto Stock Exchange. On the Nasdaq, they closed at US$7.48, a decline of more than seven per cent.

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