BlackBerry counts on cars to reverse decline in revenue

BlackBerry reported another quarter of losses and declining revenue, but CEO John Chen says the company is turning the corner

BlackBerry reported another quarter of losses and declining revenue on Tuesday, but CEO John Chen forecast that the company will break even next quarter, its first since quitting the smartphone business.

The company signaled its departure from the smartphone hardware business last week, licensing its brand to TCL, the Chinese manufacturer that built the last two BlackBerry handsets.

Chen's break-even forecast had a caveat: It didn't include restructuring charges, stock compensation expenses, fair-value adjustments and a host of other things, so the company will still make a loss, but a smaller one.

With smartphones out of its product mix, BlackBerry is looking to a different kind of mobility to drive its future growth: the automotive industry, the major source of revenue for its QNX embedded software platform.

QNX already powers infotainment systems, but Chen sees a big role for it in self-driving vehicles.

The company opened a new innovation center in Ottawa on Monday, where it will develop secure software for connected cars and autonomous driving.

"We received Canadian government approval to test autonomous cars in Ottawa," Chen said in a conference call to discuss the financial results. "Our first project will be a concept vehicle powered by QNX."

BlackBerry could have the software on the market within two years, Chen said. That will depend on the company's auto-maker partners, though.

"We have a bunch of software products we would like to provide to all the automotive customers around the world. We have some prototypes that are pretty exciting," he said.

"It will take us a while to productize this. I hope it will be sooner than 2019 but it will not be in 2017."

Before then, Chen expects a boost from another QNX-based product, Radar, that makes trucks part of the internet of things. "The revenue is small up front," Chen said, but then Radar users will pay monthly fees.

That's a similar model to the one that BlackBerry relied on for years with its smartphones, where the Service Access Fee for access to the company's secure messaging system just kept rolling in for years after the phones were sold.

It still accounts for over one-fifth of the company's revenue, but that proportion is dwindle rapidly dwindling. Revenue from the Service Access Fee fell 26 percent compared to the previous quarter, and will probably fall another 25 percent next quarter, Chen said.

The company is not completely out of the smartphone business. Although future phones bearing the BlackBerry name will be designed, manufactured, distributed and supported by Chinese vendor TCL, BlackBerry will still be supplying key software and services to secure the Android devices.

The first set of phones made under that deal will be shipped right around Chinese new year -- Jan. 28 2017 -- Chen said. For its part, TCL has said it plans to show the new phones at the CES trade show in Las Vegas in early January.

BlackBerry's biggest business is still the provision of software for managing and securing mobile devices in the enterprise, Chen said. The company fueled recent growth in this line with a series of acquisitions, leading to a patchwork software base, but now, Chen said, "all the acquisitions are completely integrated as one platform."

Together, all those changes allowed BlackBerry to report revenue of US$289 million for its fiscal third quarter, the three months to Nov. 30, according to generally accepted accounting principles (GAAP). That's down 47 percent from the $548 million it reported a year earlier.

Its net loss swelled from $89 million in the year-earlier quarter to $117 million, or $0.22 per share -- not great, but a significant improvement on the $1.04 billion loss it notched up in the preceding two quarters.

Take Chen's non-GAAP forecast that BlackBerry will break even in its fourth fiscal quarter with a pinch of salt, though: The same non-GAAP adjustments also transformed that billion-dollar hole in the first half of the year into a loss of only $2 million.

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