BlackBerry Brings Back Bold as Sales Growth Remains a Year Away

Mar 29, 2014 1:02 pm ET

March 29 (Bloomberg) -- BlackBerry Ltd., reporting narrower losses, said a growth recovery remains a year off and that it’s bringing back a discontinued smartphone called the Bold as a stopgap measure to keep more customers from leaving.

Chief Executive Officer John Chen said revenue probably won’t start expanding until the fiscal year that starts next March, putting a damper on earnings results that beat analysts’ estimates. To tide over users until new devices are ready, Chen said he’s restarting production of the Bold, which resonated with customers far more than the company’s newer phones.

“There’s no doubt in my mind the revenue will come -- no doubt,” Chen told reporters yesterday during a briefing at BlackBerry’s headquarters in Waterloo, Ontario. “When will that happen? Probably not fiscal year 2015. Probably more like fiscal year 2016, when our yield and margin are stable and our revenue growth kick us into profitability.”

The shares dropped to a two-month low after Chen’s comments, wiping out a gain of as much as 6.5 percent earlier in the day. While the stock is still 30 percent higher than at the start of Chen’s tenure, yesterday’s drop showed the pressure on the CEO to show progress on his turnaround plan.

“They’re looking like they’ve successfully restructured this company for a better cost basis,” said Michael Genovese, an analyst with MKM Partners LLC. “But the next part after you do that is getting the revenue growth.” He has a neutral rating on the stock.

Back by Demand

Chen took over in November and six weeks later announced a deal with Foxconn Technology Group to outsource production, distribution and some design of BlackBerrys. The new run of the Bold model will be with an older partner, Wistron Corp.

BlackBerry decided to restart production of the Bold because customers still like it, Chen said on a conference call yesterday. Of 3.4 million BlackBerrys sold to customers last quarter, 2.3 million were older-generation BlackBerry 7 models like the Bold.

“We’ll continue to make this device available and support the operating system, of course, as long as there is customer demand,” he said on the call.

Unlike BlackBerry’s touch-screen Z10, which flopped, the Bold has a physical keyboard, an attribute that business-minded customers still hold in esteem, Chen has said.

So important is the keyboard to BlackBerry’s future that the company sued a startup that made an add-on typepad for Apple Inc.’s iPhone. Yesterday, a court barred Typo Products LLC, founded by “American Idol” producer Ryan Seacrest, from selling the device.

Serious Business

“I have no intention to lose money on handsets,” Chen said. “I hope nobody thinks we don’t take seriously our handset business.”

BlackBerry is still developing new devices, some with physical keyboards. The current introduction of the touch-screen Z3 across Southeast Asia will be followed by the release later of this year of the Q20 “Classic” phone, with a keyboard and the old “menu,” “send” and “end” buttons.

The company recognized revenue on 1.3 million smartphones last quarter, down from 1.9 million in the prior quarter.

It reported a loss of 8 cents a share, excluding one-time charges, better than the 57-cent deficit expected in a Bloomberg survey of analysts. Sales in the fiscal fourth quarter fell 64 percent from a year earlier to $976 million, the company said in a statement. That compared with the analysts’ average estimate of $1.11 billion.

Revenue Growth

Chen told analysts yesterday that, while he turns the hardware business around, he’s aiming to expand sales through the BlackBerry Messenger instant-messaging service and from QNX software, used in cars and industrial settings including power plants.

There are now about 85 million BBM users, and the service has 500,000 BBM channels -- theme-oriented chat rooms -- including new ones with Time and Rolling Stone magazine. While he looks for ways to make money from the channels, Chen said he’s also focusing on producing a more secure version of BBM that BlackBerry has developed for clients in industries like financial services.

While there are signs of progress, Chen has sought to temper expectations that a turnaround will be rapid. He reiterated yesterday that he expects the company to stop losing cash by the end of the fiscal year that concludes in March 2015 and that BlackBerry will become profitable at some point in the following fiscal year.

Chief Financial Officer James Yersh said on yesterday’s conference call that revenue declines this quarter will be similar to last quarter’s drop.

Stopping the drain on cash will be crucial. BlackBerry had $2.5 billion in cash and short-term investments at the end of last quarter, down from $3.1 billion at the end of November, it said yesterday.

Raising Cash

Chen has been looking for ways to replenish the coffers. Last week, BlackBerry said it had reached an agreement to sell most of its more than 3 million square feet of Canadian real estate, which could fetch more than $500 million. The company said in December that it got a $696 million tax refund from the Canadian government and expects another ‘’significant’’ refund by the end of August. Chen is also overseeing the elimination of one-third of the workforce

“It’s at a point where you either believe in the story or not,” said Anil Doradla, a Chicago-based analyst at William Blair & Co. LLC. “I think the jury’s still out.”

--With assistance from Beth Mellor in New York and Gerrit De Vynck and Eric Lam in Toronto.