BlackBerry stock swoons on weak fourth quarter outlook for connected car software, cybersecurity units

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BlackBerry Ltd. BB-T stock tumbled Thursday after it again cut revenue guidance in the first financial report issues on the watch of new CEO John Giamatteo.

The company said Wednesday it expects to generate US$150-million to US$159-million in revenue in its fourth quarter starting Dec. 1, well below the consensus expectations among analysts of US$180.9-million, according to FactSet. BlackBerry stock shed 13 per cent of its value on the day.

BlackBerry said it expected its internet-of-things division, which makes software that connects vehicles to the internet and powers advanced driver assistance systems, to post between US$62-million and US$66-million in revenue in the fourth quarter starting Dec. 1, which would bring full-year revenue for the division to between US$211-million and US$215-million.

That’s lower than the US$225-million to US$240-million range BlackBerry had forecast for the IOT division for the full fiscal year when it last reported results in September. That in turn was down from the company’s original forecast of US$240-million to US$250-million for IOT this year. The business, which is supposed to deliver 20-per-cent annual growth for the foreseeable future, is now on track to grow by less than 4.5 per cent year, according to management estimates.

Mr. Giamatteo said on a conference call with analysts the company was taking “a more conservative view” about the fourth quarter because of the impact of recent automotive labour stoppages, as well as “ongoing slippage of software programs at major automakers” that has delayed some timelines on implementation of technology in vehicles using its software.

But he said the company remains optimistic about the longer-term outlook for the increased adoption of its connected car software in vehicles. “The underlying fundamentals of our IOT biz, I believe, just couldn’t be stronger,” he said. “We’re in a really good position” to weather shorter-term industry challenges, he said.

Meanwhile, the company forecast that its cybersecurity division would generate no more than US$88-million, significantly lower than the US$115.3-million consensus expectation of analysts, according to FactSet.

“Investor visibility to BlackBerry’s near-term momentum has declined in our view” thanks to the “materially reduced” fourth quarter outlook, RBC Capital Markets analyst Paul Treiber said in a note Thursday. “Cash continues to decline, which may require BlackBerry to pursue additional financing that may be expensive and/or dilutive.” The company used US$31-million in cash to fund operations in the third quarter, worse than the US$22-million Mr. Treiber had expected, and its net cash fell to US$187-million from US$216-million at the end of the second quarter.

Over all, the company reported results Wednesday for the third quarter ended Nov. 30 that were largely in line with expectations. The company posted total revenue of US$175-million, comprised primarily of US$55-million in revenue from its connected car division and US$114-million from its cybersecurity division. The company’s earnings were slightly better than expected, as it earned adjusted earnings per share of 1 US cent a share, and posted a net loss of 4 US cents a share. Analysts had expected an adjusted loss of 3 US cents and net loss of 4 US cents.

Mr. Giamatteo, who was promoted last week and will continue to hold his prior role as president of the cybersecurity division, said that unit had slashed costs while increasing revenue by 8 per cent over the same quarter a year ago, in part by winning a contract with the Malaysian government.

Those cost-cutting efforts, he said, would reduce BlackBerry’s annualized costs by US$50-million a year and had nearly halved its use of cash in operations to US$31-million, down from US$56-million in the second quarter. “However, we believe we can go further” in improving cash flow, he said, as BlackBerry aims to get to profitability in each of its businesses next year. “We see opportunities to significantly right-size across the board while continuing to nurture the exciting growth opportunities in our two divisions.”

The new chief executive officer said the company remains committed to splitting its two businesses into stand-alone units after announcing this month it was abandoning earlier plans under his predecessor John Chen to spin off the connected car software business into a separate public company. That is expected to lead to the divestiture of the cybersecurity unit.

Mr. Giamatteo previously served as president and chief revenue officer of Silicon Valley cybersecurity stalwart McAfee Corp. from 2013 through early 2020, and before that, as chief operating officer of technology companies AVG Technologies NV, Solera Inc. and RealNetworks Inc. From 1988 through mid-2005, he worked at Nortel Networks Corp., finishing as president and CEO of its Asia-Pacific business. He joined BlackBerry in the fall of 2021.

He took over after Mr. Chen’s 10-year run as CEO, which was marked for the first half by BlackBerry’s exit from the smartphone business it had pioneered. He also acquired several companies that pushed the company deeper into cybersecurity software.

But Mr. Chen otherwise delivered little payoff, leading to discontent among stakeholders. Both BlackBerry units have delivered less growth than expected and BlackBerry’s shares have languished except for a brief period during the “meme stock” craze of 2021. The company this year sold most of its legacy patents and this fall fully repaid US$365-million of debentures, issuing US$150-million in short-term debentures in their place at similar terms.