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Report on Business BlackBerry has ‘successfully pivoted,' CEO John Chen says as stock surges

John Chen, CEO of BlackBerry, gives an interview with CNBC following the opening of his company's stock at the New York Stock Exchange (NYSE).

BRENDAN MCDERMID/Reuters

John Chen says BlackBerry Ltd. is a whole new beast. Investors are rewarding him handsomely for it.

With the recently closed US$1.4-billion acquisition of predictive cybersecurity firm Cylance, BlackBerry has completed its evolution “from a portfolio of strong assets to an enterprise security company,” the chief executive officer said Friday.

Cylance rounds out BlackBerry’s suite of services to ensure secure communications between connected devices, and Mr. Chen hopes it will help the company deliver US$1-billion in annual revenue.

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The company’s annual revenue for fiscal year 2019, which ended in February, actually dipped 3 per cent from fiscal 2018 to US$904-million. Still, BlackBerry shares shot up $1.56, or 13 per cent, to $13.47 on Friday as investors applauded a net profit of US$51-million or 8 U.S. cents per diluted share, compared with a loss of US$10-million or 6 U.S. cents per diluted share a year earlier.

“This profitable growth is a clear indication that we have successfully pivoted to become an enterprise software company,” Mr. Chen told analysts on Friday on a conference call.

Had the fiscal year included Cylance’s revenue of US$170-million in the same 12 months, Mr. Chen would have hit his revenue goal. Now, the challenge is to boost Cylance’s bottom line while nurturing expansion.

“They are very focused on growth – and they never made money in their life,” Mr. Chen said in an interview with The Globe and Mail at BlackBerry’s headquarters in Waterloo, Ont. "I’m kind of the fixated-on-making-money type. So I have to make sure that not only is there product synergy and market synergy, I also want to preserve part of their culture so that they can focus on growth.”

Late last year, BlackBerry announced a secure communications system, Spark, that is set to become a jewel of its internet-of-things business when it becomes available to the public within the next year. Mr. Chen said he hopes that Spark and Cylance’s AI-powered predictive cybersecurity capabilities will complement each other and open new market opportunities. While Cylance traditionally focused on small- and medium-sized clients, BlackBerry tends to service large enterprises.

“We can now introduce this AI technology not only in our products, but into the [enterprise] market,” Mr. Chen said. He expects to see 25-per-cent to 30-per-cent revenue growth from Cylance next year. “Although we wrote a big cheque for it, I never thought we overpaid.”

He added that, despite having a US$1-billion cash pile after the acquisition, there are no large acquisitions in the pipeline. The company will focus on making Cylance profitable while maintaining its growth rate.

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While BlackBerry’s “enterprise software and solutions” secure-communications revenue fell 15 per cent to US$92-million in the latest quarter, Mr. Chen said this was in large part due to required accounting changes that kicked in last year, as the company began recognizing more of its revenue from some contracts over time rather than all at once and up front. But its intellectual-property (IP) and licensing revenue – which now includes revenue from BlackBerry-branded handsets made by third parties – shot up 71 per cent to US$99-million.

The company said it would be reconfiguring how it segments revenue going forward, reporting Cylance – headed by founder Stuart McClure – as its own revenue stream. Chief financial officer Steven Capelli, meanwhile, will oversee the company’s licensing and IP line.

Bryan Palma, who was named president and chief operating officer in January, will run BlackBerry’s internet-of-things business, overseeing both its secure connected-devices software and its BlackBerry Technology Solutions group, which includes connected-car software QNX. In February, the company said it would spend $310.5-million, including $40-million from the federal government, to expand QNX and add as many as 800 permanent jobs to work on it over the next decade.

Analysts have warned that licensing and IP revenue can be difficult to predict with BlackBerry – and RBC Dominion Securities analyst Paul Treiber noted on Friday morning that the positive quarter was “entirely attributable” to that revenue line. Mr. Chen said the company projected US$270-million in IP and licensing revenue for fiscal 2020, expecting US$40-million to US$45-million as a quarterly baseline.

He also said the company has more than 100 patents in the application phase to continue BlackBerry’s IP revenue growth. Its Cylance acquisition also boosted its patent portfolio.

Earlier this month, BlackBerry also announced it would set up a new U.S.-based subsidiary in Washington to work closely with its many U.S. government customers.​

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