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Report on Business BlackBerry shares fall as revenue from enterprise unit slides

BlackBerry Ltd.’s shares plunged Friday after it reported revenue from its enterprise business fell by nearly a fifth from the year before, led in part by a change in accounting methods.

Software and services have become BlackBerry’s key division as it treads further from its smartphone roots into the world of data security, and enterprise software is its biggest driver. Even though the company’s total software-and-services revenue, at US$189-million, was up 18 per cent year-over-year in its first quarter, and represented 89 per cent of the company’s total revenue, it was dragged down by the lagging enterprise income. In the prior quarter, the broader division had hit a record high.

In five of the six previous quarters, BlackBerry’s share price made double-digit moves in one direction or the other within the seven trading days after reporting financial results. Friday saw a continuation of that volatility, and the stock lost US$1.02, closing down 8.8 per cent at US$10.68 on the New York Stock Exchange, as investors digested the enterprise numbers.

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The company shifted its accounting practices to a new standard for sales reporting this quarter called “ASC 606,” which accounts for certain enterprise licensing revenue over the life of contracts, rather than recognizing it up front. Analysts such as RBC Dominion Securities Inc.’s Paul Treiber said the change should help smooth BlackBerry’s quarterly revenues and provide better insight into its growth rate – but it also dealt a shock to investors.

Chief financial officer Steven Capelli said on a conference call with analysts that with the new standards, “there’s a one-time cumulative transition adjustment, increasing our deferred revenue balance by approximately $100-million, with an equal decrease to retained earnings.” However, he conceded that if ASC 606 standards were applied to the year-ago quarter, the company still would have seen an “apples to apples” enterprise-software revenue drop of 11 per cent.

The software division is the key to the company’s multiyear transformation plan, and includes its QNX autonomous- and connected-car platform that chief executive officer John Chen said Friday was now in 120 million vehicles worldwide, doubling in the past three years. While BlackBerry-branded KEY2 smartphones recently hit the market and will soon be available in Canada, the company now outsources the manufacturing of its handheld devices, and that division brought in only US$8-million last quarter – down from US$37-million in 2017.

BlackBerry is betting its future on this transition to securing data transmission through software for larger enterprise, car-manufacturing and government clients, and on Mr. Chen, after falling behind tech giants Apple Inc. and Alphabet Inc. in the smartphone wars earlier this decade. At the company’s annual meeting earlier this week, more than 90 per cent of shareholders voted in favour of a compensation package that could net the CEO more than US$400-million over the next five years if he reached a number of goals, including getting its U.S.-listed shares over US$30.

About 86 per cent of its software-and-services income was recurring – a revenue model that Mr. Chen said Friday gives the company greater predictability and aligns with its long-term strategy. “Our long-term goal is 90-per-cent-plus in recurring software-and-services revenue, which I believe we can accomplish within a year,” he said.

Total revenue this quarter was US$213-million under ASC 606, versus US$235-million a year earlier under ASC 605, the previous standard.

The company’s net loss last quarter was US$60-million or 11 US cents per share, versus a profit of US$671-million or US$1.23 a year earlier, when it was awarded US$940-million from an arbitration decision with the semiconductor company Qualcomm Inc.

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BlackBerry is also trying to strengthen its intellectual property income, filing a lawsuit earlier this year against Facebook, WhatsApp and Instagram over messaging technology. Its IP, licensing and “other” revenue nearly doubled to US$63-million in the quarter. ​

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