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BlackBerry CEO sets September deadline for hardware profit

File photo of BlackBerry chief executive John Chen.

Frank Gunn/THE CANADIAN PRESS

BlackBerry Ltd. chief executive officer John Chen has been warning for more than a year that if the company's smartphone business can't become profitable, it would have to be amputated to save the rest of the software and services company he's trying to build. On Friday, he set a deadline of September for reaching that goal.

Even though the tech company has shed workers on the hardware side, changed contract manufacturing partners, negotiated carrier deals with major U.S. partners and received generally positive reviews for the new Priv Android-powered device, falling hardware revenues have once again bashed a hole in BlackBerry's quarterly results.

"I'm actually quite disappointed that our hardware business isn't better," Mr. Chen said Friday at the company's Waterloo, Ont., headquarters, during a roundtable interview with reporters.

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"I truly believe we're very close to break-even or profitability."

"Hopefully, I'm not naive. We do have a pretty good plan," Mr. Chen said on a conference call with investors earlier in the day to discuss the fourth-quarter and full-year results.

The one positive sign was $153-million (U.S.) in software and services revenue, a 106-per-cent increase from the same quarter the previous year. Full-year revenue was $527-million, though that figure includes some one-time IP licensing revenue (which leverages the company's hoard of mobility patents) and the company booked no new licensing deals in the quarter.

Mr. Chen said he was very pleased to have hit the goal he set of $500-million in software and services sales for the fiscal year.

"There were a number of doubters when we first set this goal in 2014," he said on the call with analysts, adding he company had 10,000 customer orders for the year, and some 70 per cent of the revenue is regarded as recurring.

Mr. Chen pledged to increase software revenue by 30 per cent in the next fiscal year and to achieve that mark without needing so-called inorganic revenue through acquisitions. That said, he did add that the company is targeting acquisitions in the Internet of Things category and also promised to begin more detailed financial reporting that would offer new insight in each business segment.

But hardware sales remain core to the business and, for the quarter, contributed about 39 per cent of the company's total revenue, falling from $214-million in the third quarter to about $180-million in the fourth. The smartphone pioneer "recognized revenue" on a mere 600,000 units, down from 700,000 last quarter.

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"The ongoing decline in hardware revenue, unfortunately, suggests that it likely won't be long before BlackBerry hardware is a nothing more than a historical oddity," Bob O'Donnell, president and chief analyst at Technalysis Research, said in an e-mail Friday. "On the software side, while they technically 'hit' their $500-million software target, much of that actually came from royalties and other non-regular/non-recurring income, so I think tough days are still ahead."

BlackBerry shares closed down 7.5 per cent to $7.48 on the Nasdaq Stock Market Friday as quarterly revenue fell to $464-million, well below analysts' estimates of $563-million, according to Thomson Reuters.

Mr. Chen placed the blame for sagging handset sales partly on poor consumer pickup and promised to push more into direct sales to business clients. He also outlined plans to release a second, cheaper, BlackBerry handset powered by Android that might retail for $350. He described it as being in the mould of 2013's Z30, which would indicate a fully touchscreen device with no physical keyboard.

While the average selling price remained high, because the Priv's starting price is $700-$800 for the premium handset, Mr. Chen admitted that may have actually suppressed unit sales. BlackBerry recognized revenue on about 3.2 million devices in the 2016 fiscal year, well below the fiscal year 2015 result of seven million. Mr. Chen came into the year with a target to sell closer to five million devices.

"Softness in the high-end of the smartphone market is a headwind," Mr. Chen acknowledged. "That [price] segment appears to be quite saturated."

The CEO acknowledged that something, perhaps an innovation or new distribution channel, has to change for handsets to recover, saying he's exploring options to license core operating system features, though no deals have been made yet. "I'm willing to license my secure Android software, the virtual keyboard, Hub, Dtek [a security app]. Or to even put it on Google Play or app stores," he said.

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Should the company decide to stop making phones, Mr. Chen said the impact would be contained, suggesting job cuts might not be necessary: "The majority of our engineering people in the handset side are actually software people. The hardware people can go help out on IoT [the Internet of Things]."

In February, the company laid off 200 workers, including the creator of BBM, Gary Klassen. Despite that, Mr. Chen said BlackBerry has hired 850 new people in the past year – 70 per cent in Canada – bringing global head count to 5,000, with 600 job openings he's looking to fill.

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