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BlackBerry CEO John Chen shows off the new Passport device at it's launch in Toronto on Wednesday, September 24, 2014. THE CANADIAN PRESS/Chris Young

Chris Young/THE CANADIAN PRESS

BlackBerry CEO John Chen is staking his reputation as a turnaround man on as-yet-unseen software, and modest success from new hardware.

In a Q&A session with reporters Friday afternoon he betrayed some frustration with analyst and media calls for signs of a full recovery so early in his tenure (he's been on the job for 10 months).

"When I came into this job everybody thinks that if you don't repair the balance sheets, this company is dead," Mr. Chen said. "All of a sudden, everyone says 'What happened to the growth?' "

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The company announced earnings Friday morning to mixed reaction, with revenue continuing to decline though not as rapidly as in previous quarters.

What troubled analysts most were his answers on what is being done about its highly profitable Service Access Fees, which remain in decline: service revenues decreased to approximately $421-million (U.S.) from $519-million in the first quarter. SAF peaked at over $1-billion a quarter in calendar 2012. The company issued guidance that it would continue to slide 10 to 15 per cent in the coming quarters.

"Whoever is talking about building SAF is full of it, it's just denying reality," Mr. Chen said. "If [BlackBerry's old leadership] was able to stabilize it in the first place, the SAF – which is the reason this company got into trouble – I would never have the opportunity to run this company.

"I can't change the gravity of that. What I could do is replace the SAF decline with new software."

BGC Financial analyst Colin Gillis said in a note the decline in service revenue "poses a distinct threat to the company as this revenue has a high margin… allowing management to invest in the future as an enterprise software company…The company is in a race against time to build up new revenue streams before the traditional services revenue from its older phones rolls off."

Mr. Chen laid out some details for his next steps to stabilize the company, which include the helpful addition of revenue from the new Passport and upcoming Classic smartphones.

On Nov. 13 he will travel to the San Francisco area to unveil the latest BlackBerry Enterprise Server software, BES 12. With that new platform for managing both BlackBerry and rival devices from Apple and Google's Android, Mr. Chen expects to convert the 3.4 million subscribers on the free trial of BES 10 (called EZ PASS) and then grow the total number further. "I suspect when we are all said and done, we'll have at least 10 million licences," in the next fiscal year. Mr. Chen even mooted that he might end the free trial early (it's currently expected to end by Feb. 1, 2015).

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While he expects new software revenue to double from $250-million to $500-million by the end of fiscal 2015, the margins could be lower than on the disappearing SAF profits. Mr. Chen estimated the new software would earn perhaps 70 to 80 per cent margin.

"BlackBerry's blocking and tackling well near-term, delivering cost reductions and launching products on time," RBC Capital Markets analyst Mark Sue said in a research note. "It's hard to cut your way to glory and management's looking for software revenues to offset declines in high margin service revenues. However, upselling is difficult, especially compared to BlackBerry's legacy mandatory services fees. We see the stock remaining volatile, pending better visibility to stable revenues and cash-flow break-even."

Mr. Chen intends to show a never-before discussed hardware "concept" at the Mobile World Congress in Barcelona, which runs from March 2-5. He wouldn't elaborate on whether that would mean a new phone, a return to tablets or something else, but the event will also showcase the company's "product road map" for both services and devices.

As for the Passport, he declared the early reception has convinced him to start work on a second-generation of the device.

"I do have a model," Mr. Chen said about his plans to return BlackBerry to profit. "Could I be wrong on the model? Absolutely. Have I been wrong before in my life? Absolutely. Do I get wrong a lot of times? No, not much. Not too many times."

With files from reporter Sean Silcoff

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