I have been a BlackBerry (BBRY) bull for some time now. Critics have predicted the company’s demise due to the run off of SAF revenue and its flailing handset operations. CEO John Chen vowed to make software and services the future of the company, and the future is here.
The Future Is Now
My concern over the run off of SAF and a lack of cash flow to offset it caused me to sour on the stock. In FQ2 2018 SAF run-off still overshadowed any increase in software and services revenue. SAF was $37 million this quarter, a decline of $54 million, while revenue from software and services rose $40 million.
Total revenue was off 29%. SAF was down 39%, software and services was flat and handheld devices fell 85%. Handheld devices includes the sale of BlackBerry’s remaining inventory of legacy smartphones and smartphone accessories. BlackBerry has transitioned from outsourcing the manufacturing of handheld devices to developing and licensing its secure technology. Revenues in this segment could continue to decline as inventory of the the company’s own handheld devices will not be replaced. However, profitability could improve as BlackBerry was losing money in the handset business, and tying up millions in capital.
What gives me pause is that flat software and services revenue growth benefited from a one-off event. Licensing, IP and other revenue increased 250% from $16 million to $56 million. BlackBerry met a revenue recognition criteria during the quarter for a previously signed intellectual property licensing agreement, which drove the increase. Otherwise, software and services total revenue would have been flat and BlackBerry’s total revenue would have fallen by 40% Y/Y.
BlackBerry expects revenue from licensing, IP and other revenues to be about $100 million for FY 2018. It was $88 million for the first two quarters, which implies it could generate $12 million for the rest of the year. The fall off in revenue from this segment could cause total FY 2018 revenue to be a disappointment.
