On June 23, beleaguered handset maker BlackBerry (NYSE:BB) reported its first-quarter results and -- as expected -- the headline results were not pretty. Overall, revenue for the quarter came in at $658 million, down nearly 32% over last year's corresponding quarter and it reported a loss of $0.05 on a non-generally accepted accounting principles, or non-GAAP, basis versus consensus expectations of a narrower $0.03 loss per share.
So, naturally, you'd expect the company's CEO to be quite dour on the conference call -- and you'd be wrong. CEO John Chen remarked on the conference call, "I'm obviously pleased with the quarter. We have some very good achievements." BlackBerry's not the average company, and Chen has a point about being happy about BlackBerry's recently reported quarter.
Breakdown of revenue is key
Of course, headline numbers only provide data -- not context. Both context and history are required to assess BlackBerry's performance. After essentially inventing the smartphone, the company fell woefully behind companies like Apple and Samsung as better devices and ecosystems stole market share. The company hit a low point after a failed acquisition by Fairfax Financial and replaced former CEO Thorsten Heins with turnaround specialist John Chen.
Chen is known as a software guy, and that's apparent in this quarter's results. Software and technology licensing grew from 7% in last year's quarter to 21% in the current quarter. Of course, some of that is due to the tremendous drop in hardware (read: smartphone) revenue, as revenue in that business was down 31% year over year, but software and technology licensing grew 154% year over year.
BlackBerry without a BlackBerry?
The hardware drop is drastic, but rather expected. For years, BlackBerry's smartphone line has fallen out of favor with prospective shoppers and now many analysts consider BlackBerry's phone line mostly worthless. There are still some die-hard holdouts, but not enough to grow and sustain a business line long-term. In the end, the company must grow market share with a groundbreaking unit, which will be hard without significant investment, or decide to exit the business entirely. The fact Chen is enamored with a quarter that had a hardware drop of 31% year over year hints at the latter.
Furthermore, the key announced deal is a long-term agreement with Cisco for patent licensing. Shares of the company initially jumped 4% in the pre-hours market as investors reacted favorably to the deal (later shares reversed during the regular trading session). And while the terms of the deal were not disclosed, the announcement, Chen's demeanor, and the contrast of software growth versus hardware struggles points to a company transitioning away from devices.
The company certainly looks more like a software company
The company is certainly looking less like a big-footprint device manufacturer and more like a software company. After announcing it was cutting a massive 4,500 jobs, or then 40% of its workforce, in 2013, the company has continued to downsize its workforce. The short-term effects were on display this quarter, with the company's selling, general, and administrative expenses falling a massive 57% year over year with research and development expense dropping 42% during that period.
And while some of that is due to new manufacturing agreements -- how long can you survive in the device markets while not funding innovation-heavy research and development? In the end, the company appears to be transitioning into a light-asset, higher-margin software company with lower revenue in the short term. Can Chen pull it off? Who knows, as company transitions are tricky, but he seems to be happy about the company's results this quarter.