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Did BlackBerry's Priv Android Phone Save Its Hardware Business?

By Daniel B. Kline - Dec 21, 2015 at 1:00PM

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Early signs are good, but the company has a long road ahead of it.

There have been times in recent years when a BlackBerry ( BB -3.66% ) hardware comeback seemed about as likely as an Oakland Raiders Super Bowl Championship or Bill Cosby's triumphant return to primetime stardom.

While those ideas still seem far-fetched for the football team and the disgraced comedian, the one-time immensely popular smartphone with its signature keyboard looks to have at least taken a step toward relevance. BlackBerry still lost money in its most recent quarter -- about $89 million or $0.17 a share -- but there are some positive signs.

Despite the loss, the numbers were encouraging and suggest that CEO John Chen has the company on the right track. The CEO acknowledged the encouraging numbers in his remarks in the earnings release, where he also hinted at the success of the company's newest -- and perhaps last -- smartphone, the Android-based Priv.

"I am pleased with our continued progress on BlackBerry's strategic priorities, leading to 14% sequential growth in total revenue for Q3. We delivered accelerating growth in enterprise software and higher revenue across all of our areas of focus," Chen said. "Our new PRIV device has been well received since its launch in November, and we are expanding distribution to additional carriers around the world in the next several quarters."

That last comment is a very positive one for fans of the company's phones, because Chen had made it very clear that if Priv did not succeed the company would shutter its hardware business.

What BlackBerry is doing
Chen has been transforming the company from its roots as a handset maker into a software and services company. That was a move forced on him by the company's declining piece of the smartphone business.

BlackBerry's Priv Source: BlackBerry 

BlackBerry had just 0.3% market share in Q2 2015, down from nearly 5% in the same quarter of 2012, IDC reported. That's a drop from niche player to near-complete irrelevance.

Still, because the company's phones were so well-loved by a core audience of business users for so long, the company has continually attempted to revive that business. But after two attempts -- the Passport and the Classic -- failed to connect with consumers, Chen said that if the company could not make money in hardware it would abandon that business.

That made the Priv, its first phone powered by Android rather than its own BlackBerry OS, a sort of last-ditch Hail Mary attempt.

But it worked?
BlackkBerry said it sold about 700,000 Priv handsets in the quarter, Re/Code reported, a bit shy of the 900,000 some analysts predicted.

Chen sounded very positive about the new phone during the company's post-earnings release call with investors and analysts.

"My first goal is to get us into a break-even position with the device business, because you really couldn't do anything strategically with a business that continues to lose money," Chen said. "We're in that ballpark now."

Priv launched Nov. 6 in the United States as a de-facto exclusive for AT&T (NYSE: T) (which may have been the only carrier willing to take it on). It has not received any major promotion from its lone partner and most of the publicity the Android device has seen has been driven by the media (likely because many of us used BlackBerry devices long after they faded in popularity).

Priv is not a runaway hit, but it's cheaper for the company to make because it runs Android and not its own OS. These numbers may not be great, but they appear to be good enough.

The handset charges on
By saying that the company plans to take Priv to more countries, and acknowledging that its hardware business is approaching breakeven, Chen is making it clear that the BlackBerry phone will live to fight another day. It's still a micro-niche business targeting companies with higher security needs and the small amount of people who want a physical keyboard.

If Priv is going to be a long-term hit then the company needs to expand its U.S. availability beyond AT&T. It also needs to commit to keeping it available and supported for the long haul.

This is a small victory for the company and a chance to hold onto its legacy. It is, however, only a start and the company has a long way to go before it can comfortably say its hardware business has turned the corner.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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