BlackBerry's (NASDAQ: BBRY) earnings announcement surprised Wall Street and continues to build upon CEO John Chen's reputation as a turnaround artist. Upon taking the reins, CEO John Chen referred to the company as a sick patient, later handicapping his chances of success as "50/50."
Chen's two-year tenure appears to have put the company on firmer footing, but it seems Chen is no longer focusing on devices for profit. Chen has been playing up the company's software and services as its path forward, leading many to think the company would eventually transition out of devices. However, Chen recently turned heads when he disclosed the company is near profitability in devices.
The Priv is the key for hardware profitability
If there's any new catalyst behind this newfound near profitability in devices, it has to be BlackBerry's new Priv handset. Unlike the company's prior models, BlackBerry's Priv runs Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Android, the largest operating system by number of subscribers. Many hailed the initial decision as a way for BlackBerry to nullify its operating-system shortcomings, and to focus on its security features and full-keyboard form factor that many BlackBerry diehards need.
And the results are slightly encouraging for BlackBerry's Priv. The company sold 700,000 units this quarter, falling short of the ambitious 900,000 units analysts estimated according to Re/code. For a company used to underachieving in devices, this is a good sign for a new, unproven product. It stands to reason we can expect more Android-powered phones going forward, as outsourcing the OS to Android requires less internal costs, and presents a better ecosystem with more apps and games.
For overall profitability, look beyond hardware
The news about BlackBerry's potential hardware profitability should take a backseat to the company's software and services plans, however. As the former CEO of Sybase, another turnaround story, Chen has focused on software and services as BlackBerry's path forward. Building upon BlackBerry's famous reputation for privacy, the company purchased Good Technology, turning the mobile-device security company from a competitor to an asset.
As a result of acquisitions, non-GAAP revenue increased 183% on a year-on-year basis, offsetting revenue decreases in BlackBerry's hardware and service access fees. As far as EPS and total revenue, the company reported a narrow non-GAAP loss of $0.03 per share versus Thompson Reuters analyst consensus of a loss of $0.14 per share. For the total top-line, the company's $557 million beat estimates of $489 million by 14%.
In the end, BlackBerry may have a minor hit on its hands with the Priv and future Android-focused smartphones, but it seems Chen is focusing on software and services as its path forward. Investors should follow BlackBerry's path forward in these areas more closely than the company's next device.