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Jun 26, 2019

BlackBerry shares fall most in year as software unit misses

BlackBerry's turnaround story still not convincing markets

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BlackBerry Ltd. (BB.TO) shares fell the most in a year after reporting sales from its software and services unit slowed and a recent acquisition contributed less of a boost than some analysts expected.

Revenue in the fiscal first quarter was US$247 million, the Waterloo, Ontario-based company said Wednesday, up 16 per cent from a year earlier. BlackBerry reorganized its reporting units, combining the business technology solutions group with the enterprise software and services unit. Now grouped under the Internet-of-Things division, it reported revenue of US$136 million, which was down from US$147 million in the fourth quarter.

Steven Li, an analyst at Raymond James, said any shortfall would have likely come from enterprise software, since the business technology solutions revenue stream is “typically stable and growing.” Part of the weakness also could have come from a reorganization of the sales division, according to Todd Coupland, an analyst at CIBC.

After BlackBerry’s US$1.4 billion acquisition of cybersecurity firm Cylance, which closed in February, some analysts were expecting to see stronger revenue contributions in the first full quarter in which the purchase is on the books. Revenue from Cylance was US$32 million in the three months ended May 31. “People were hoping Cylance would beat expectations more than it did,” Coupland said in an interview. There are also concerns about Crowdstrike Holdings Inc., a competitor in cybersecurity, which is growing at a higher rate than Cylance, he said.

Key Insights

- Adjusted earnings per share of 1 cent beat analysts’ average estimate of breakeven in the quarter, as BlackBerry absorbed the Cylance acquisition.

- Shares fell as much as 10 per cent to US$7.47. It was the biggest decline for BlackBerry since last June.

- Under Chief Executive Officer John Chen, the company has been positioning itself as a leader in cybersecurity. Cylance will enable BlackBerry to add artificial intelligence capabilities to its existing software products. The purchase was BlackBerry’s largest acquisition in seven years.

- BlackBerry is now focused on its connected and autonomous vehicle technology business, QNX, to drive growth. "The next thing that we have is to put the Cylance AI on to QNX," Chen said on an earnings call.

Know More

- Earlier this week, the Waterloo, Ontario-based company said its security and connectivity software was now installed in 150 million vehicles, up 25 per cent from a year earlier. BlackBerry’s QNX technology is used by carmakers such as Honda Motor Co., Ford Motor Co., and BMW AG in driver assistance and hands-free systems, among other things.

- BlackBerry reaffirmed it expects annual adjusted revenue growth of 23 per cent-27 per cent in fiscal 2020.