Why BlackBerry’s Fortunes Ride Heavily On BES

February 3rd, 2015 by Trefis Team

BlackBerry (NASDAQ:BBRY) remains a company in transition. The lucrative services division, which charges BlackBerry users system access fees (SAF), has been consistently posting double digit declines in revenues owing to subscriber attrition and migration onto the company’s newer devices. Services revenues are projected to fall by 50% in FY 2016. The company’s once dominant handset division also faces challenges of its own. While BlackBerry has overhauled the operation by shedding assets and outsourcing production in order to improve profitability, we remain somewhat skeptical that new models such as the Classic and Passport will be able to bring in big volumes. Much of the burden of BlackBerry’s recovery and earnings growth is likely to rest with its small, yet promising software division, which caters to the growing enterprise mobility management (EMM) space.

We have a $10 price estimate for BlackBerry, which is in line with the current market price.

See our complete analysis for BlackBerry here

Relevant Articles
  1. IQOS Helps Philip Morris Navigate Well In Q1
  2. Down 45% Year To Date, What’s Happening With Sirius Stock?
  3. Meta Platforms Stock Dropped 10.6% In A Day, What’s Next?
  4. What Factors Will Drive Pfizer’s Q1 Performance?
  5. A Rebound In Asia Travel Will Likely Drive Estée Lauder’s Q3 Performance
  6. Higher Medical Costs Likely Weighed On CVS Health’s Q1 Earnings

The Market For Enterprise Mobility Management Is Growing

BlackBerry’s software revenue is largely derived from BlackBerry Enterprise Server (BES), which is an enterprise mobility management offering. BES allows corporations to remotely manage a fleet of mobile devices along with their data and applications while providing encryption, containerization and other features to improve security. Mobility management has been receiving a lot of attention of late, as companies see their workforces increasingly bank on mobile devices for their computing needs. Additionally, the bring-your-own-device trend has also been growing, as firms allow employees to use their personal smartphones for corporate purposes. As an increasing number of mobile devices connect onto corporate networks, there is a need for companies to address security and device management issues. According to Radicati Group, a market research firm, the mobile device management market is expected to more than quadruple to $5.75 billion by 2018. The market that BlackBerry is addressing with BES is still larger, given that MDM is just a subset of the broader enterprise mobility management space which also includes mobile applications management and mobile content management.

BlackBerry Has Been Overhauling Its EMM Strategy

BlackBerry has indicated that its software revenues could double to about $500 million by FY 2016. In order to do this, the company has been redefining its software strategy by launching new products, improving customer acquisition programs and transitioning its larger software business model. Late last year, BlackBerry launched BES 12, the latest iteration of its EMM software. BES 12 rectified the shortcomings of previous versions of BES, by allowing organizations to manage older versions of BlackBerry devices running BB7 along with BB10 and other third-party devices on a single infrastructure. The offering also enhances the cross-platform features available on BES 10. BlackBerry is also transitioning into a subscription-based model with BES 12, making customers pay an annual per-device fee to utilize the service in a move that should help the company stabilize software revenues and capture greater value from customers over the long run.

Last year, BlackBerry ran a promotional program called “EZ Pass”, which offered free perpetual licenses for the base version (Silver) of BES 10 to users of older versions of BES and customers of competing MDM platforms. The program was successful, with the company indicating that it had issued a total 6.8 million licenses, with over 30% of the licenses having traded in from competing MDM platforms. Although the company doesn’t earn revenues from these licenses, it will monetize users by charging them for technical support and by encouraging them to upgrade to the more premium Gold versions of the service, which offers advanced security features. While BlackBerry has ended new enrollments on the EZ Pass program, these licensees should begin contributing to the company’s revenues from Q4 FY 2015 onwards, given that customers will have to start paying for support going forward.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research