BlackBerry Q3 Preview: Smartphone Licensing, New Businesses In Focus

by Trefis Team
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BlackBerry (NASDAQ:BBRY) is scheduled to publish its Q3 FY’17 earnings on December 20, reporting on a quarter that saw the firm further scale down its smartphone business, while pushing new deals in the software and services space. Below, we outline some of the key trends we will be watching when BlackBerry publishes earnings Tuesday.

Trefis has a $8 price estimate for BlackBerry, which is roughly in line with the current market price.

See our complete analysis for BlackBerry here

Expect EMM To Drive Software Revenue As Other Businesses Find Their Footing

BlackBerry’s software unit has been expanding, driven largely by better monetization of its enterprise mobility management offerings such as BES 12 and Good, which it acquired last year. During Q2 FY’17, Non-GAAP software and services revenues grew by about 111% year-over-year to $156 million. The business is now largely subscription-based, with about 81% of BlackBerry’s software revenues during Q2 estimated to be recurring. The stable, annuity-like revenues from the EMM business allow BlackBerry some flexibility to focus on other growth areas such as the Internet of Things and connected car technology.

During Q2, BlackBerry signed a deal with Ford to provide software – including its QNX operating system, its Certicom security technology, and audio processing technology – for the automotive giant’s connected cars. The deal, which makes BlackBerry a Tier-1 supplier to Ford, could set the stage for further deals in the automotive space. BlackBerry’s fleet management system – called Radar – also had its commercial launch during the last quarter. While these emerging business cater to fast growing markets, there are many well-established companies that have beefed up their presence as well. For instance, Samsung is betting big on connected cars, buying Harman for about $8 billion, while Verizon acquired Fleetmatics a major fleet management company, for about $2.4 billion. We will be looking for updates on how BlackBerry’s new businesses are faring.

Hardware Revenues Will Decline As BlackBerry Intends To Exit Smartphone Business

During the last quarter, BlackBerry announced that it planned to end all internal smartphone development, in a long-overdue move that is expected to be implemented by the end of this fiscal year. Going forward, the company will license its brand to third parties, who will manufacture and distribute BlackBerry-branded handsets. BlackBerry will also take care of the software and application side of the devices, including its security-focused version of Android. To begin with, BlackBerry has inked a licensing deal with Indonesia’s BB Merah Putih, and the company notes that is also working on similar deals in markets such as India and China. While the company has not provided much color on the financial aspects of such agreements, they should help BlackBerry improve its overall profitability by cutting costs relating to handset development as well as capital expenditures and inventory carrying costs. (related: BlackBerry Does The Right Thing By Pulling The Plug On Handset Development)  We will be interested to hear of any updates on any handset-focused licensing deals.

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