Key Takeaways From BlackBerry’s Q1 Results & What To Expect In Q2

BlackBerry (NYSE:BB) published its Q1 FY’20 results on Wednesday, June 26, reporting earnings that were roughly in line with analysts’ estimates. In this note, we take a look at trends that drove the company’s results over Q1 and Trefis’ expectations for Q2.

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BlackBerry’s IoT Business Growth Driven By QNX Embedded Software

• BlackBerry has combined its Technology solutions and Enterprise Software business into a single unit called IoT starting from Q1 FY’20.
• Revenues grew by 8% YoY to $136 million on a GAAP basis, coming in below expectations.
• As the technology solutions business has been witnessing strong momentum with the QNX embedded software garnering more design wins in the automotive markets, it is likely that BlackBerry’s bread-and-butter unified endpoint management solutions (UEM) business is slowing down.
• However, we expect sales to improve over Q2 FY’20.

Licensing & IP Revenues Remain Volatile

• This segment is engaged in the licensing of BlackBerry’s technology and patents.
• Revenues declined QoQ to about $72 million in Q1, although it grew by about 14% YoY.
• While licensing revenues are quite volatile, BlackBerry is focusing on bringing in more recurring IP revenues.

Cylance Segment Will Benefit From Growing Subscriptions

• Q1 marked the first full quarter since the company closed its acquisition of AI-based cybersecurity player Cylance.
• Revenues for the division came in at $32 million for the quarter on a GAAP basis, and we expect them to grow to close to $40 million in Q2.
• Growth in the division is being driven by rising subscriptions from the professional services sector, manufacturing, as well as the government.
• Sales could expand further as BlackBerry integrates Cylance technology into UEM offering (likely by next Spring).

SAF Business Trends Steadily Lower

• BlackBerry’s Service Access Fees revenues have been trending steadily lower, driven by attrition from the Blackberry platform.
• We expect the trend to continue going forward.

BlackBerry’s Net Margins Have Been Trending Lower Partly Due To Cylance

• BlackBerry’s net margins have declined, due to higher operating expenses and lower gross margins following the Cylance deal.
• We expect net margins and net income to improve modestly over Q2.

BlackBerry’s EPS Trended Lower But Should Improve Modestly In Q2

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