BlackBerry posted its fiscal fourth quarter 2014 earnings on Friday, in which it still posted a loss but managed to beat Wall Street estimates and showed a slow, but steady, turnaround of its business. Of the $976 million in revenue it reported for the quarter, a majority was from selling and providing services to its customers – the enterprise where it says it plans to focus more of its efforts. The Q4 figures show why that's a good move and is more important for the company, right now, than its hardware business.
BlackBerry said that 56 percent of its quarterly revenues were generated from its services business, which includes products like BlackBerry Enterprise Service 10, BlackBerry Technical Support Services for businesses, BlackBerry Enterprise IM and the BlackBerry Mobile Voice system. Sales of hardware generated 37 percent of its revenue, still a significant figure but not if you look at device sales.
The company sold just 3.4 million BlackBerry units during the quarter, a fraction of what its competitors sell, and 2.3 million of those units ran the company's older BlackBerry 7 operating system. That suggests those were sold in emerging markets or other areas where it hasn't introduced its newer BlackBerry 10 devices. Finally, 7 percent of its overall revenue was generated from software. By comparison, in fiscal Q3, 53 percent of its revenue was generated through services and hardware made up 40 percent of its total revenue – note the swing in increased service revenue quarter-on-quarter and the decrease in hardware revenue.
It's no wonder, then, that BlackBerry has said it's refocusing its efforts on services – that's the part of the company that's generating the most income right now. In Q3, the firm said it was transitioning to "drive greater focus on services and software, while establishing a more efficient business model for the devices business." BlackBerry was once known for its hardware, its balance sheet re-iterates that consumers aren't buying its latest devices.
CEO John Chen has said that he's not really concerned about competing mobile platforms, at least when it comes to BES 10 sales, so long as customers adopt BES 10 for bring-your-own device initiatives. His job is to turn around the company, and if CNBC's Marcus Lemonis from "The Profit" has taught me anything about sinking companies, it's that focusing on core products and ditching everything else is your best bet. Once BlackBerry returns to profitability, it can re-consider how to bolster its hardware business. We know that Chen is already well on his way to boosting BlackBerry's service business.
One service area, though it perhaps ultimately also falls under software, and there's plenty of room for growth there, is BlackBerry Messenger. The company has suggested it has plans to generate even more income from the service by creating a new and more secure version for the enterprise market, and by charging consumers for in-app content like stickers and new features. The sale of WhatsApp to Facebook showed us just how valuable a chat system can be – and the more users BlackBerry can attract to BBM with new features, the more valuable its own platform becomes.
Chen recently said the chances for success are about 50/50. While there are certainly new devices on the horizon, I wouldn't be surprised to see BlackBerry announce expansions to its services over the next 12 months. That's where it's making money.
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