BlackBerry says losses may continue for another year even as software revenue grows

(Reuters) – BlackBerry, helped by its higher-margin software business, reported better-than-expected adjusted earnings and raised its full-year growth forecast on Tuesday, though concerns about overall revenue growth reversed early share gains.

BlackBerry Chief Executive John Chen said at a midday event with reporters that he expected it would take another four or five quarters to halt the steady decline in the company’s overall revenue.

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BlackBerry shares, which gained as much as 4.4 percent on the earnings report, retreated after the comments and ended the session down 3 percent.

“I don’t consider ourselves in a turnaround anymore,” Chen told reporters at the company’s Waterloo, Ontario headquarters. “Now we need to execute for growth.”

BlackBerry has gone through a wrenching transition in recent years as it tries to build a software business not tied directly to its smartphones, which have lost ground in the iPhone and Android era and are now being made and sold by others.

While still a year from overall revenue growth, investors cheered Blackberry’s improved outlook and the growing role of the software business – which includes mobile device management products, the QNX industrial operating system, and a range of recent acquisitions.

“The part of the business that represents the future continues to show, I think, reasonably good progress,” said IDC analyst John Jackson.

Chen said software sales should grow at least 15 percent in the fiscal year beginning in March, after sticking to a 30 percent growth target for the current fiscal year.

He declined to say how many devices BlackBerry and its partners sold in the third quarter, but said he hoped to close an outsourcing deal in India and nearby countries in the current period, following two similar deals.

BlackBerry said much of its software and services revenue was recurring in nature, requiring less spending and helping the company earn a record gross margin.

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“That means as more revenue comes in, a higher percentage drops straight to the bottom line,” said Morningstar analyst Ali Mogharabi.

Software and services revenue rose to $160 million from $155 million a year earlier, while hardware sales dropped to $62 million from $220 million.

Chen said BlackBerry’s new Radar fleet tracking service won a second customer, Titanium Transportation Group.

BlackBerry is also investing C$100 million ($75 million) in a new autonomous vehicle testing hub in Ottawa it hopes will bring in revenue in 2018, and building up a cyber security consulting practice.

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Excluding special items, quarterly earnings of 2 cents a share beat analysts’ expectations of a 1-cent loss, according to Thomson Reuters I/B/E/S. On that basis, BlackBerry forecast a profit for the year ending in February, up from a prior outlook of breakeven to a 5-cent loss.

Revenue fell to $289 million from $548 million, missing the average of analyst estimates, while net losses widened to $117 million from $89 million. That included a writedown related to the sale of two data centers.

(Reporting by Alastair Sharp and Allison Martell; Editing by Lisa Von Ahn and Alan Crosby)