BlackBerry Passport sells out; CEO foresees profitability in 2015

Chen says banks and government are coming back to BlackBerry

BlackBerry's new qwerty Passport smartphone quickly sold out just hours after going on sale online Wednesday, with another 200,000 back orders waiting in line, BlackBerry CEO John Chen announced in an earnings call today.

Chen didn't indicate how many units were sold online, but said sold out the Passport in six hours, with selling iout in 10 hours before customers began leaving online orders that had reached 200,000 as of early today. The device has a price tag of $599 unlocked.

"That's extremely good receptivity" for Passport, Chen said.

But that wasn't Chen's only good news in what he called a "very solid" second quarter that ended Aug. 30 with an earnings loss of $11 million, or 2 cents per share, compared to an 11-cent per share loss the previous quarter. Still, revenues were $916 million for the quarter, down from $966 million in the previous quarter, and well below the $1.5 billion reported for the same quarter a year ago.

Chen predicted profitability for BlackBerry by mid-year 2015, possibly in the first fiscal 2016 quarter that starts in March 2015. "You can see a progressively good trend going forward," Chen said.

Chen said that large companies, especially in banking and government, are coming back to BlackBerry for its smartphones and BlackBerry Enterprise Server 10 software for security and management. They are coming for "stability," he said.

"The product is broader and deeper and has history with most customers," Chen added. "I have spoken to many executives and people are very interested in working with us. Our technology works and works well. Governments use it and major banks use it. We're winning them back — knock on wood, I don't want to be overconfident — and we're starting to see that with very big companies."

He also predicted more interest in BlackBerry once it launches its next operating system, BlackBerry 12, on Nov. 13 at an event in San Francisco.

The company posted a number of successes, including what it called a "normalized" use of cash of $36 million in the recent quarter, compared to $255 million in the prior quarter.

BlackBerry launched its EZ Pass program in March to provide a free, single mobile device management software platform for companies to work with BlackBerry, iOS and Android devices. Chen said the program resulted in 3.4 million licenses issued for BES 10, nearly three times the increase from the prior quarter. Of the 3.4 million, 840,000 were traded in from competitors' MDM platforms, such as Good, Mobile Iron and Airwatch.

Chen warned the strong uptick in EZ Pass interest might result in BlackBerry ending the program earlier than the original Jan. 31, 2015, date.

Of the $916 million in revenues, 46% came from hardware, another 46% from services and 8% from software, BlackBerry said. About 2.4 million BlackBerry smartphones were sold to end-user customers in the second quarter. Overall, IDC and other analyst firms have said BlackBerry's total share of the global smartphone market is now less than 1%.

BlackBerry also reported it had reached 91 million monthly active BBM messenging service users, up from 85 million in the prior quarter.

While Chen was upbeat on initial Passport sales, several analysts said it's unrealistic to expect smartphone hardware to bring BlackBerry to long-term growth.

"Over time, I'd like to see the revenue mix shift to software and services, since the device business is a losing battle for most companies," said Maribel Lopez, an analyst at Lopez Research. "There is some potential for sales of more special purpose devices, but general smartphone sales are a loss leader."

Ken Dulaney, an analyst at Gartner who last year urged Gartner clients to seek alternatives to BlackBerry, said Passport would need to be sold in the "millions and millions" to have an impact on BlackBerry's financial profitability. The trouble is that Passport is focused on worker productivity and not on the much larger consumer market.

"They probably have new energy over there that they can save BlackBerry, so they probably felt they could make a device that would take the world by storm," Dulaney said. "The problem is that they have to sell millions and millions to consumers and consumers have moved on to other devices. Once you buy a bunch of apps, you aren't going to switch [operating systems] when you have to re-buy all your apps. Why would consumers go out and buy this Passport when there really isn't anything wrong with Android and Apple devices and then risk not having the apps they will want?"

Copyright © 2014 IDG Communications, Inc.

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