BlackBerry goes into the red as revenue drops by a third

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Priv by Blackberry, the company's first Android smartphone. Credit: AT&T

The company is sticking with its handset business and expects to reveal a new model in July

It looks as though BlackBerry CEO John Chen will still be in charge long enough to launch another couple of phones — although don't expect any new flagship models.

Chen was re-elected chairman of the board for another year on Wednesday.

He still plans to launch two new mid-range phones in the next nine months, one of them as early as July. They'll be cheaper than the Priv, BlackBerry's first Android phone, but with the same level of security, he said Thursday.

Shareholders might not have given him such strong support if they'd seen the numbers the company reported Thursday for the first quarter of its 2017 financial year.

Revenue dropped to US$400 million in the three months to May 31, down 39 percent from $658 million a year earlier.

Chen has made some dramatic cuts in BlackBerry's cost of sales, to $246 million from $348 million a year earlier, but still nowhere near enough to maintain the company's gross margin, which slipped to 39 percent from 47 percent.

That a slide is already enough to push the company deep into the red, but the company also abandoned or wrote down the value of goodwill and long-term assets to the tune of $561 million in the quarter, leaving it with a net loss of $670 million, against a net profit of $68 million a year earlier.

The asset re-evaluation was a regulatory consequence of BlackBerry's decision to break out revenue by business segment in a new way, Chen said in a conference call to discuss the results.

Service access fees brought in $106 million, while software and services accounted for $142 million.

The company is still integrating its enterprise mobility management tools and sales force with those of Good Technology, which it acquired last year.

The mobility solutions segment, including smartphones and device software licensing, raised $152 million.

While the other two segments were profitable at the operating level, mobility solutions made an operating loss of $21 million. Chen said his goal is for that segment to achieve operating profitability in a couple of quarters.

"I really, really believe we can make money out of the handset business. But to make sure we don't put too much emphasis on the hardware, we started the software business," he said.

Licensing device software brought in the princely sum of $0 in the quarter, but Chen sees it as a potential new revenue stream, and an alternative to licensing the patents underlying BlackBerry software.

The focus of that could be BlackBerry Hub, a tool for managing multiple messaging and email accounts.

It will also provide a way to continue making money from phones should BlackBerry decide to pull out of the hardware business.

Chen has no immediate plans to do that, though.

"Many customers, especially in governments around the world, are still relying on us providing a secure handset for them," he said.

Asked about the company's handset roadmap, he replied: "I'm not prepared to reveal that, I was thinking of doing that more in the July timeframe."

He reiterated his intention to deliver two new models "this fiscal year' (so before next March), adding that they would be "in the mid-range, not really high-end phones."

If BlackBerry does decide to bail out of the hardware business, it won't cost it much. It has just written down existing inventory, and no longer makes phones itself.

"We are a hardware design house. With the new manufacturing arrangement that we made, we don't carry too much of a risk to our balance sheet," Chen said.

That new arrangement is sufficiently flexible that BlackBerry can have handsets manufactured on demand in response to orders from carriers or enterprises.

While flagship phones make headlines, Chen is hoping that mid-range phones will make more money.

"The Priv is a great product but it's too expensive for enterprise," Chen said. "This is why enterprises and the carriers that supply them have been asking for a mid-range phone. That's why I think we should produce a mid-range product with our level of security."

"Let's see if we can make a run of it. If not, we already started the software part of that business and maybe that will make the transition a bit smoother."

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