Don't Look Now, but BlackBerry Might Not Be Dead After All

Whenever the conversation in the financial media turns to BlackBerry Limited an abundance of opinion inevitably follows. Depending on who you ask, BlackBerry is either a zombie company experiencing the death rattle of its final days, or a wondrous turnaround story on the brink of a magnificent comeback.

Critics contend that the company's hardware business is nonexistent, noting its dwindling market share. Indeed, it's true that the hardware side of the business is essentially a duopoly, controlled almost entirely by giants Apple and Samsung .

But BlackBerry's loyal enthusiasts claim the company is making great strides in hardware internationally. And, the company is developing its services business, where it still has a competitive edge. Plus, a few billion in cash on the books doesn't hurt.

While those on each side of the BlackBerry debate are likely entrenched in their opinion, at least for one quarter, the bulls appear to be on top.

BlackBerry's less-than-awful quarter
When a company collapses as far and as quickly as BlackBerry did, it doesn't take much to inspire a short-covering rally. Putting up a quarterly performance that simply proves you haven't gone out of business is usually enough to see a knee-jerk rally.

To be sure, BlackBerry still posted a year-over-year decline in revenue, and lost money after excluding a debenture fair value adjustment and a sizable restructuring charge. Loss in terms of diluted earnings clocked in at $0.37 per share in the first quarter, which is more than double the loss from the same quarter one year ago.

But sequentially, BlackBerry improved. The company's net loss shrank versus the prior quarter. And, separately, BlackBerry is showing several signs of a turnaround.

Its cash position grew to $3.1 billion, up from $2.7 billion one quarter prior. Gross margin expanded five percentage points from the previous quarter, thanks to BlackBerry's massive cost cuts. The company has virtually cut costs to the bone, which is what's really driving the profit improvement. Management slashed operating expenses to $421 million last quarter, down 60% from over $1 billion in the fourth quarter.

Product mix and new markets to fuel BlackBerry's turnaround
BlackBerry's turnaround hopes are highly dependent on its product shift, and its growth in the emerging markets.

BlackBerry's hardware presence is shrinking rapidly, particularly at the consumer level. Technology tracking firm IDC expects that the Android and iOS operating systems will collectively control 95% of operating system market share this year. Clearly, Samsung and Apple are the major vendors contributing to this. By contrast, IDC projects BlackBerry's market share to be below 1%, at just 0.8%. And, by 2018, IDC estimates BlackBerry's share will dwindle further, to just 0.3%.

Fortunately, BlackBerry is building a strong presence in services, which actually comprises the majority of its revenue now. BlackBerry derived 54% of its revenue from services last quarter, compared to just 39% from hardware.

And, BlackBerry has ambitious plans to grow in new geographies. BlackBerry recently launched the new Z3 device in Indonesia, with eight additional countries to come. This fuels management's forecast to break-even on cash flow by the end of the fiscal year.

BlackBerry's turnaround is off the ground, but far from complete
BlackBerry has plenty of fans and critics alike. Those who contend the company is dead have plenty of ammunition for their argument. BlackBerry is still declining, as Samsung and Apple have basically devoured the smartphone industry.

But the past quarter did show signs of progress that need to be acknowledged. BlackBerry's results came in much better than expected. The company is doing well in services and is set to embark on an ambitious growth strategy in new markets.

Whether BlackBerry's comeback is for real remains to be seen. Its performance in the past quarter may turn out to be a flash in the pan, but for now, BlackBerry still has a pulse.

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The article Don't Look Now, but BlackBerry Might Not Be Dead After All originally appeared on

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