BlackBerry will end in-house phone design, focus on software

After posting a 32 percent drop in second-quarter revenue, BlackBerry is ending all internal hardware development, including its iconic phones.

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BlackBerry

BlackBerry announced on Wednesday it will cease internal hardware development, and instead, will focus on software and services, after failing to turn around its ailing mobile phone business.

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"The company plans to end all internal hardware development and will outsource that function to partners," CEO John Chen said in a statement.

BlackBerry posted fiscal second-quarter results on Wednesday that saw it move to a loss of $372 million, or 71 cents a share, from a year-ago profit of $51 million, or 24 cents a share. Revenue fell by a third to $334 million.

Chen previously said if he wasn't able to make the phone division profitable, it would be closed. As it moves away completely from its hardware business, BlackBerry will focus on its enterprise software suite and mobile security.

"We are reaching an inflection point with our strategy. Our financial foundation is strong, and our pivot to software is taking hold," Chen said. "In Q2, we more than doubled our software revenue year over year and delivered the highest gross margin in the company's history."

BlackBerry's second quarter revenue was 44 percent software and services, 26 percent service and access fees and 30 percent hardware.

On a conference call, Chen said:

We will focus all of our effort on where we can deliver differentiation in software and security. This plays into our strength and it's aligned with where the market is going.

By shedding the hardware business, Chen said it will cut capital spending and boost returns. For the fiscal year, BlackBerry said it will deliver 30 percent revenue growth for software and services with a loss of about 5 cents a share, up from a previous projection of 15 cents a share.

BlackBerry tried to save its phone business by switching from BB-10 powered devices to Android powered devices earlier this year. It launched a high-end smartphone designed internally, and an outsourced mid-tier smartphone manufactured by Alcatel.

Under its new structure, BlackBerry's first hardware partner is newly formed joint venture PT BB Merah Putih to license BlackBerry software and services for the production of handsets for the Indonesian market. Device specifics are unknown. On the joint venture Chen said the deal will bring BlackBerry a hardware portfolio that's more competitive without the costs.

BlackBerry also announced CFO James Yersh is stepping down for personal reasons and will be replaced by Steven Capelli, who most recently served as president of worldwide field operations at Sybase.

Shares of BlackBerry were up in pre-market trading.

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