BlackBerry still has to prove software progress despite Q1 promise

BlackBerry's software and technology license revenue was boosted by two patent deals. What remains to be seen is whether the core software sales continue to grow.

BlackBerry's first quarter seems to indicate that the company is turning the software corner and licenses and subscriptions can ultimately make up for a declining hardware business.

But there are a few good reasons to make BlackBerry prove its software chops in the quarters to come.

BlackBerry reported a non-GAAP loss of 5 cents a share in the first quarter on revenue of $658 million. Of that sum, 21 percent of revenue was software and technology licensing.

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On the surface, BlackBerry's software plan is working well. Software and technology licensing revenue was $137 million, up 150 percent from a year ago.

But here's the catch. BlackBerry inked a cross-licensing deal with Cisco and an unnamed company that wants to stay off the radar. Those deals appear to be lumped in with BlackBerry's software surge.

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In fact, BlackBerry Enterprise Server sales, which represent the bulk of software revenue, were up about 20 percent in the first quarter. Ditto for the fourth.

BlackBerry CEO John Chen and CFO James Yersh couldn't characterize the terms of the intellectual property deals. Some will be upfront payments and others will be ongoing. BlackBerry does expect future intellectual property licensing deals. Chen is targeting $500 million in fiscal 2016 software revenue.

What remains to be seen is how analysts parse the core software business, which is far more important than the hardware side of the company.The biggest items on BlackBerry's software to-do list go like this:

  • Transitioning BES 12 tryouts into paying customers.
  • Cementing BES 12 as a way to manage multiple mobile platforms. About 40 percent of BES 12 wins in the first quarter were multiplatform.
  • Fend off rivals who are bundling enterprise mobility management tools with other offerings. VMware, Microsoft and Citrix are all putting enterprise mobility management in a broader bundle.
  • Work the security angle for BlackBerry software.
  • Develop BlackBerry's indirect sales strategy. In the first quarter, BlackBerry worked channel partners for its software.
  • Convince customers to pay for BBM. BlackBerry is targeting $100 million in annual revenue for BBM, but Chen noted that the company still has a lot of work to do.
  • Position QNX as an Internet of things play. QNX had double digit revenue growth in the first quarter.

The bottom line: BlackBerry's first quarter had some positive developments, but software sales are going to be lumpy due to patent licensing deals. To get a true read on the software picture, BlackBerry is going to have to separate core application revenue from patent deals.

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