BlackBerry misses Q1 forecasts, shares slide as services sales fall

By Narottam Medhora and Jim Finkle

REUTERS - BlackBerry Ltd posted first-quarter sales figures that missed analysts' forecasts due to an unexpected drop in its high-margin software and professional services sales, pushing its shares down as much as 13 percent in trade before midday.

The news troubled investors because growth in software sales, which is at the heart of Chief Executive John Chen's plan for turning the Canadian company around, dropped to $101 million in the first quarter, or 4.7 percent lower than a year ago.

The Waterloo, Ontario-based company is focused on expanding sales of software products, including to automakers and other manufacturers, after largely ceding the smartphone market to rivals including Apple Inc, Alphabet Inc's Google and Samsung Electronics Co Ltd.

"A lot of the newer markets BlackBerry is trying to position around are longer-term markets ... Managing short-term, quarter-on-quarter performance in light of that trajectory is going to be a challenge," said Nick McQuire, vice president for enterprise research at CCS Insight.

BlackBerry executives said on a conference call they expect software sales to grow this year in line with previous forecasts.

"It's going to be a more of a second-half growth, I think," BlackBerry Chief Executive John Chen said on the call, adding the company was comfortable that it would achieve 10 percent to 15 percent growth in software sales.

BlackBerry also said the first-quarter drop was due to a decline in professional services, which went from $27 million in the fourth quarter to "almost nothing" in the first quarter.

The decline was "surprising," said Morningstar Research analyst Ali Mogharabi. "You don't expect it from a company that's still in an early stage of enterprise software growth."

Chen said that analysts had not anticipated the drop in professional services when drawing up forecasts for the category that includes the closely watched, high-margin software sales segment.

Investors had high expectations going into BlackBerry's Friday report and the stock had gained about 60 percent since its last quarterly results in March through Thursday's close.

BlackBerry's U.S.- and Toronto-listed shares fell as much as 13 percent in earlier trading and are headed for their biggest respective one-day falls since January 2015.

The company reported revenue on adjusted basis of $244 million for the quarter ending May 31, missing analysts' estimates of $264.5 million, according to Thomson Reuters I/B/E/S. Profit in the same period totaled $671 million, or $1.23 per share, compared with a loss of $670 million, or $1.28 per share, a year earlier. (http://blck.by/2sJnsFS)

The quarter included a $940 million arbitration payment from U.S. chipmaker Qualcomm Inc.

"This is a big disappointment for the stock and likely to cast a pall on the sustainability of the turnaround," said Tim Ghriskey, chief investment officer with Solaris Asset Management who helps manage $1.5 billion.

"I feel like this could even be a buying opportunity for investors who are interested in this turnaround and the areas that they have moved into," Ghriskey added. His firm does not hold the stock.

Excluding items, the company earned 2 cents per share. Analysts on average had expected the company to break even.

The company also said it would buy back 31 million of its shares.

(Writing by Jim Finkle; Reporting by Narottam Medhora in Bengaluru; editing by Denny Thomas and G Crosse)