BlackBerry outsourcing smartphone design in strategic shift; shares up

By Alastair Sharp and Allison Martell

TORONTO (Reuters) - BlackBerry Ltd will outsource the development and design of its smartphones, a product category it helped pioneer and popularize, as the Canadian company bets on software and managing rival devices, it said on Wednesday.

Shares of BlackBerry rose about 6 percent in early trading, even as it reported a sharper-than-expected drop in quarterly revenue.

While some outsourcing of manufacturing had already occurred, the company will complete a full transition out of the hardware business by the end of the year, Chief Executive Officer John Chen said on a call with analysts.

It will instead take a royalty on devices sold by partners.

The company signed a deal with Indonesia's BB Merah Putih to manufacture, distribute and promote its branded devices in that country, its largest market for handsets. BlackBerry said it was also in late-stage discussions for a similar deal in China and working on several India initiatives.

"This is an entirely sensible decision and probably an overdue one," said IDC technology analyst John Jackson. "Software revenue and the margin profile associated with that is where the focus should have been, and now can be."

BlackBerry said software and services unit revenue was $156 million in its second quarter ended on Aug. 31, compared with $105 million for the device business.

The company said 81 percent of its software and services revenue in the quarter was recurring, an increase from the prior quarter.

Morningstar analyst Ali Mogharabi said Wednesday's news was reassuring even though some of the software and services revenue growth came from last year's acquisition of Good Technology.

BlackBerry said its Chief Financial Officer James Yersh would leave effective Oct. 1 for personal reasons, with former Sybase executive Steven Capelli replacing him.

The company reported a second-quarter net loss of $372 million, or 71 cents a share, compared with a year-earlier profit of $51 million, or 24 cents a share.

Excluding $147 million in charges from its reorganization and other one-time costs, the company said it broke even. On that basis, analysts had on average expected a loss of 5 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to $334 million from $490 million, missing analysts' estimates of $393.75 million.

The company raised its full-year earnings outlook to a range of breakeven to a loss of 5 cents a share, excluding special items, after refinancing its debt and as margins improved. It previously expected a 15-cent loss.

(Editing by Lisa Von Ahn)