BlackBerry shares fall as doubts on software revenue emerge

Initial elation undermined by uncertainty over how much came from recurring revenues, versus one-time licensing payments

BlackBerry shares fell on Tuesday as doubts surfaced about the sustainability of the sharp growth the former smartphone pioneer reported in crucial software revenues, an area BlackBerry's CEO said he will augment via acquisitions.

The company's shares were down 3.5% in afternoon trading. They had risen 8% before the market opened after BlackBerry reported first-quarter results that showed a more than 150% rise in software and licensing revenues to $137 million.

Initial investor elation over that growth, however, was later undermined by uncertainty over how much came from recurring revenues, versus one-time licensing payments.

As the Waterloo, Ontario-based company transforms from being a hardware-driven smartphone maker to a more software-focused entity, all eyes are on the growth it gets from its core device management platform BES12, which manages and secures all manner of traffic on Android, iOS, Windows and BlackBerry devices.

"When the headline hits, you say 'wow they really blew out that software number, good for them, they're starting to get some traction'," said BGC Partners analyst Colin Gillis. "But, of course, it's not truly $137 million because there is some licensing in there."

BlackBerry said two new licensing deals, one with Cisco Systems Inc and one with an unnamed party, made a "significant contributions" to software revenue in the quarter, but it did not disclose the terms of the agreements. It was also not clear how much they would boost revenue in future quarters.

On a conference call, analysts grilled the company on its business and Chief Executive John Chen vowed to follow up with more details. Chen later told media that overall software revenue growth was roughly around 30% year-over-year. However, it was still not clear what%age of the $137 million in software revenue was recurring in nature.

ACQUISITION GROWTH

Chen, who has said he aims to expand software revenue to $600 million in the current fiscal year, said some of that growth is set to come from acquisitions.

"I'm not done with acquisitions," he told media after the company's annual shareholder meeting in Waterloo on Tuesday. "There are capabilities we are (looking for). Some of them are technical capabilities, some of them are (sales) channels, some of them are applications. But they will all centre around everything I talked about: security, privacy and the Internet of things."

BlackBerry has already made some strategic acquisitions of companies such as Secusmart, Movirtu and WatchDox that have allowed it to expand its value-added service offerings.

Chen said he is committed to having a hardware business for now and said he'd like to see BlackBerry's device revenue expand again. He refused to confirm a Reuters report that the company will develop an Android device, but he said: "If I can secure Android, I will make an Android phone. If I can't, then I won't."

BlackBerry said it has signed partnership deals with manufacturers Wistron and Compal Electronics, extending its reliance on others for joint development and manufacturing of its devices as it aims for profitability in its handset business. It already has a deal in place with Taiwanese electronics company Foxconn Technology.

Excluding a one-time accounting gain and charges related to restructuring, the company reported a first-quarter loss of $28 million, or 5 cents a share. Analysts, on average, had expected a loss of 3 cents a share, according to Thomson Reuters I/B/E/S.