BlackBerry: Chen Has Failed

| About: BlackBerry Ltd. (BBRY)

Summary

BlackBerry released Q1-17 results yesterday.

The smartphone company said that sales in its Mobility Solutions business, which includes the sale of BlackBerry phones, slumped 43.5 percent Y/Y.

BlackBerry sold only 0.6 million smartphones through to end customers in Q1-17.

Chen will come under increasing pressure to step down.

Earlier this week I penned a piece on embattled smartphone maker BlackBerry (NASDAQ:BBRY), in which I announced that I was selling 50 percent of my position in the tech company for lack of sustainable restructuring progress. In this article, 'titled "Time To Throw In The Towel?", I mentioned BlackBerry's unmitigated problems in its hardware unit that moved the needle for me:

BlackBerry will report Q1-17 results this week, and another drop in hardware revenues must be expected given the streak of losses in the past. The disappointing state of the restructuring is a key reason for me to sell 50 percent of my BlackBerry position, even though I was quite optimistic given Chen's restructuring credibility and a series of acquisitions that served to enhance BlackBerry's security offerings.

BlackBerry reported Q1-17 results yesterday, and results were not great, expectedly. BlackBerry said it pulled in non-GAAP earnings per share of $0.00, beating consensus earnings estimates by $0.08. However, the company's revenue split revealed a rather sad picture.

BlackBerry's Mobility Solutions revenues, which include revenues from BlackBerry smartphone sales, slumped 43.5 percent, or $117 million Y/Y to just $152 million. A year ago BlackBerry pulled in $269 million in revenues. The stark decline in Mobility Solutions revenues extends BlackBerry's streak of losses in its once dominating core business, and it raises some serious questions for John Chen, BlackBerry's Chief Executive Officer.

BlackBerry's Service Access Fees revenues dropped a whopping 57.9 percent Y/Y, or $146 million to $106 million. SAF revenues hit $252 million a year ago. The decline in SAF revenues was driven by a lower number of BlackBerry 7 users and lower associated revenues.

At the end of the day, BlackBerry's total revenues decreased 35.6 percent Y/Y, or $234 million to $424 million, even though BlackBerry's Software & Services revenues increased 21.2 percent, or $29 million Y/Y to $166 million in the 1st quarter.

Chen Has Failed

John Chen came to BlackBerry in 2013, and started off strong, announcing new sales initiatives, cost saving programs, new partnerships, and acquiring a bunch of companies. However, it is about time to make an honest assessment about BlackBerry's core challenge: To stop brutal revenue losses that have plagued the company even under John Chen.

While Chen has made some progress, he has without a doubt failed to turn things around, or find a solution for the company's troubled hardware business. Unfortunately, there is no solution just yet, and BlackBerry's revenue base continues to slide. In the last quarter, BlackBerry has sold only approximately 0.6 million smartphones through to end users...in the 1st quarter of fiscal 2016 the company sold 1.3 million smartphones. Chen has failed, and must step down.

Your Takeaway

Yesterday's 1st quarter results demonstrated BlackBerry's problems once again. The continued slide in Mobility Solutions and SAF revenues underscores that Chen has failed to turn BlackBerry around, or find suitable alternative solutions for dealing with the persistent decline in hardware revenues (read, a sale). Unfortunately, I can find few good things in BlackBerry's earnings release. To be honest, I have had enough after this quarter of revenue declines, and I am going to sell out of my existing BlackBerry position soon.

Disclosure: I am/we are long BBRY.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.