BlackBerry's Chen: We'll exit the smartphone biz in a year if we can't make it profitable

BlackBerry (NASDAQ:BBRY) CEO John Chen said the company would consider getting out of the smartphone business in a year if it's not making money selling phones. Chen had previously said that he would consider exiting the handset business if it was not profitable, but had not given a timeframe for doing so.  

Speaking yesterday at Re/code's Code Mobile conference, Chen said that even though the company is going to release a phone later this year with wide carrier support called the Priv that runs on Google's (NASDAQ: GOOG) Android platform and includes BlackBerry's security enhancements, the  "business case" would determine whether the firm would make any subsequent devices.

"I'm in the handset business because I believe there's value added and a market that is underserved," Chen said.

The hardware business needs to turn a profit next year, he said. "Otherwise, I have to think twice about what I do there," Chen added. BlackBerry has cut an unspecified number of hardware jobs this year in an effort to trim costs and has moved some hardware workers over to its software division, where the firm has placed much more emphasis under Chen.

Chen told The Verge that he aims to sell 5 million smartphones a year, which will be the level the company needs to make the handset business profitable. In its most recent fiscal quarter, BlackBerry recognized revenue on just 800,000 devices in the quarter, or a third of the number from a year ago.

According to The Verge, Chen wouldn't commit to saying that the firm will not roll out another BlackBerry 10-based device, but he did note that the market for BB10 devices has been basically for high-security use cases, such as governments and hospitals. BlackBerry will continue to support those customers with software updates, according to The Verge, but those customers do not upgrade their phones that often.

The financial picture for BlackBerry is mixed. BlackBerry recorded a net profit of $51 million for its fiscal second quarter, which ended Aug. 29, compared to a net loss of $207 million a year ago. However, that was helped by one-time items and without those the company actually lost $66 million, or 13 cents a share. Analysts had projected a loss of 9 cents a share, according to the average of 22 estimates compiled by Bloomberg.

More worryingly, BlackBerry said quarterly revenue fell 46.5 percent year-over-year to $490 million in the period, well below the expectation of $611 million, according to an average estimate of analysts compiled by Thomson Reuters. BlackBerry posted non-GAAP software and services revenue of $74 million, a 19 percent jump from a year ago and driven by 33 percent growth in software licensing revenue. The revenue breakdown for the quarter was approximately 15 percent for software and services, 41 percent for hardware, and 43 percent for service access fees, the first time that category had surpassed hardware.

For more:
- see this Re/code article
- see this CNET article
- see this The Verge article

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