BlackBerry's software revenue in focus for earnings as new photo of Android phone leaks

BlackBerry (NASDAQ:BBRY) reports results for its second fiscal quarter tomorrow, and the company's progress on growing its software revenue will again be in focus, as it was last quarter, with some analysts skeptical that BlackBerry can grow enterprise software sales as much as it hopes this year. Meanwhile, a new photo and details of BlackBerry's rumored phone running Google's (NASDAQ: GOOG) Android platform leaked online.

BlackBerry has a goal of achieving $500 million in software sales this fiscal year, which runs until the end of March 2016, and in its first fiscal quarter the company reported software and technology licensing revenue of $137 million, a 150 percent increase year-over-year and much higher than analysts had expected

In a research note, Wells Fargo analysts Maynard Um, Munjal Shah and Jason Ng noted that after its reported earnings in June, BlackBerry said it expected software revenue growth of "more than 20% year-over-year" in the second fiscal quarter.

"We note that software revenue last quarter was up 154% but, excluding technology licensing, was only up over 20% year-over-year and "decreased slightly" sequentially," they said. "If we assume the slight sequential decrease implies $70 million last quarter (down 5%), BlackBerry would have to achieve almost 43% sequential growth to hit Street consensus of $100 million (we estimate $75 million, up 21% year-over-year)."

They think Wall Street's expectation of BlackBerry hitting $100 million in software revenue in the fiscal second quarter, which would be up 61 percent year-over-year, "may be optimistic."

The analysts added that "while it is conceivable BlackBerry could have signed additional intellectual property (IP) licensing deals in the quarter, we believe making this assumption is aggressive given limited visibility."

Raymond James analyst Steven Li is recommending investors stay on the sidelines unless BlackBerry shows better enterprise software sales, according to the Financial Post.

He said BlackBerry's better-than-expected software results in the first quarter was the result of IP licensing agreements with Cisco Systems and another unnamed company. Excluding those deals, Li estimates that revenues for the core software business were about $67 million, roughly the same as the previous quarter.

In terms of hardware revenue, the Wells Fargo analysts expect sales of $236 million, "given the limited rollout of new devices versus the Street's flat sequential estimate of $263 million. We model operating expenses of $342 million (in line with guidance for a slight increase versus the Street at $336 million, down 0.6% sequentially)."

The analysts forecast an earnings per share loss of 21 cents, below the Street's estimate for a loss of nine cents, and expect BlackBerry CEO John Chen and other members of the company's management team to reiterate the company's fiscal 2016 targets of profitability, positive free cash flow and revenue stabilization, including $500 million in software revenue.

The results also come weeks after BlackBerry announced it would buy longtime mobile enterprise rival Good Technology for $425 million, a move that would combine the world's second and third largest suppliers of enterprise mobility management software and would roughly double BlackBerry's market share in the space. The action also will likely simplify the sales enterprise process for wireless carriers; most U.S. carriers resell enterprise mobility management products from both companies.

Via its acquisition of Good, BlackBerry will gain Good's 6,200 corporate customers and the company's expertise in iOS products. Indeed, fully 64 percent of the devices that Good's customers activate on its service run Apple's iOS software. 

The Good acquisition could help BlackBerry achieve its goal of hitting $500 million in software revenue this fiscal year, but as RBC Capital markets analyst Mark Sue told the Financial Post, "it's not how some thought BlackBerry would get there."

"BlackBerry is blocking and tackling well near term, delivering cost reductions and launching products on time," Sue said. "It's hard to cut your way to glory and management is looking for software revenues to offset declines in high margin service revenues."

The Wells Fargo analysts expect BlackBerry to release new phones, which will help improve hardware revenue in the fiscal third quarter, and they estimate the company will have $268 million in hardware revenue that quarter, improving to $345 million in the fiscal fourth quarter.

According to both N4BB and Evan Blass, also known as @evleaks, BlackBerry's Android-based phone, which has been dubbed "Venice" in various leaks, will be released as the BlackBerry Priv, presumably due to its privacy features, Engadget notes. Evleaks also revealed a new stock photo of the phone, which is expected to sport a slide-out physical Qwerty keyboard with a curved screen and an 18-megapixel camera. The phone is also expected to have a Qualcomm (NASDAQ:QCOM) Snapdragon 808 processor, sports a 5.4-inch QHD LCD screen and comes with 3 GB of RAM. BlackBerry will reportedly release the phone in November with the support of all four Tier 1 carriers, according to Evleaks.

For more:
- see this Financial Post article
- see this Barron's article
- see this Engadget article

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