BlackBerry Targeting Hardware Business Breakeven by Fiscal 2016

The company, which for years lost money on hardware, signed new manufacturing agreements with Foxconn and Wistron last year, replacing Jabil Circuit as its primary supplier. The first fruits of the new pact with Wistron are expected to arrive this spring with shipments of a new version of the Bold smartphone based on the BlackBerry-7 operating system, Chen said. The Bold, which will retail in international markets for about $200, will ship first in Indonesia, he said.

Releasing a new Bold underscores continuing demand for BlackBerry’s original operating system, which remains a strong seller in emerging markets due to a lower price than BlackBerry-10 based models. Most of BlackBerry’s fiscal Q4 shipments were BlackBerry-7-based models. BlackBerry sold 3.4 million smartphones to consumers in fiscal Q4, 2.3 million of which had BlackBerry-7 software, the company said.

The new Bold is expected the lead the way for BlackBerry’s lower priced models, which will include the Z3 and Q20, the latter being dubbed the “classic” for its featuring a QWERTY keyboard and track pad. The Z3, which runs on the BlackBerry 10.2.1 operating system, contains a five-inch display with 520 x 960 resolution, Qualcomm’s dual-core 1.2 GHz Snapdragon processor, 1.5 GB RAM, 8 GB storage and a 2,650 milliampere battery. It also has five-megapixel front- and 1.1-megapixel rear-facing cameras. The first Z3 will be a 3G-based model, but BlackBerry will add an LTE version, Chen said. It plans to ship the Z3 in international markets including India and Thailand, Chen said.

"I have no intention of losing money on handsets,” Chen said. “Volume isn’t a concern, but gross margin is. We are very happy with the way things are working out with Wistron and Foxconn. At least with this run” of BlackBerry-7 devices “won’t be selling at a loss,” he said. But at the same time, the new Bold won’t be “material” to BlackBerry’s business, Chen said.

With the Classic Q20, BlackBerry will have a QWERTY keyboard, the BlackBerry-10 operating software and a 3.5-inch LCD screen. With the Q20, BlackBerry is aiming to slow the shift of subscribers to other platforms, while also luring new customers away from its competitors, Chen said. With Q20, which is due later this year, BlackBerry customers are “considering pausing before getting off our platform,” Chen said.

The arrival of new models is being coupled with the release in October of BlackBerry Enterprise Service-12 (BES12), a mobile enterprise platform that ties together BES10 and BES5, Chen said. The application-based platform is backward compatible with earlier BlackBerry software and adds support for Microsoft Windows 8 in addition to Apple’s iOS, Google’s Android and BlackBerry-10, company officials have said. BlackBerry’s new EZ Pass program that allows customers a free upgrade to BlackBerry-10 from BES and competing mobile device management (MDM) platforms, has received 100,000 hits on its website since launch earlier this year. About 1,900 people have registered on the EZ Pass website for additional information, Chen said. BlackBerry Messenger had 85 million “active” users March 1, up from 80 million in the previous quarter, and a total of 110 million registered, Chen said. BlackBerry Messenger 2.0 was released in February and the service has expanded to 500,000 “channels,” including the recent additions of Virgin Atlantic Airways and CNBC, from 200,000 last fall, Chen said.

BlackBerry’s Q4 net loss narrowed to $423 million from $646 million a year ago as revenue sank to $976 million from $2.6 billion a year earlier. Sales in North America plunged to $297 million from $587 million a year ago, while those in Europe, Middle East and Africa (EMEA) dropped to $412 million from $1.22 billion. The reduced loss came despite BlackBerry taking a $148 million pre-tax restructuring charge, including $110 million for selling, marketing and administration, company officials said. There also was a $382 million pre-tax charge owing to a fair value adjustment on its convertible bond, the company said. It also recorded a $149 million pre-tax inventory recovery, indicating that BlackBerry products sold better than expected. BlackBerry took $1.6 billion and $934 million inventory charges in Q3 and Q2, the company said.

BlackBerry’s Q4 hardware revenue slid to $361 million from $1.63 billion a year earlier amid sluggish sales of the Z10 as shipments fell to 1.3 million units from 1.9 million in the previous quarter and 6.4 million last year, the company said. The average selling price for hardware declined to $251.16 from $256.45, the company said. BlackBerry’s gross profit dropped to $553 million from $1 billion, while the gross margin improved to 56.7 percent from 33.9 percent, the company said. BlackBerry’s total operating expenses fell to $1.09 billion from $1.21 billion as selling, general and administrative costs shrank to $355 million from $673 million, the company said. BlackBerry’s Q4 inventory declined to $244 million from $603 million.