BlackBerry Earnings Shine Light On Its Struggling Smartphone Business

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BlackBerry's service revenue climbed during the last three months, but not enough to stem the hemorrhaging of its hardware business.

BlackBerry is like a struggling phoenix attempting to rise from the ashes of its former self. The company flamed out brilliantly when its BlackBerry smartphone platform collapsed in the face of competition from Apple and Google.

In the years since its disintegration, BlackBerry has rebuilt pieces of itself, but is still mostly soot. The company's fiscal first quarter results, released Thursday, underscore the amount of ash clinging to the poor bird's feathers.

BlackBerry reported recorded a loss of $670 million for the quarter, which includes one-time charges. The company made more money from its services business, but saw a drop in overall business due to weakness in its smartphone business.

BlackBerry said its services business pulled in about $166 million, which is up from the $153 million it generated in the previous quarter. "Excluding IP licensing, we have more than doubled our software revenue on a year-over-year basis for the second consecutive quarter, driven by our EMM, secure messaging and QNX embedded software business," said BlackBerry CEO John Chen during a call with media.

The company's total revenue dropped from $464 million in the previous quarter to $400 million in the first quarter, which is far below the $471 million expected by Wall Street.

BlackBerry says if you take away the asset impairment charge of $501 million and drop an additional $57 million goodwill charge, and another $41 million inventory charge, it actually made a profit of $14 million. Right.

BlackBerry didn't say exactly how many smartphones the company sold, but said it "recognized revenue on over 500,000 devices" shipped during the quarter. That's down from the 600,000 to 700,000 that BlackBerry sold during the fourth quarter. The bulk of these sales can be attributed to the BlackBerry Priv, which runs Android rather than BlackBerry OS.

The drop in Priv sales is partly responsible for the $64 million quarter-over-quarter drop in overall revenue. BlackBerry cut the Priv's price from $699 to $649 in April. Today, the Priv sells for $549. BlackBerry has cut the price of the BlackBerry Passport, too, from $499 to $355. The devices simply aren't selling in big numbers.

The company has done a commendable job of cutting expenses. Based on its financial statements, the company is running with a skeleton crew, it would seem, and is doing so efficiently.

The improved services revenue is what Chen focused on in his remarks. "Our current plan calls for continued investments to expand our addressable markets and drive sustainable profitability and revenue growth," said the beleaguered CEO.

BlackBerry knows it can sell enterprise software to large business customers, but its smartphone business truly is on the way out. BlackBerry's marketshare is almost nil. (Microsoft's Windows Phone platform, for example, holds only 0.8% of the global smartphone market, according to IDC.) BlackBerry's share is lumped into the "other" category, which, combined with other platforms, holds a mere 0.3% of the market.

Chen has said repeatedly that he'll exit the hardware business if it can't generate a profit. That day appears to be closer than ever.

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