After more than two years of restructuring, BlackBerry Ltd. BB-T chief executive officer John Giamatteo declared Thursday that chapter in the company’s life is over.
After posting stronger-than-expected fiscal fourth-quarter earnings and laying out a rosy outlook for the new year, BlackBerry is “back to being a growth company,” he said in an interview.
Mr. Giamatteo didn’t mean the kind of meteoric growth BlackBerry had as it popularized the smartphone in the 2000s. But its sturdy performance and forecast breathed life into the stock.
The Waterloo, Ont., company said revenue for the quarter ended Feb. 28 was US$156-million, up 10 per cent year-over-year. That exceeded analyst consensus expectations by US$10-million and BlackBerry’s prior guidance.
Operating earnings increased by 71 per cent, to US$36.1-million, 24-per-cent above consensus analyst expectations. Adjusted earnings of 5 US cents per share exceeded expectations.
It was the third time in four quarters that BlackBerry had posted a net profit, after not doing so for three years. BlackBerry stock traded as much as 14.4-per-cent higher Thursday before closing at US$3.82 a share on the New York Stock Exchange, up 8.2 per cent.
“We promised to turn around, to transform BlackBerry into a profitable growth company, and I’m pleased to report that we’ve done exactly that,” Mr. Giamatteo said on a conference call with analysts.
The Canadian technology stalwart has been on a roll under Mr. Giamatteo, who became CEO in late 2023 after serving as head of its cybersecurity division under predecessor John Chen. On the Dallas-based CEO’s watch, BlackBerry has slashed costs, sold a money-sucking cybersecurity unit and achieved positive operating cash flows.
He also refocused the company on its car software business, QNX, a dominant supplier of embedded systems used to manage software-defined vehicles, a market that is growing as more new cars roll off the line with autonomous and driver-assistance functionality such as lane keeping.
QNX fourth-quarter revenues increased by 20 per cent, to US$78.7-million, and it generated an operating profit margin of 27 per cent. Software makers that deliver a revenue growth rate plus operating margin of 40 are considered top performers. By that measure, QNX was at 47, and 40 for the year. The backlog of QNX royalties, booked when manufacturers sell products with its software, is now US$950-million, up 9.8 per cent.
QNX is expected to deliver brisk growth by seeking new markets for its software embedded in robots, automated industrial applications and medical devices and equipment. The unit is also introducing software functionality to its vehicle offerings this year that could generate “many multiples” of revenues QNX already derives from those customers, Mr. Giamatteo told analysts.
John Wall takes the wheel at BlackBerry’s QNX car software unit
BlackBerry’s results were also driven by surprisingly strong performance in its secure communications unit, which had been generating solid operating earnings despite declining revenues. Revenue for the unit was US$72.5-million in the quarter, up 8 per cent year-over-year. That is much better than BlackBerry’s forecast in December, when it said the unit’s revenue could decline by as much as 10 per cent.
Mr. Giamatteo said growth in that unit, which sells ultra-secure messaging and crisis management communications products, was driven by geopolitical factors, notably concerns over digital sovereignty. “We’re seeing a lot of customers around the world say, ‘You know what, I’m not going to rush to throw everything’” onto cloud computing infrastructure managed by U.S. tech giants, he told The Globe and Mail.
Instead, customers are favouring keeping their data on their own servers. One in Europe even reversed plans to leave BlackBerry to sign with a U.S. cloud provider. Some have recommitted to long-term contracts with BlackBerry, including the Canadian government. BlackBerry forecast secure communications revenue will increase by 4 cent or more this year, as it generates operating earnings of US$57-million-plus. QNX revenue is forecast to increase by up to 14.6 per cent.
Overall, BlackBerry expects revenue of US$584-million to US$611-million in the new fiscal year, up 6 per cent to 11 per cent, compared to 2.7-per-cent growth last year. BlackBerry expects to generate US$110-million to US$130-million in adjusted operating earnings, up from US$107.1-million last year, and to double operating cash flow, to US$100-million.
Mr. Giamatteo addressed market concerns about the threat of artificial intelligence to software companies. He said carmakers don’t want probabilistic generative AI in their critical safety systems but rather deterministic algorithms that deliver “the same result, every time.” Secure communications products, he noted on the conference call, sell into “mission critical, highly sensitive environments” where vendors must be certified and develop deep customer relationships.
Some analysts expect BlackBerry will eventually sell the slower-growing secure communications unit and focus on QNX. Mr. Giamatteo said he’s in no rush to do so, but added, “now it’s probably more attractive for people to come look at it” and that BlackBerry would consider ”a compelling offer.”
CIBC analyst Capital Markets analyst Todd Coupland said in an interview the unit’s performance “gives them optionality on what they want to do.”