The BlackBerry logo on the company's Waterloo, Ont., building in 2018.Andrew Ryan/The Canadian Press
BlackBerry Ltd. BB-T shares sold off Wednesday as the potential impact of tariffs and U.S. government spending cuts on its business weighed on the company’s outlook and overshadowed a better-than-expected quarterly earnings report.
The Waterloo, Ont.-based smartphone pioneer is now a software company focused on two areas. It provides operating systems used by automakers to run safety, security and performance systems as their vehicles become increasingly software-based. It is the dominant player in the space and its software is in more than 255-million vehicles. BlackBerry also sells secure digital communications products to large companies and governments.
The near-term outlook for both units is uncertain, BlackBerry chief executive John Giamatteo told analysts on a conference call Wednesday.
Mr. Giamatteo said the company’s automaker customers have not yet signaled any supply chain issues related to the ever-shifting threat of tariffs from U.S. President Donald Trump, “but as you can imagine it’s a very fluid situation.”
He added that while customers haven’t “raised the flag of a material downturn, it’s just everybody trying to read the tea leaves on where this thing is going” and what the impacts may be.
To that end, BlackBerry reduced the lower end of its forecast revenue range for its fiscal year that began March 1 from the vehicle software business, known as QNX.
After previously forecasting revenues of between US$260-million and US$270-million for the year, it moved the lower end of the range Wednesday to US$250-million. QNX generated US$236-million in revenue in its recently completed fiscal year and US$215-million the year before that. But BlackBerry held its earlier forecast that QNX would generate adjusted operating earnings of between US$55-million and US$60-million this coming year.
Meanwhile, BlackBerry’s other main unit, which includes mobile device management services and products used for secure and emergency communications, derives more than 20 per cent of revenues from the U.S. government.
Mr. Giamatteo said, “We have not seen any material impact,” from possible cuts related to the activities of the DOGE cost-slashing initiative that have torn though the U.S. government. He added that since BlackBerry provides secure, mission critical communications, “I think they’re very careful and cautious before they cut things like that. There’s a lot of other waste and things for them to focus on.”
BlackBerry forecast Wednesday it would generate US$230-million to US$240-million in revenue from the unit and adjusted operating earnings of between $34-million to US$44-million in its new fiscal year.
Overall, the company’s revenue and profit forecasts for the first quarter and the year were below analyst expectations. BlackBerry’s stock opened down 17.7 percent before clawing back more than half the lost ground by the afternoon.
The near-term uncertainty muted the results of a transformative year for BlackBerry under Mr. Giamatteo, a veteran, American-born technology executive who replaced John Chen in December, 2023, after serving as a divisional president.
Under Mr. Giamatteo’s watch BlackBerry has cut more than US$150-million in annual costs and thinned its ranks – leaving its QNX division largely untouched – in part by selling its money-losing Cylance cybersecurity business that BlackBerry had purchased in 2018 for US$1.4 billion. That deal, the biggest in BlackBerry’s history, was meant to cement Mr. Chen’s legacy after the company exited the smartphone business to focus on software and services. But Cylance became a cash-sucking anchor.
The divestiture netted BlackBerry just US$120-million in cash plus shares in the buyer, Arctic Wolf Networks Inc., valued at US$24.6-million. BlackBerry also solved an overhang on the stock in January, 2024, by selling convertible notes to buy back US$150-million worth of convertible debentures that were about to come due. The stock spiked earlier this year to US$6 a share before retreating. Despite the sell off Wednesday the stock is still up 38 per cent over the past year.
BlackBerry reported better-than-expected fourth quarter results Wednesday in all three of its business lines.
Revenues from QNX and the secure communications units were US$65.8-million and Us$67.3-million, respectively, while its business of securing licenses from other parties for using its intellectual property brought in $8.6-million. Overall revenue was US$141.7-million, nearly $9-million higher than consensus analyst forecasts. Adjusted operating earnings – a non-GAAP measure that is closely followed by investors – were US$21.1-million, higher than the company’s forecast range, as was adjusted net income per share, at 3 US cents per share. Its net loss was US$7.4-million (1 cent per share).
The cost cutting, refinancing, and divestiture have transformed BlackBerry’s financial situation. After previously bleeding cash, BlackBerry has started generating positive operating cash flows and ended the fiscal year with total cash and investments of US$410-million. Chief financial officer Tim Foote forecast BlackBerry would add US$75-million cash to its balance sheet this year, providing it “with significant optionality.”
Some analysts have suggested BlackBerry could fund a stock buyback or sell all or part of its slower-growing but stable and profitable secure communications business. Mr. Giamatteo has indicated QNX is clearly the company’s focus; the unit this year is looking this year to expand into non-automotive markets including robotics and medical devices.