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Earnings preview: Q1 will reveal the truth about BlackBerry as a service firm

It almost feels like a different era when people used to carry all those BlackBerry (BB) handsets that were dominated by its gigantic Qwerty keypads. When Steve Jobs launched “that strange thing with no buttons” in 2007 at Macworld conference, it also marked the beginning of a slow demise of BlackBerry’s legacy business. Now, as Apple (AAPL) celebrates the success of its 10th anniversary special iPhone X, BlackBerry has completely given up with the handphone business and is moving towards services space that holds more promise.

BlackBerry will be reporting first quarter earnings before the opening bell tomorrow and we are all ears. Non-GAAP revenues are expected to come in at about $211 million, down about 16-17% year-over-year with the legacy business oozing out its last few bucks. The decline is likely to be partially offset by the company’s new-found refuge in the Enterprise Software and Services segment, which started showing sparks of growth potential in the fourth quarter. The software and services business currently constitutes almost half of BlackBerry’s total earnings.

Blackberry's transition from handset maker to services firm
Blackberry’s transition from handset maker to services firm

Adjusted profits are, meanwhile, expected to drop to one cent per share from two cents in the year-ago period. However, the bottom line will hardly be what investors will be looking out for at the moment. If you recall, the company did manage to top market estimates in the fourth quarter by posting EPS of five cents per share versus analysts’ consensus of one cent per share. Yet investors sent the stocks down, which has remained relatively flat since then. The stock is up only 6.5% since the start of the year.

Investors would rather be looking for clues on BlackBerry’s revival plans, especially since the company has now positioned itself as a security-oriented brand. Security services is an area with massive growth prospects, thanks to the recent data leaks and privacy issues. Also, the company has now made entry into the telematics business, which is expected to be worth $28 billion in the next three years.

It also needs to be seen how CEO John Chen plans to use the former smartphone giant’s relatively large cash pile to spur topline growth and maintain profitability. The company has already been streamlining its operations over the past few years cutting millions in expenses. So it will need to explore alternative methods including acquisitions to resume making profits. BlackBerry had recently formed partnerships with Nvidia (NVDA) and Baidu (BIDU) to take on the connected automobile realm and more could be coming.

Related: Fourth-quarter earnings beat adds momentum to Blackberry recovery

A key area to be watched is its Technology Solutions segment, which houses the promising fleet management products including automotive operating system QNX and asset tracking system Radar. The segment saw a 34% growth in the prior sequential quarter. Though the growth might be slightly hampered by seasonality in Q1, this segment is expected to witness double-digit growth.

BlackBerry did lose out in its competition with Apple, but its focus is at the right spot now. Friday’s earnings will be a decider on how much success it has gained in its survival stint. Look out for key management comments on the projected growth trajectory and if everything sounds good, even an earnings miss might not be so bad.

Related: BlackBerry reports Q4 2018 earnings; loss narrowed but revenue slide


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