A few months after being named chief executive of BlackBerry (BBRY) in 2013, John Chen declared on Bloomberg TV that he wasn't "crazy" to take on the seemingly impossible task of breathing new life into a company many Wall Street analysts had given up on years ago.
Now, some financial pundits think his turnaround strategy is starting to work, as evidenced by the strong performance of BlackBerry's software business in the latest quarter.
The 60-year-old native of Hong Kong had been in tight spots before. Many on Wall Street wrote off his former company, Sybase, before he became CEO. But he managed to turn around Sybase and arrange for its sale to SAP (SAP) for $5.8 billion in 2010.
After coming out of retirement to run BlackBerry, Chen outlined an eight-quarter turnaround plan involving outsourcing manufacturing and focusing on the higher-margin software business. Software and technology licensing revenue surged 153 percent in the most recent quarter on a year-over-year basis to $137 million.
Overall revenue fell to $658 million, down 32 percent from $966 million a year earlier. Excluding one-time costs, BlackBerry reported a loss of $28 million, or 5 cents per share, versus a loss of 11 cents a year earlier. The results lagged Wall Street expectations, and BlackBerry shares fell 4.24 percent, or 39 cents, to $8.81 in Tuesday trading. Nonetheless, analysts expect that better times lie ahead for BlackBerry.
"BlackBerry's turnaround has been an uphill battle for some time," Richard Tse, an analyst with Cormark Securities, wrote in a note sent to clients before the earnings were released. He rates the shares as a "buy."
"But despite the intense competition and lack of visibility," he added, "the short-term actions have been positive in streamlining the operations and focus. We believe a shift toward enterprise cloud presents a sizable revenue opportunity should this team execute. While there is much risk, we believe the potential reward outweighs it."
Chen was was recognized for the progress he's made by landing as the runner-up last year in CNN's CEO of the Year competition, losing to Apple (AAPL) CEO Tim Cook. Before Chen arrived, BlackBerry had announced a $1 billion writedown of its new phones and plans to shed 40 percent of its workforce. To top things off, BlackBerry had called off plans to sell itself after failing to find a buyer.
Although BlackBerry now longer dominates the smartphone market as it once did, it has released a plethora of new handsets including the Classic, which is modeled after the Bold, the company's best-known product. Another new product called Leap is designed to appeal to corporate and professional users. The square-screened Passport debuted last year.
BlackBerry recognized revenue on 1.1 million devices as the company's average sales price jumped 13 percent in the quarter to $239. The Passport and Classic reported solid results in the quarter, while it was too early to have results from Leap because it only recently reached the market. Sales of the new devices were growing at a slower-than-expected rate, according to Scotia Capital analyst John Chan.
"We previously expected a full quarter of Classic and Passport availability in the U.S. would drive significant handset volume increases in the quarter," wrote Chan in a note to clients before earnings were released. "As we've stated in the past, smartphone sales follow the pattern of movie tickets where the vast majority of the volume is sold soon after launch. While this may be true for consumer devices, we believe devices targeted at enterprises and government, such as the Classic, may take a much longer time to ramp."
If that ramp-up happens and BlackBerry's software business keeps gaining strength, Chen may yet make it to CEO of the Year.