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It’s getting more difficult by the day to ignore signs that John Chen’s turnaround plan is firing on all cylinders for the once embattled smartphone maker, but one analyst says investors are overlooking an important and promising tidbit; their software business.
BlackBerry Ltd. (BB.TO)(BBRY.O) is riding a recent wave of good news. Chen met with the heads of Xiomi Corp. and Lenovo Group Ltd., two of the largest mobile players in China - the biggest smartphone market in the world - to discuss potential partnerships Monday. Shares closed up 5.78 percent. Last Friday, the Ontario Teachers’ Pension Fund bought almost 7.8 million shares. A 1.6 percent stake valued at $84.5 million and an important vote of confidence that pleased investors.
“I’m stunned at what I’m seeing. Everybody is still focused on the hardware,” said Peter Misek, a venture partner at DN Capital in an interview with BNN.
He says Chen’s goal to double software revenue by the end of fiscal 2015, from $250 million to $500 million, is already building momentum.
“It’s pretty exciting for them in that they are actually seeing traction among enterprise. As we talk to big CIOs, they are really showing up again,” said Misek.
BlackBerry’s Enterprise Service securely manages mobile phones across the BlackBerry, and rival Android, and iOS platforms, allowing users to separate work and personal content. Blackberry is expected to release BSE 12 by the end of the month.
Software revenue decreased 12.5 percent or $8 million in the third quarter of fiscal 2014 to $56 million, compared to $64 million a year earlier, amounting to just 4.7 percent of overall revenue. But Chen made it clear on the company’s most recent earnings call that he plans to make changes.
“It’s our plan to aggressively shift our software business from the perpetual license to a subscription base,” said Chen on the call. He noted that while this shift to subscriptions will yield lower revenue in the short term, the subscription model will produce “more respectable revenue in future quarter.”
Chen expects at least 10 million to join the next fiscal year. The free trial of BES 10, called EZ Pass, is widely expected to expire on Feb. 1 for 3.4 million subscribers.
“On that day, roughly two to three times the number who they are currently charging will start to pay, hopefully. You could see software revenues more than double,” said Misek.