BlackBerry Ltd. BBRY 2.97 % ‘s plan to expand its mobile software and services operations helped the smartphone maker beat earnings expectations in its latest quarter, but a continuing slide in handset sales continued to drag revenue lower.
The Waterloo, Ontario-based company has been focusing on mobile-device software and services for governments and businesses to drive growth after falling behind in the consumer smartphone market.
Sales from BlackBerry’s software and services operations generated $ 166 million in the fiscal first quarter, up from $ 153 million in the previous quarter. BlackBerry, which surpassed its goal of $ 500 million in software and services sales in its last fiscal year, expects the segment to generate 30% revenue growth in the current fiscal year.
Still, a continued decline in handset sales weighed on overall revenue, which fell to $ 400 million in the quarter ended May 31 and missed both analyst and company expectations.
Since Chief Executive John Chen took the helm of BlackBerry in November 2013, he has focused on making the company’s hardware business profitable, while emphasizing its mobile software tools. To bolster its software business, the company has acquired a string of mobile security firms over the past year and released software updates aimed at email, mobile security and crisis communications in the cloud.
BlackBerry said more than 3,300 new and existing clients signed up for software offerings in the quarter. About 74% of the company’s software revenue in its recent quarter was recurring, it added.
“We’re very pleased with the momentum,” said Mr. Chen on a conference call on Thursday. “Our software business continues to achieve scale and traction, resulting in robust growth and increased market share.”
BlackBerry shares were recently up 2.7% at $ 6.92 following the release of results.
Analysts say the company’s Android-equipped Priv phone, a high-end phone that incorporates BlackBerry’s vaunted mobile security features alongside a bevy of consumer-friendly apps available on Google’s app library, hasn’t been a hit. And while BlackBerry hasn’t released Priv sales, Mr. Chen said that at $ 700, the device was too expensive for its customer base. A lower-cost Android-equipped device is expected to be launched later this year, he said.
The company sold about 500,000 handset devices in the latest quarter at an average selling price of $ 290, BlackBerry Chief Financial Officer James Yersh said on the call. Handset sales are down from 600,000 devices sold in the fourth quarter and 700,000 in the third quarter of fiscal 2016.
At the company’s annual meeting earlier this week, Mr. Chen said BlackBerry’s top objective for the year is to ensure the mobile-device business is profitable. He said on Thursday that the business segment should become profitable by the third quarter of the current fiscal year.
BlackBerry had an overall net loss of $ 670 million, or $ 1.28 a share, in its fiscal quarter ended May 31. Results included a number of one-time items, such as a $ 501 million charge for long-lived assets, which Mr. Yersh said included intangible hardware-related assets and fixed-royalty agreements. The company also took a $ 57 million goodwill impairment charge and a $ 41 million inventory-related charge.
Adjusted to exclude items, however, BlackBerry had a small loss of $ 1 million, or break-even on a per-share basis. That was better than the 8-cent loss analysts polled by Thomson Reuters expected.
For its current fiscal year, BlackBerry guided for an adjusted loss of about 15 cents a share, which is smaller than the Thomson Reuters mean estimate for a loss of 33 cents a share.
Write to David George-Cosh at [email protected]