TORONTO: BlackBerry Ltd reported higher-than-expected quarterly earnings and raised its full-year forecast on Tuesday on growth in its higher-margin software business, sending its shares up by nearly three percent.
The Ontario-based company has gone through a big transition in recent years as it tries to build a software business not tied directly to its smartphones, which have lost ground in the iPhone and Android era.
Investors cheered the improved outlook and the growing role of the software business, which includes mobile device management products, the QNX automotive and industrial operating system, and a range of recent acquisitions.
BlackBerry said about 80 percent of its software and services revenue, excluding patent licensing and professional services, was recurring, requiring less spending and helping the company earn a record gross margin.
"That means as more revenue comes in, a higher percentage drops straight to the bottom line," said Morningstar analyst Ali Mogharabi.
Software and services now account for a majority of BlackBerry's total sales, after the company outsourced hardware production and as the system access fees it collects on older handsets decline.
"The part of the business that represents the future continues to show, I think, reasonably good progress," said IDC analyst John Jackson.
Software and services revenue rose to $160 million the third quarter ended on Nov. 30 from $155 million a year earlier, while hardware sales dropped to $62 million from $220 million.
Chief Executive Officer John Chen stuck to a 30 percent software revenue growth target for this fiscal year but cautioned moderation next year.
He said BlackBerry's new Radar fleet tracking service won a second customer, Titanium Transportation Group Inc.
BlackBerry is investing C$100 million ($75 million) in a new autonomous vehicle testing hub in Ottawa, which Chen said he expected to bring in revenue in 2018, and also hopes to build up its cyber security consulting practice.
Excluding special items, quarterly earnings of 2 cents a share beat analysts' expectations of a 1-cent loss, according to Thomson Reuters I/B/E/S. On that basis, BlackBerry forecast a profit for the year ending in February, up from a prior outlook of breakeven to a 5-cent loss.
Revenue fell to $289 million from $548 million in the quarter, below analysts' estimates of $331.9 million, while net losses widened to $117 million from $89 million.