BlackBerry CEO says he’s considering acquisitions as part of growing business

By , on March 28, 2015

Photo by basrawii / Flickr
Photo by basrawii / Flickr

WATERLOO, Ont.—BlackBerry (TSX:BB) chief executive John Chen is on the hunt to acquire a security company, and may tap into some of his company’s growing cash reserves to make it happen.

The head of the Waterloo, Ont.-based technology firm told reporters Friday he’s looking to beef up the business by picking up a smaller operation that specializes in security.

The move comes as Chen considers the next steps in a turnaround strategy that so far has largely focused on cost reductions, launching new software services and forging new relationships with corporate customers and wireless carriers.

On Friday, BlackBerry reported a small profit in its fourth quarter, giving analysts a welcome surprise, even though its revenue figures still fell short of their expectations. The company, which reports in U.S. dollars, earned US$28 million or five cents per share compared with a loss of $423 million or 80 cents per share a year earlier.

The results were less impressive when it came to BlackBerry’s revenue, which includes sales of its phones and software services. Overall revenue dropped 32 per cent from a year ago to $660 million, significantly lower than analyst expectations for $786 million.

While Chen’s turnaround effort is still underway, the CEO said he needs to push forward with other plans that include building BlackBerry’s resources in areas of the business with growth potential.

“Now that we have a cash generation capability we’re going to invest,” Chen said. Part of than plan includes hiring more people at BlackBerry’s offices to help grow its software business.

“Acquisition is part of our strategy of this year.”

He declined to offer any more details on the companies that are in his sights, noting BlackBerry is still scouring the market for candidates and isn’t near actually signing a deal.

BlackBerry managed to add $608 million to its cash reserves, which sat at a record $3.27 billion at the end of the quarter. Some of that money will likely be spent on growth plans, Chen said.

BlackBerry went on a shopping spree last year to add to its slate of security technology services which are aimed at the business community and government.

The company acquired Secusmart, a German firm that uses voice and data encryption to prevent eavesdropping, and Movirtu Ltd., a manufacturer of virtual SIM cards that let users have more than one phone number associated with their device.

Cost management was a major focus of the most recent quarter, which ended Feb. 28, as BlackBerry pulled back expenses another 22 per cent to $424 million compared to the third quarter.

However, the popularity of BlackBerry phones is still fading across most regions. In the fourth quarter alone, sales of BlackBerrys dropped 38 per cent in North America, 23 per cent in Europe and by 29 per cent in the Middle East and Africa. In the Asia-Pacific region, where BlackBerry continues to enjoy strong popularity in some countries, sales dropped 14 per cent.

About 1.6 million BlackBerrys were sold to customers in the quarter, a figure that includes its Classic model, a throwback to its popular older smartphones with an updated design.

Software revenues are becoming a stronger area of growth, with sales rising 20 per cent to $67 million over a year earlier. However, software only makes up 10 per cent of overall revenue, while the hardware business represents 42 per cent. Service fees deliver most of the rest.

Chen has stated in recent months he wants BlackBerry to generate US$500 million of software revenues in the company’s new financial year, which began this month.

He has remained steadfast in plans to meet these targets, even as some analysts questioned whether it was realistic.

“I can execute it. I (may) stumble executing it, but I wouldn’t just straight-up bet against it,” Chen said.