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BlackBerry results paint a bleak future for its phones

The continued slide in sales is just the latest bit of bad news for the embattled phone maker.

BlackBerry's earnings report gives a grim outlook on its phone business.
BlackBerry's earnings report gives a grim outlook on its phone business.

The clock is ticking on BlackBerry's phone business, and it looks like time is almost up.

BlackBerry CEO John Chen has repeatedly vowed to exit the phone business if it continued to be unprofitable. If Chen sticks to his word, BlackBerry phones may soon be a thing of the past. The company's numbers only continue to disappoint.

The Canadian company sold just 500,000 phones in the first fiscal quarter, down from 600,000 in the prior quarter and from 700,000 in the quarter before that. It doesn't take a mathematician to chart the trajectory.

The numbers, which came out during a mixed bag of earnings on Thursday, are just the latest sign that the age of BlackBerry phones is coming to a close. The company had hoped to rejuvenate sales by partnering with Google to use its Android software for its Priv phone. But phone sales continue to sink, with AT&T openly calling out the disappointing performance and Sprint yet to carry the Priv despite an earlier commitment.

"The extent that the scale is declining -- it'll just keep getting harder to make money on that business," said Jan Dawson, chief analyst at Jackdaw Research.

BlackBerry posted a fiscal first-quarter loss of $670 million. Excluding onetime items, it posted a slight profit, which was better than Wall Street analysts' expectations. The company reported $400 million in revenue, well below the $470.9 million that analysts had expected. That also represented a 40 percent drop from a year ago, largely due to its phones.

BlackBerry insists profitability is still a possibility.

"I really, really believe that we could make money out of our device business," Chen said on a conference call with financial analysts. He touted the fact that the company has pared down its losses in the phone business.

Transforming BlackBerry

Chen may not be sweating the phone business too much. Its poor performance comes amid a multiyear push by BlackBerry to turn itself into a provider of business services and software. Traditionally, BlackBerry generated a bulk of its revenue through phones, but this quarter, 39 percent of its revenue came from software and services. Phones accounted for 36 percent of revenue.

BlackBerry has reason to be optimistic about software. Nearly three-quarters of software is made up of recurring revenue, which gives the company a consistent source of cash.

"Our software business continues to achieve scale and traction, resulting in robust growth and increasing market share," Chen said.

Excluding its licensing business, software and services grew 131 percent over a year ago -- the second consecutive quarter in which revenue more than doubled. That's a good start, but analysts warn it's just a start.

"They haven't grown it to the point where they could really depend on that going forward," Dawson said. "They couldn't stake the company on the software business."

The trick is whether BlackBerry can make its software business relevant again before the clock stops on its phones.