BlackBerry (BBRY) is walking away from making its own smartphones as part of its turnaround plan, but the exit may not be enough to turn around its struggling business.
BlackBerry announced Wednesday as part of its fiscal second quarter results that it plans to stop developing and making its own smartphones and other hardware products and instead outsource these functions to partners.
"This allows us to reduce capital requirements and enhance return on invested capital," said company CEO and executive chairman John Chen in a statement.
Shares of BlackBerry climbed up about 3.7% Wednesday afternoon to $8.17 on the announcement.
In particular, the Canadian mobile phone giant touted the growth of its software and services segment, which reported an 89% increase in revenue from the corresponding period the prior year.
"We're reaching an inflection point with our strategy," Chen said, adding that BlackBerry remains on track to deliver 30% revenue growth in software and services for the full fiscal year. "Our financial foundation is strong, and our pivot to software is taking hold."
BlackBerry reported $352 million and breakeven earnings per share. By comparison, Wall Street was expecting revenue of $394 million and a loss of $0.05 per share.
The decision to shut down the hardware unit is part of a turnaround plan that Chen has been leading at BlackBerry since he was named chief executive in November 2013. The former smartphone darling has been working to execute a turnaround strategy that pivots around software.
"They're doing a fine job improving the profitability of the company, but it's hard to get excited about it because revenue keeps drifting," MKM Partners analyst Michael Genovese said via phone.
The fiscal second quarter's revenue, for instance, represents a 19.8% decline year-over-year. The software and services unit's revenue is up year-over-year, but down about 6% from last quarter.
As BlackBerry changes the focus of the company, however, it's unclear where the communications giant plans to expend its resources.
Genovese said that there isn't transparency around whether BlackBerry's newer areas of focus -- software and security; automotive and the Internet of Things -- are gaining share in their respective markets.
"The real question is -- what are they in and where they're going to do well," he further said, while acknowledging that it takes many years and sometimes many acquisitions to truly turn a company around.
Separately, BlackBerry announced that it has entered into a software licensing agreement with a telecom joint venture in Indonesia and also said it has entered into a strategic alliance with Emtek Group. It is also launching a software licensing program for Android phones called BlackBerry Hub+.
BlackBerry shares are down around 11% year-to-date.