BlackBerry, which makes mobile devices and software, recently completed the acquisition of Secusmart, a German developer of voice and data encryption software for government entities and enterprises. That news, announced Friday, was overshadowed by mediocre earnings for the quarter that ended Nov. 29 where revenue totaled $793 million, missing analysts' expectations of $920 million.
The Secusmart deal, announced over the summer, is an integral part of BlackBerry's long-term revival plans. BlackBerry CEO John Chen said in a statement that the acquisition reflected his company's emphasis on mobile security technology for enterprises. He also brought up the need for such security at time when "breaches and data theft pose ever-growing costs and threats."
Analysts Timothy Arcuri and Bryan Prohm with investment bank Cowen and Co. issued a research report Friday on BlackBerry that pointed to software as possible way for the company to change its long-term fortunes.
BlackBerry devices had long been the go-to mobile gadgets favored by businesses and government agencies that need robust security for transmitting information wirelessly. Over time, though, such users turned more and more to consumer-oriented smartphones, largely the province of Apple's (AAPL) iPhone, Google's (GOOGL) Android-based phones and Microsoft (MSFT) , trying to compete with Windows Phone.
BlackBerry does seem to want to compete on hardware as well. Last week it released the BlackBerry Classic smartphone, which includes the perennial physical keyboard the company is known for -- despite most rivals pushing sleeker phones with virtual keyboards.
But the hardware game can be brutal. BlackBerry's first foray in tablets, the PlayBook, was discontinued this year with no successor device in sight. BlackBerry said it doesn't comment on the road map for its potential products.
Despite BlackBerry's declines in hardware and software revenue, Arcuri and Prohm said in their report they believe the company's software remains the "critical driver" for a long-term turnaround. Gaining momentum in the near-term, according to their report, would depend heavily on growing hardware sales.
Friday's earnings report soured some on BlackBerry; its shares closed at $9.99 that day, down from the previous day's close of $10.07. But Monday seems to have brought renewed interest in the company. Its shares closed up nearly 7% to $10.68 Monday, up over 43% for the year to date.
BlackBerry must still find ways to boost its appeal and relevance among clientele who increasingly have more smartphones from which to choose. Robert Rosenberg, president of telecom market research firm Insight Research, said despite BlackBerry's loyal customer base in its early days, mobile device technology is now far more fragmented and democratized. "What had been the dominant market for BlackBerry, and a device of status for lawyers and doctors, is now what all the kids have," he said.
Even BlackBerry's reputation for making secure mobile devices, Rosenberg said, might not be enough of a differentiator anymore. "At the end of the day, [the mobile market] is a tidal wave and they're not on the crest anymore," he said.
TheStreet Ratings team rates BLACKBERRY LTD as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:
"We rate BLACKBERRY LTD (BBRY) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The area that we feel has been the company's primary weakness has been its declining revenues."
You can view the full analysis from the report here: BBRY Ratings Report