By Ben Dummett
BlackBerry Ltd.'s efforts to restore credibility with investors
and customers got a lift on Friday as cost-cutting boosted profit
margins, helping the smartphone pioneer narrow its losses in the
latest quarter.
Still, revenue was short of investor expectations, and the
company's attempt to revive its fortunes from the sale of new
devices, software and mobile security services to corporate
customers remains a work in progress.
Its shares rose as much as 8.8% and were up 3.6%, or 36 cents,
at $10.15 in midday trading on Friday.
BlackBerry Chief Executive John Chen assumed the top job last
November, and moved quickly to regain the market's confidence after
the company's bet on new devices in early 2013 fell flat against
rival efforts by Apple Inc., Samsung Electronics Co., and
others.
Mr. Chen outsourced the manufacturing of devices to reduce
inventory risk and hit the company's cost-cutting target three
months ahead of schedule. Then, earlier this week, he oversaw
BlackBerry's first major phone launch in nearly two years.
These moves helped BlackBerry narrow its loss for the fiscal
second quarter ended Aug. 30 to $207 million, or 39 cents share,
from its year-earlier loss of $965 million, or $1.84 a share. It
also generated a profit from its device business--the first in five
quarters--"ahead of the company's expectations," Mr. Chen told
analysts on a conference call.
The device-unit's profit "is directly the result of our
supply-chain efficiency, the improvement in our distribution
channel and the strong focus on margin," he said.
Adjusted to exclude items, BlackBerry lost 2 cents a share, far
better than the Thomson Reuters mean estimate for a loss of 16
cents a share.
Still, revenue fell 42% from a year earlier to $916 million, and
was well below the $950 million analysts were expecting. Mr. Chen
said the result was at the "low end" of the company's expected
revenue range.
Device sales to end-customers also fell, to about 2.4 million
units from 2.6 million devices in its first fiscal quarter.
Mr. Chen said at least part of the revenue decline stemmed from
the company's decision to reject some sales with only limited
profits. He said he expects overall revenue to rebound in coming
quarters as sales of new software and services gain traction.
"We are definitely in the first half of what I referred to as
the [company's] eight quarter recovery" and revenue levels are
"bottoming out," he said.
BlackBerry is counting on a revenue boost from new devices and
updated software.
It launched a new phone called the Passport two days ago and Mr.
Chen said the company has so far received more than 200,000 orders
for the square-screen device, which is aimed at professionals. "We
have had extremely good receptivity" to the device and at the
current sales pace the phone is profitable, Mr. Chen said.
Nonetheless, the early Passport sales pale in comparison with
Apple's sales of its new iPhones, which came to 10 million in their
first weekend on the market.
Another BlackBerry device, dubbed the Classic, is due out later
this year. Both phones are targeted at corporate and government
users seen to favor BlackBerry's traditional physical keyboard,
security functions and features that emphasize the use of mobile
devices for work over entertainment.
BlackBerry's revenue growth also depends on sales of its new of
its management device software. The company is betting the product
will be a key driver behind its goal to double software sales
revenue to $500 million next fiscal year. Mr. Chen said about 70
enterprise customers are testing the technology ahead of its
planned launch in November. In that sector, BlackBerry faces a
number of competitors including International Business Machines
Corp., Mobile Iron Inc. and Citrix Systems Inc., and some customers
have already chosen rival offerings, unwilling to wait for
BlackBerry's product to hit the market.
More global companies are showing interest in the technology and
that is "giving me a level of confidence that they are not just
doing that because it's cheap, but they believe it is a better
product," Mr. Chen said.
Write to Ben Dummett at ben.dummett@wsj.com
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