* BlackBerry sold about 1 million new Z10 devices in quarter
* Expects to report break-even results in current quarter
* Says 55 pct of Z10 buyers are coming from other platforms
* Shares up 2.3 percent at midday
(Adds comments from CEO and analysts, details on results)
By Euan Rocha
TORONTO, March 28 BlackBerry
reported a surprise quarterly profit on Thursday after shipping
1 million new Z10 smartphones, but the Canadian company still
fell short of convincing markets that its turnaround plan is
already a runaway success.
BlackBerry shares were up 2.3 percent at midday on the
Nasdaq, down from their 10 percent gain immediately after the
results came out.
Expressing lingering doubts, some analysts focused on a
decline in the company's subscriber base, a potential threat to
its long-term growth prospects and turnaround plans. Others,
however, zeroed in on strong sales of the new touchscreen Z10
device, which BlackBerry started rolling out at the end of
"I think the one million units is a nice start," said
Morningstar analyst Brian Colello. "I think the encouraging
thing is that BlackBerry was still able to sell a good portion
of older models and generate solid service revenue during the
transition. I think that will be important in terms of cash
balance and profitability."
The well-reviewed Z10 smartphone is the first in a line of
devices that will be powered by the new BlackBerry 10 operating
system. It is a key plank in the company's attempt to regain
relevance and win back market share in the smartphone arena it
In a positive sign, BlackBerry said roughly 55 percent of
the buyers of the Z10 were coming from other platforms - news
that should allay fears that BlackBerry would be unable to
attract users who have never used one of the company's devices,
or who have abandoned BlackBerry in favor of Apple's
iPhone and smartphones using Google's Android software,
or other platforms.
The results offered solace to both bulls and bears on
BlackBerry, which virtually invented on-your-hip email before
ceding ground to rivals.
Some analysts noted that the company's quarterly revenue
missed expectations and fretted about the decline in subscriber
numbers to 76 million from 79 million during the fourth quarter.
But others focused on the unexpected profit and on the Z10
sales. The stock was up 2.3 percent at $14.89 on Nasdaq. Its
Toronto-listed shares were 2 percent higher at C$15.10 at 1230
EDT (1630 GMT). The stock was the most actively traded issue on
the Nasdaq on volume of more than 65 million shares.
"All in all, I'm happy because I think the majority seemed
to be expecting the world to cave in on them, and that did not
happen," said Eric Jackson, founder and managing partner of
Ironfire Capital LLC, which owns BlackBerry shares.
BlackBerry said its fiscal fourth-quarter net income was $98
million, or 19 cents a share, compared with a year-earlier loss
of $125 million, or 24 cents a share. The swing to profit
largely reflected a provision for income tax recoveries.
Excluding one-time items, the company reported a profit of
22 cents a share. Analysts had expected a loss.
BlackBerry surprised some investors by saying it believes it
will approach break-even in its first quarter, based on a lower
cost base, a more efficient supply chain and improved hardware
Analysts on average had expected a loss of 10 cents a share
in the first quarter, according to Thomson Reuters I/B/E/S.
The Z10 device is currently available in more than 25
countries, and the company's new Q10 device, equipped with the
physical keyboard that BlackBerry aficionados love, is expected
to start being rolled out in April.
BlackBerry said it will step up investment on marketing the
new phones in the current quarter.
"As the business migrates to BlackBerry 10 we intend to
enhance our business offering with new value-creating services
to continue to generate service revenue," Chief Executive
Thorsten Heins said on a conference call on Thursday.
Heins said BlackBerry plans to generate service revenue
through licensing deals for BlackBerry 10, advanced security
tools and additional enterprise services.
BlackBerry's strong focus on security was long a draw for
corporate and government users, and the company boasts of a new
"Balance" feature that allows BlackBerry 10 users to isolate and
secure corporate and private activities.
Analysts have been concerned that revenues from BlackBerry's
very profitable services business would drop as it alters its
fee structure for those users moving across to the BlackBerry 10
Gross margins in the quarter were 40.1 percent, up from 33.5
percent, a year earlier, driven by higher average selling
"Those were really solid results," said Jefferies & Co
analyst Peter Misek. "The gross margin blew everybody out of the
water, that was fantastic."
"Overall, this is step one on the recovery ladder and a
very, very, very good result," Misek said.
Still, BlackBerry is not out of the woods. Quarterly revenue
fell to $2.68 billion from $4.2 billion a year earlier, and was
below analysts' estimates of $2.84 billion.
BlackBerry said Mike Lazaridis, who co-founded the company
nearly 30 years ago, would step down as vice chairman and
Lazaridis, co-chief executive until last year, told Reuters
he has no plans to sell his stake in the smartphone maker even
as he steps down from the board to focus on a new quantum
computing investment fund.
(Additional reporting by Allison Martell, Alastair Sharp,
Sinead Carew and Julie Gordon; Editing by Janet Guttsman, Lisa
Von Ahn and Peter Galloway)