Don't Hang Up Yet: BlackBerry Turnaround Gains Momentum

New Passport Smartphone Sells 200,000 Units

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BlackBerry's turnaround is gaining momentum, after demand for CEO John Chen's first major new device outstripped supply and the company reported a smaller loss than estimated.

The BlackBerry Passport
The BlackBerry Passport

BlackBerry's net loss narrowed to 2 cents a share, excluding one-time items, in the fiscal second quarter that ended Aug. 30, the company said today in a statement. That's better than the 16-cent deficit projected by analysts.

The narrower-than-expected loss was bolstered by cost cuts and stabilizing smartphone sales. Mr. Chen has also sworn off the consumer handset market and instead concentrated the company's smartphone efforts on business professionals, selling 200,000 of its new square-screen Passport phone in its debut this week. It's all part of his plan to return to profit next fiscal year.

"Our workforce restructuring is now complete, and we are focusing on revenue growth with judicious investments to further our leadership position in enterprise mobility and security," Mr. Chen said in the statement.

BlackBerry has sold enough Passport smartphones to make the device profitable, Mr. Chen said on a conference call today. The Passport sold out in 6 hours on BlackBerry's website and within 10 hours on Amazon.com, he said. The phone was introduced two days ago, after the end of the fiscal second quarter.

The shares rose 3.8% to $10.17 at 9:52 a.m. New York time. Yesterday, the stock fell 6.8% to $9.80, giving BlackBerry a market value of $5.2 billion.

Since Mr. Chen took over in November, he has sold real estate, outsourced manufacturing and worked to expand revenue from business services and the BBM instant messaging service. Mr. Chen, who took the helm after a buyout failed, said he isn't interested in selling the company's intellectual property.

BlackBerry, based in Waterloo, Ontario, said it still plans to reach break-even cash flow by the end of this fiscal year. The company ended the quarter with $3.1 billion in cash, including short-term and long-term investments. The company used $36 million of cash in the period, compared with $255 million in the first quarter. That was better than the estimate from Mark Sue, an analyst at RBC Capital Markets, for operating cash burn of $145 million.

With the focus on enterprise, BlackBerry is pushing ahead with devices like the Passport that cater specifically to that audience, shunning the more consumer-oriented devices like Apple's larger iPhone 6 Plus designed for video consumption. The square-screened Passport is designed for business users who write e-mails, study spreadsheets and read documents on their phones.

Phone shipments
About 2.4 million BlackBerry smartphones were sold to customers in the quarter, and the company recognized hardware revenue on about 2.1 million of them.

That compares with revenue from 1.6 million smartphones in the first quarter and about 2.6 million sold to customers. The company's market share was down to 0.5% globally, as of the three months that ended in June, according to research firm IDC.

Mr. Chen said today that he plans to double software revenue next year, driven by new features like BlackBerry Blend, which helps consumers merge their work and personal information -- like calendars and e-mail -- on their devices.

BlackBerry said the number of enterprise licenses it sold in the quarter tripled to 3.4 million from last quarter through a promotional offer. A quarter of those were customers who switched from competitors' systems, according to the statement.

BBM's active monthly users rose to 91 million, up from 85 million in the prior quarter.

--Bloomberg News