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Glimpses of a new BlackBerry after better-than-expected results

A man is silhouetted against a video screen with the BlackBerry logo as he pose with a Blackberry Q10 in this file photo.

© Dado Ruvic / Reuters

John Chen's turnaround strategy for BlackBerry Ltd. is slow, methodical and, at least so far, appears to be working.

The CEO of Canada's best-known technology company was afforded a rare chance to boast on Thursday, as BlackBerry reported better-than-expected quarterly results, causing its share price to soar up to 12 per cent. Although the smartphone maker still lost money in its fiscal first quarter on an adjusted basis, the loss was far less severe than most analysts expected.

"I think quarters like these … allow the market to return some confidence in us," Mr. Chen said in a conference call with analysts.

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"I believe if we execute a couple of quarters like this we will meet our goals and return to profitability in 2016."

The results couldn't come at a better time for BlackBerry, which is readying for a significant product rollout in the second half of the year. And while analysts generally agreed that the company still faces myriad challenges, they appear much more willing to give BlackBerry the benefit of the doubt.

"We continue to see Blackberry as a special situation distressed asset – a company struggling to turn its business around, so investors should brace themselves for share price volatility in both directions," said BGC Financial senior technology analyst Colin Gillis.

"That said," said Mr. Gillis, "we see the risk-reward in shares of BlackBerry as favourable."

Mr. Chen told shareholders at the company's annual general meeting in Waterloo, Ont., that he was pleased with BlackBerry's results, but cautioned that the company needed to make more progress before anyone runs a victory lap, noting that its brightening financials come on the backs of layoffs.

"This is, of course, not easy," said Mr. Chen, later telling reporters the company was at the "tail end" of job cuts and concentrating on hiring. "And we had to make a lot of sacrifices."

BlackBerry posted revenue of $966-million in the three months ended May 31 – down from $3.1-billion a year ago, but largely in line with analyst estimates. Adjusted net loss in the quarter was $60-million, or 11 cents per share, roughly in line with results from a year ago, but significantly better than what the street expected. On average, analysts anticipated a loss of about 26 cents per share in the fiscal first quarter.

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On a net income basis, BlackBerry rebounded to a first-quarter profit of $23-million (U.S.), compared with a loss a year earlier of $84-million.

Gross margins also improved, as the company began seeing more of its revenue come from services. In the fiscal first quarter, adjusted margins came in at 48 per cent, compared with 43 per cent in the fourth quarter of the previous fiscal year. BlackBerry also used up far less cash in the quarter than in the three months previous, and reduced expenses by 13 per cent in the same period.

Mr. Chen showed shareholders and reporters some of BlackBerry's new devices, including the Passport, a hand-held device with a keyboard and a larger screen set for launch in Europe in September.

It is still unclear whether these devices will help BlackBerry gain a significant portion of the market share it has lost in recent years. In addition, many of the company's most ambitious plans involve market segments that barely exist yet. For example, it is pushing to become the dominant software and services provider for the so-called "Internet of Things," which envisions all manner of web-connected devices, from cars to dishwashers, communicating with one another. But the industry is still in its infancy, and BlackBerry is likely to face stiff competition from the likes of Google and Apple, who are also building tools for connected devices.

However, Mr. Chen did give shareholders other reasons for optimism – trumpeting, for example, plans to realize $100-million in revenue from the company's BlackBerry Messenger software next year through new services, use of the data it collects and advertising.

"If any of you like to focus on mathematics, percentage of growth, it will from be zero to $100-million, so you tell me what the percentage is," Mr. Chen said.

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. He spent six years as the law reporter in The Globe’s Report on Business, covering Bay Street law firms and writing about fraud, insider trading and corporate tax avoidance. More

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