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
