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BlackBerry losses narrow, beat expectations, but sales fall

Fresh off the launch of its Passport smartphone, the struggling handset maker is on the slow road to recovery.

BlackBerry is taking baby steps toward a hopeful turnaround, posting a narrower fiscal second-quarter loss than expected.

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The BlackBerry Passport is the company's first flagship device this year. Roger Cheng/CNET

The company, which just launched its BlackBerry Passport on Wednesday, reported a loss excluding one-time items of $11 million, or 2 cents a share, besting Wall Street's average forecast of a loss of 16 cents a share. Its revenue, however, fell nearly 42 percent to $916 million, below investor expectations of $950 million.

BlackBery shares fell 2 percent to $9.59 in pre-market trading, although it has been fluctuating between positive and negative all Friday morning.

BlackBerry is in the midst of attempting its second comeback in as many years, highlighted by the launch of its BlackBerry Passport smartphone on Wednesday. The company, under CEO John Chen, has over the last year withdrawn from the broader consumer market, focusing on the corporate and government world where security and the classic tactile keyboard are more valued.

"Overall, we view this as a solid quarter particularly on cash flow and should give some comfort to the cash flow breakeven by the end of FY2015 with the only concern potentially on lower Services revenue," said Maynard Um, an analyst at Wells Fargo.

Including all items, BlackBerry posted a net loss of $207 million, or 39 cents a share, an improvement over its year-ago loss of $965 million, or $1.84 a share, when the company had to take a massive charge for all of the BlackBerry 10 devices that failed to sell.

BlackBerry reiterated its goal of breaking even on a cash flow basis by the end of this fiscal year, and posting a profit excluding items in fiscal 2016, which begins in March.

It has a distance to travel before reaching that goal. BlackBerry CEO John Chen admitted that BlackBerry's revenue hit the lower end of its expected range, mostly on lower fees from its BES server business. Chen said the company was moving from a perpetual license model, in which a customer pays once to use the service, to a monthly revenue model, which will yield more consistent, albeit lower, revenue in the future.

While the Passport is seen as one tool to get BlackBerry turned around, it isn't the only one. The company has also heavily pushed its BES10 server and BlackBerry software, which carries the potential for more lucrative business. The company, for instance, has shifted its stance of mobile device management, now offering to manage not just BlackBerrys, but also iPhones and Android devices.

The company shipped 2.1 million BlackBerry smartphones in the period, although it added that 2.4 million were sold directly to consumers. Of those 2.4 million phones, 70 percent ran the newer BlackBerry 10 operating system, largely attributed to sales of its BlackBerry Z3 smartphone released in emerging markets. In North America, where the Z3 isn't available, sales of older BlackBerry 7 devices ticked up, attributable to sales of its BlackBerry 9900 and Bold devices. Chen said he was done with the Bold as he focuses on BlackBerry 10 smartphones.

Chen said the Passport is off to a strong start, selling out on its own site and Amazon. The phone has already garnered 200,000 orders since Wednesday.

BlackBerry also said it issued 3.4 million licenses for its BES10 server, and saw its base of monthly active BlackBerry Messenger users grow to 91 million from 85 million a quarter ago.

Update, 6:03 am PT: To include additional executive and analyst comments.