BlackBerry beats earnings expectations thanks to cost-cutting

CEO John Chen's efforts are having a positive effect: the ailing BlackBerry reports better than expected revenue and earnings for its fiscal first quarter.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Jason Cipriani/CNET

Sales are still shrinking at phone maker BlackBerry, but cost-cutting measures buoyed the company's earnings for its fiscal first quarter, the company said Thursday.

BlackBerry, which has been trying to reinvent itself under new leader John Chen, reported a narrower loss than analysts had expected for the quarter, largely attributed to pruning of expenses. But sales continued to decline.

For the quarter ended May 31, the company reported a loss of 11 cents a share compared with estimates around 25 cents to 26 cents a share, according to Bloomberg and Thomson Reuters, respectively. The company generated $966 million in revenue, which was up from analysts' expectations of between $954 million and $963 million. This same time last year, BlackBerry reported revenue of $3.1 billion.

Investors reacted positively to the news. In trading Thursday morning, BlackBerry's shares, which closed Wednesday at $8.29, were up 12 percent to around $9.20.

BlackBerry has been trying to find its footing over this past year, after losing ground for years in the smartphone market to Apple and to phones powered by Google's Android operating system. In November, John Chen took over as CEO and since then he's been trying to remake the company by focusing on enterprise and software in order to make the company profitable. This strategy has included focusing more on business customers rather than consumers to reduce its dependence on device sales, as well as a focus on the company's mobile services, such as the BlackBerry Messenger platform.

In addition to focusing on niche markets and its core software strengths, Chen has also led the company in cutting costs. This has included selling property in Waterloo, Ontario, where the company is headquartered, as well as cutting jobs and moving device manufacturing overseas and allowing contract manufacturer Foxconn to take over making its devices.

As the company de-emphasizes its consumer brand and cuts expenses, it is looking outside for partners to cost-effectively fill basic needs for its devices. Yesterday, the company announced a deal with Amazon to make over 240,000 Android apps available to BlackBerry 10 customers through the Amazon app store. These apps will include popular ones that BlackBerry was missing in its own store, such as Netflix, Candy Crush Saga, and Minecraft.

Last month at the Recode conference, Chen said the changes in the business are starting to have a positive effect. And he upped the odds of turning around the business from a 50-50 chance to 80-20.

"Yeah, we have problems, but it's not dead," Chen said at the conference. "I'm confident we will be able to save the patient."

But Chen said during the company's conference call Thursday that the steps the company has taken thus far are more than simple cost-cutting. He said he is truly trying to refocus BlackBerry, so that it will be profitable starting this time next year for the first fiscal quarter of 2016. He said the company should be "break-even" by the end of the 2015 fiscal year, which will end May 2015.

"We are at the tail end of of our restructuring program," he said. "Everything we have been doing is laying the ground work for revenue growth starting next year. This hasn't been so much about cutting costs, but it's so we don't do so many things at the same time."

Chen also said the company will be busy rolling out new products this year including its next-generation BlackBerry Enterprise Server technology BES 12, as well as a new smartphone called Passport. The new smartphone, which will come with the classic BlackBerry keyboard, will be unveiled in September at an event in London, Chen said.

Update 7:55 a.m. PT: Added BlackBerry's share movement in morning trading, along with comments and information from the conference call.