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BlackBerry confirms Android phone as its smartphone sales retreat

The BlackBerry Priv, which takes its name from both "privacy" and "privilege," will launch in the fourth quarter.

The BlackBerry Leap was a mid-market smartphone that eschewed the typical physical keyboard for a full touchscreen. Josh Miller/CNET

As its smartphone business fades, BlackBerry is reaching out to Google's Android software as a lifeline.

BlackBerry has confirmed that it is building a smartphone that will run on Android, a radical departure from its historic strategy of employing its own software. The slide-out device, called the Priv, has long been rumored. Using Android would solve one of the biggest problems with the BlackBerry software: the lack of key consumer apps, including popular ones like Google Maps.

"It's the answer for former BlackBerry users who miss the physical keyboards but love their apps," CEO John Chen said on a conference call Friday with analysts. He touted the Priv, which takes its name from both "privacy" and "privilege," as "the most secure Android device in the market." He added that there are no plans to release a new BlackBerry phone running on its own BB10 software this year.

The company also said Friday that for its fiscal quarter that ended August 29 it recognized revenue on 800,000 devices, or a third of the number from a year ago. Out of its total revenue of $490 million, 43 percent came from service access fees, eclipsing hardware for the first time.

The figures underscore the continued evolution of BlackBerry, once a dominant smartphone manufacturer, into a software and services business catering to corporate and government clients. While BlackBerry continues to produce devices, it has increasingly ceded that business to more dominant players such as Apple and Samsung Electronics.

The transition has been a rough one. BlackBerry posted a fiscal second-quarter profit of $51 million, or 10 cents a share, compared with a year-ago loss of $207 million, or 39 cents a share. The profit, however, was helped by one-time items. Remove those, and its business actually lost $66 million, or 13 cents a share.

BlackBerry shares fell 7.5 percent to $6.50 in premarket trading.

Both revenue and the adjusted loss fell below Wall Street's forecast. The company was expected to post a loss of 9 cents a share on revenue of $611 million, according to an average estimate of analysts compiled by Thomson Reuters.

The Waterloo, Ontario-based company has been focused on stabilizing the business, offsetting the declines in its devices with more service revenue and reducing its cash burn. It ended the quarter with $3.35 billion in cash, cash equivalents, and short-term and long-term investments, slightly higher than the fiscal first quarter.

BlackBerry has also been more concerned with the acquisition of business-centric companies such as crisis communications network services provider AtHoc and mobile email and security provider Good Technology, announced earlier this month.

The company anticipates sequential revenue growth in the remaining quarters of its fiscal 2016. It also targeted sustainable profits on an adjusted basis by the end of the fiscal year.

The introduction of the Priv may drive modest sequential growth, according to Wells Fargo analyst Maynard Um.

Updated at 5:22 a.m. PT: To include comments from the CEO and an analyst.