BlackBerry squeaks out quarterly profit, disappoints on revenue

After several quarters of losses, BlackBerry finally ekes out a small profit. But sales remain weak for the once-mighty smartphone maker.

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

BlackBerry announced its BlackBerry Classic earlier this week. The QWERTY keyboard device is a throwback to earlier devices and is designed to appeal to BlackBerry diehards. Josh Miller/CNET

Troubled smartphone maker BlackBerry took its first step toward a turnaround Friday by reporting a small profit for its fiscal third quarter, surprising analysts on Wall Street. But the company disappointed investors by missing revenue targets.

The company, which just launched its BlackBerry Classic on Wednesday, reported a profit excluding one-time items of $6 million, or 1 cent a share. This reverses a long line of losses, including a 2 cent loss reported last quarter. This new report beat analyst expectations, which had predicted a loss of 5 cents a share.

Still, the company's revenue did fall short of expectations. BlackBerry reported revenue of $793 million -- far from the $931.53 million that analysts expected.

The company's total cash, cash equivalents, short-term and long-term investments totaled $3.1 billion as of November 29, the end of its fiscal quarter. That was an increase of $43 million for the quarter, excluding $31 million that BlackBerry spent related to acquisitions.

CEO John Chen, who has been working the past year to turn around the company, said the results show the company is on the road to recovery.

"We achieved a key milestone in our eight quarter plan with positive cash flow," he said in a statement. "We also attained another important milestone in the release of our new enterprise software products and devices."

He added that the company will now focus on expanding distribution and driving revenue. On a call with investors on Friday he said the company was disappointed by the miss on revenue but added now that the company has gotten its cost structure in order, it can concentrate on sales of both its hardware products and software.

The biggest issue that BlackBerry faces is the intense competition in the smartphone market from companies such as Apple and Samsung. As these companies gain market share throughout the world, BlackBerry has been losing market share. In the third calendar quarter of this year, the company's worldwide market share dropped below 1 percent.

This is a big problem for BlackBerry given that 46 percent of its revenue still comes from its hardware business, which includes its handset business. Another 46 percent of the company's revenue comes from services and about 8 percent comes from software and other products.

Chen's strategy is to increase sales of the company's software and services by targeting business customers and governments with its BlackBerry Enterprise Server products. But the company still has a long way to go in terms of increasing the significance of this part of the business.

Even though the company has all but given up trying to compete aggressively with popular smartphone platforms from competitors like Apple and Samsung, it has two new devices: the Passport, which launched in September and the BlackBerry Classic, which launched this week. The Passport is now available in 48 countries and Chen said just over 60 percent of sales are coming from North America and Europe. But it's the BlackBerry Classic that holds the most promise for boosting BlackBerry sales, since the company hopes the traditional keyboard will appeal to diehard BlackBerry fans and possibly even attract new business-oriented customers.

The BlackBerry Classic looks and feels much like the company's older BlackBerry Bold, which was the last flagship BlackBerry that drew positive attention from customers. The new BlackBerry Classic appeals to BlackBerry users who coveted their BlackBerry Bold and BlackBerry Curve keyboards and introduces them to the company's updated and improved BlackBerry 10 operating system.

Chen said the company will be announcing more devices at the Mobile World Congress trade show in Barcelona early next year.

He also said the company expects to increase its software sales now that its BlackBerry Enterprise Server 12 is shipping.

BlackBerry's revenue miss has most certainly disappointed investors, and the company's stock was down about 5.41 percent to $9.53 in early trading Friday.

Update, 7:30 a.m. PT: More financial information and executive comments from the conference call were added.