BlackBerry Sets the Table for Future Success

Now, where did that come from? Even BlackBerry bulls have to admit that its fiscal Q4 results were a pleasant surprise. Yet BlackBerry's return to profitability and improved expense controls aren't even the best part of its earnings release. What should really have BlackBerry shareholders feeling giddy is how the results were accomplished, as well as the thought that there's more to come.

The numbers
BlackBerry didn't just beat consensus earnings estimates: It knocked them out of the park. Consensus estimates from Thomson Reuters before BlackBerry's earnings announcement suggested a loss of $0.29 a share, revenue of $2.8 billion, and somewhere between 6.5 million and 7 million smartphones shipped. Two out of three ain't bad, I suppose.

BlackBerry ended fiscal Q4 with $2.7 billion in revenue and shipped about 6 million smartphones, of which 1 million sported its new BB10 OS. But after accounting for a $29 million pre-tax adjustment for its cost-cutting initiative, BlackBerry reported $0.22 a share in profit, $0.18 a share on a GAAP basis.

Where did that profit come from?
About a year ago, CEO Thorsten Heins initiated BlackBerry's cost-cutting efforts. Those increased efficiencies and lowered expenses buoyed its Q4 results and may have laid the foundation for BlackBerry's continued profitability. Heins summed up BlackBerry's new and improved situation perfectly: "We have built an engine that is able to drive improved financial performance at lower volumes, which should allow us to generate additional benefits from higher volumes in the future."

Another benefit of BlackBerry's surprisingly positive quarter was its positive cash flow. Strong operating income meant that capital expenditures and asset additions in the quarter didn't oblige BlackBerry to tap into its impressive ready cash pile. The balance sheet ended Q4 about where it was in BlackBerry's fiscal Q3, with $2.9 billion in cash and equivalents on hand, and zero debt.

Now for some perspective
BlackBerry certainly needed cost-cutting initiatives, and Q4 proved that Heins and his team have done an admirable job implementing the plan. But Heins knows, just as BlackBerry aficionados do, that positive financial performance on low sales volumes is just a good first step. Growing sales of its BB10 units remains priority No. 1.

With 61% of BlackBerry's $2.7 billion in revenue for the quarter coming from hardware sales, adoption of the Z10 and Q10 remains crucial. Heins is expecting a ramp-up in BB10 smartphone sales in BlackBerry's fiscal Q1. Assuming he gets it, you can expect another strong quarter.

As any devoted iFan will quickly point out, shipping a million BB10 units pales in comparison with the nearly 48 million iPhones Apple sold last quarter. But Apple, along with Samsung, is one of the undisputed leaders in device sales, and while it's BlackBerry's ultimate target, it's a bit early to start comparing results against the kings of the mountain. But Heins, along with Nokia CEO Stephen Elop, senses that Apple is ripe for the picking. How else to explain Heins' comments regarding Apple's "outdated" iPhone, or Elop's telling a reporter that his owning an iPhone was "embarrassing"?

Taking pot shots at Apple is well and good, but a BlackBerry-to-Nokia comparison is more appropriate at this point. These two formerly highflying mobile stalwarts are both in the midst of significant turnaround efforts, and have both hitched their wagons to their new, cutting-edge smartphones.

Nokia shareholders were pleasantly surprised with the 4.4 million Lumia units it sold last quarter -- more than four times the sales of BlackBerry's Z10. But BlackBerry's rollout of BB10 was confined to select markets only and excluded the all-important U.S. consumer.

BlackBerry shared a lot of good news, but the toppers for its prospects going forward are its new BB10, the Z10 smartphone, and the soon-to-be-released (in the U.S.) Q10 smartphone. Why? Because the staggered rollout of BlackBerry's flagship devices had little to no impact on a solid Q4.

For a company that most observers assumed needed to take several calculated baby steps to return to relevance, BlackBerry's Q4 was a quantum leap. If it can sustain this performance, the best may be yet to come.

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