By Euan Rocha and Alastair Sharp
TORONTO -- BlackBerry (BBRY) reported a smaller quarterly loss on Friday and flashed encouraging signals about its hard-pressed smartphone business as well as its software and services sales, spurring a 7 percent jump in its shares.
The Canadian company, a smartphone pioneer pushed to the margins by Apple's (AAPL) iPhone and devices running Google's (GOOG) Android software, is now focusing more on software and services than on hardware as it works through a drawn-out turnaround.
%VIRTUAL-WSSCourseInline-799%On the services front, the company reported a huge number of conversions into its heavily promoted new mobile device management platform in its second quarter. But BlackBerry's hardware unit also offered hopeful news, posting an adjusted profit for the first time in five quarters, helped by lower manufacturing costs and strong demand for its low-end Z3 handsets in emerging markets.
The Waterloo, Ontario-based company notched revenue growth from the previous quarter in North America, but sales slipped elsewhere. Its total revenue was down more than 40 percent from a year earlier.
"Broadly speaking, they're doing the right things ... but that revenue number is getting real small," said BGC Partners analyst Colin Gillis.
BlackBerry shares were up 7.6 percent at C$11.70 on the Toronto Stock Exchange and up 7.4 percent at $10.51 on Nasdaq.
John Chen, who became BlackBerry's chief executive officer in November, said the company has already taken 200,000 orders for its new squared-screened Passport smartphone, which went on sale on Wednesday and sold out on Amazon.com (AMZN) within six hours.
In his turnaround plan, Chen has moved rapidly to cut costs, sell certain assets and strengthen the company's balance sheet. He said revenue declines are likely near a nadir, with growth likely to begin in calendar 2015 with the sales of new products and services.
Software Growth Eyed
Chen told analysts and reporters on a conference call that he expects software revenue to double next year, from around $250 million in the current fiscal year, as the company wins converts to its mobile device management platform, BlackBerry Enterprise Service 10, also known as BES10.
The platform allows companies and government agencies to manage and secure not just BlackBerry devices running on their networks, but also Android, Windows and iOS-based phones and tablets.
BlackBerry said it issued 3.4 million licenses for the BES10 platform in its second quarter, a sharp increase from the previous quarter, and may end a promotional program early due to its success. A quarter of the license signups came from rival mobile device managers, it said.
"On the bright side, we're encouraged by the company's growth in enterprise software licensees and aggressive cost-cutting measures to right-size the business," Morningstar (MORN) analyst Brian Colello said.
The success of Chen's turnaround plan depends to a large degree on whether the company's next BES upgrade helps boost sales. The new BES12 software is set for a mid-November launch.
BlackBerry reported a net loss of $207 million, or 39 cents a share, for its second quarter ended Aug. 30. That compared with a year-earlier loss of $965 million, or $1.84 a share.
Revenue was $916 million, versus $1.57 billion a year earlier.
Excluding one-time items such as charges for restructuring and a change in the fair value of debentures, the loss was 2 cents a share. On that basis, analysts polled by Thomson Reuters I/B/E/S were expecting a 16-cent loss.
"Our workforce restructuring is now complete, and we are focusing on revenue growth with judicious investments to further our leadership position in enterprise mobility and security," Chen said in a statement.
The company said it doesn't expect its cash balance to drop below $2.5 billion in either the current quarter or the next one. Cash burn has worried investors despite a capital infusion provided by major shareholder Fairfax Financial last November.
-With additional reporting by Allison Martell.
By Euan Rocha and Alastair Sharp