Research In Motion Ltd. sold about 1 million phones running its new BlackBerry 10 system. It also surprised Wall Street by returning to profitability in the most recent quarter.
The earnings provide a first glimpse of how the BlackBerry 10 system, widely seen as crucial to the company’s future, is selling internationally and in Canada since its debut in January. The 1 million new touch-screen BlackBerry Z10 phones were above the 915,000 that analysts had been expecting. Details on US sales are not part of the fiscal fourth quarter’s financial results because the Z10 just became available there last week, after the quarter ended.
In another sign of uncertainty, RIM lost about 3 million subscribers to end the quarter with 76 million. It’s the second consecutive quarterly decline for RIM, whose subscriber based peaked at 80 million last summer.
Bill Kreyer, a tech analyst for Edward Jones, called the decline “pretty alarming.”
“This is going to take a couple of quarters to really see how they are doing,” Kreyer said.
The BlackBerry, pioneered in 1999, had been the dominant smartphone for on-the-go business people and other consumers before the iPhone debuted in 2007 and showed that phones can handle much more than email and phone calls. RIM faced numerous delays modernizing its operating system with the BlackBerry 10. During that time, it had to cut more than 5,000 jobs and saw shareholder wealth decline by more than $70 billion.
In the quarter that ended March 2, RIM earned $98 million, or 19 cents a share, compared with a loss of $125 million, or 24 cents a share, a year earlier. After adjusting for restructuring and other one-time items, RIM earned 22 cents a share. Analysts surveyed by FactSet had been expecting a loss of 31 cents.
Revenue fell 36 per cent to $2.7 billion, from $4.2 billion. Analysts had expected $2.82 billion.
The company also announced that co-founder Mike Lazaridis will retire as vice chairman and director. He and Jim Balsillie had stepped down as co-CEOs in January 2012 after several quarters of disappointing results. Thorsten Heins, the chief operating officer, took over and spent the past year cutting costs and steering the company toward the launch of new BlackBerry 10 phones.
Investors appeared happy with the financial results. RIM’s stock rose 27 cents, or 1.8 per cent, to $14.84 in morning trading Thursday after the release of results.
“I thought they were dead. This is a huge turnaround,” Jefferies analyst Peter Misek said from New York.
Misek said the Canadian company “demolished” the numbers, especially its gross margins. RIM reported gross margins of 40 percent, up from 34 percent a year earlier. The company credited higher average selling prices and higher margins for devices.
“This is a really, really good result,” Misek said. “It’s off to a good start.”
Redesigned for multimedia
The new BlackBerry 10 phones are redesigned for the new multimedia, Internet browsing and apps experience that customers are now demanding.
The Z10 has received favourable reviews since its release, but the launch in the critical US market was delayed until late this month as wireless carriers completed their testing.
A version with a physical keyboard, called the Q10, won’t be released in the US for two or three more months. The delay in selling the Q10 complicates RIM’s efforts to hang on to customers tempted by the iPhone and a range of devices running Google Inc.’s Android operating system. Even as the BlackBerry has fallen behind rivals in recent years, many users have stayed loyal because they prefer a physical keyboard over the touch screen on the iPhone and most Android devices.
RIM, which is changing is formal name to BlackBerry, said it expects to break even in the current quarter despite increasing spending on marketing by 50 percent compared with the previous quarter.
“To say it was a very challenging environment to deliver improved financial results could well be the understatement of the year,” Heins said during a conference call with analysts.
Heins said more than half of the people buying the touch-screen Z10 were switching from rival systems. The company didn’t provide details or specify whether those other systems were all smartphones. He said the Q10 will sell well among the existing BlackBerry user base. It’s expected in some markets in April, but not in the US until May or June.