“To say it was a very challenging environment to deliver improved financial results could well be the understatement of the year,” Chief Executive Thorsten 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.
At the BlackBerry Z10 launch
“I thought they were dead. This is a huge turnaround,” Jefferies analyst Peter Misek said from New York. The company has credited higher average selling prices and higher margins for devices. “This is a really, really good result,” Misek added. “It's off to a good start.” Eric Jackson, founder and managing partner, Ironfire Capital LLC, which owns BlackBerry shares, said “All in all I'm happy because I think the majority seemed to be expecting the world to cave in on them and that didn't happen. They blew away expectations on the bottom line. They're pretty good at managing their business and grinding all the profits out of it that they can. They probably underestimated the impact the core cost reduction program was going to have on the business.”
The Z10 is critically important to the survival of BlackBerry, formerly known as Research In Motion. The device and its underlying BB10 operating system are intended to compete with modern touch-based smartphones such as the iPhone and various models based on Google Inc's Android operating system. BlackBerry's own keyboard-based smartphones and previous versions of its software have steadily fallen out of favour with buyers. 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.
The BlackBerry Z10 in black and white.
The 1 million Z10 phones were above the 915,000 that analysts had been expecting. Details on U.S. sales are not part of the fiscal fourth quarter's financial results because the Z10 just became available there last week. The Z10 has received mostly favorable reviews since its release, but the launch in the critical U.S. market was delayed until late this month. A version with a physical keyboard, called the Q10, won't be released in the U.S. 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 Android devices. Even as the BlackBerry has fallen behind rivals in recent years, many users have stayed loyal because they prefer a physical keyboard over a touch screen. Heins said the Q10 will sell well among the existing BlackBerry user base. It's expected in some markets in April, but not in the U.S. until May or June.
Brian Colello, a senior equity analyst at Morningstar, said “I think the encouraging thing is that BlackBerry was still able to sell a good portion of older models [and] generate solid service revenue during the transition. I think that will be important in terms of cash balance and profitability.”
However, revenue fell 36 percent to $2.7 billion, from $4.2 billion. Analysts had expected $2.82 billion. Despite the BlackBerry 10 sales, RIM lost about 3 million subscribers to end the quarter with 76 million. Bill Kreyer, a tech analyst for Edward Jones, called the subscriber decline “pretty alarming.” The company also announced that co-founder Mike Lazaridis will retire as vice chairman and director.