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posted: 3/30/2013 8:36 AM

BlackBerry reports surprise profit after cutting expenses

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  • Thorsten Heins, chief executive officer of BlackBerry, attends the launch of the BlackBerry Z10 smartphone in Sydney, Australia, on Monday, March 18, 2013.

    Thorsten Heins, chief executive officer of BlackBerry, attends the launch of the BlackBerry Z10 smartphone in Sydney, Australia, on Monday, March 18, 2013.
    Bloomberg News

Bloomberg News

BlackBerry, the Canadian smartphone maker that's attempting a turnaround, reported a surprise profit in the fourth quarter, helped by a cost-cutting program even as its sales missed analyst projections.

Excluding some costs, profit was 22 cents in the period, the Waterloo, Ontario-based company said in a statement. That compared with an average estimate for a loss of 30 cents a share, according to data compiled by Bloomberg. Sales in the fiscal fourth quarter, which ended March 2, fell to $2.68 billion, missing the average projection of $2.83 billion.

"We have implemented numerous changes at BlackBerry over the past year and those changes have resulted in the company returning to profitability," Chief Executive Officer Thorsten Heins said in the statement. "With the launch of BlackBerry 10, we have introduced the newest and what we believe to be the most innovative mobile computing platform in the market today."

The company, formerly known as Research In Motion Ltd., is counting on the BlackBerry 10 lineup to make itself a contender to Apple Inc. and Samsung Electronics Co., letting it reverse a sales decline and maintain profitability. To stay on track, the company will need the Z10 touch-screen model and the Q10, which has a physical keyboard, to be well received, said Pierre Ferragu, a Sanford C. Bernstein & Co. analyst.

Corporate orders

"A strong BlackBerry 10 debut should set the company up for a profitable first quarter," said Ferragu, who is based in London and rates the stock the equivalent of a buy. "Initial corporate demand will be strong."

The company said today it expects to "approach break-even financial results" in the period.

The stock fluctuated between gains and declines during premarket trading after the earnings were announced. As of 8:17 a.m. in New York, the shares traded at $14.59, little changed from yesterday's close.

The stock has more than doubled in the past six months on rising optimism that BlackBerry can regain competitiveness. Still, only seven of 45 analysts who track the stock rate it a buy. The gap between its current share price and analysts' average price target is the largest of any major company in Canada.

Lazaridis departure

The company also said today that co-founder Mike Lazaridis, a former co-CEO, is stepping down as a director and vice chairman of BlackBerry. He passed the CEO reins to Heins in January of 2012 after the one-time industry leader lost market share to Apple and Google Inc.'s Android.

As part of his comeback plan, Thorsten embarked on a cost- cutting program last year to save $1 billion in annual costs. He eliminated 5,000 workers and closed manufacturing sites.

Reviving phone sales has been more challenging. The company shipped about 1 million BlackBerry 10 devices last quarter, compared with the 1.1 million average estimate of 10 analysts. It shipped 6 million smartphones in total, missing the 6.9 million estimate.

Interpreting sales data from the quarter is difficult because of the staggered introduction of the Z10. The phone went on sale in the U.K. on Jan. 31, in Canada on Feb. 5, and then across Asia and Europe in the following weeks. It didn't arrive in the U.S. until March 22, three weeks after the end of the quarter.

Analysts' early impressions of the Z10's debut in the U.S., BlackBerry's biggest market, were mixed. Goldman Sachs Group Inc.'s Simona Jankowski cut her rating on the stock to neutral, based on what she described as "tepid" sales at AT&T Inc. Peter Misek of Jefferies & Co. said AT&T's corporate clients are showing "significant interest" in the phone and "could account for a meaningful portion of demand." He advises buying the shares.

The Z10 costs $199.99 on a two-year contract with AT&T or $549.99 without a contract. Apple's iPhone 5 sells for between $149.99 and $349.99 on a two-year contract with AT&T, depending on the amount of data storage.

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