BlackBerry third-quarter revenue falls more than expected, shares slide

[December 19, 2014]  By Allison Martell and Alastair Sharp
 
 TORONTO (Reuters) - BlackBerry Ltd <BB.TO><BBRY.O> on Friday reported a bigger-than-expected drop in third-quarter revenue, sending shares of the struggling smartphone maker lower, even as it eked out a small adjusted profit and began generating cash flow again.

Revenue fell to $793 million from $1.19 billion a year earlier, falling short of analysts' expectations of $931.5 million. BlackBerry's Nasdaq-listed shares fell 5.7 percent to $9.50 in premarket trading.

"Revenue missed consensus by a sizable amount, which is especially troubling because it included one month of new BlackBerry Passport sales," said Morningstar analyst Brian Colello, referring to its unconventional new smartphone, which has a large, square touchscreen and keyboard.

On a conference call on Friday, BlackBerry Chief Executive Officer John Chen said hardware sales in the quarter were weaker than expected as production was limited and the company could only fulfill all device orders early in the fourth quarter.

At an analyst conference in San Francisco last month, Chen said revenue could slide faster than expected as its revenue profile changes.

BlackBerry had long made money charging system access fees, but now offers some basic services for free. As older devices are retired, that erodes revenue, but the company is aiming to boost hardware sales with its new Passport and Classic phones, buying time to scale up its software business in 2015.

Cash flow was positive $43 million in the third quarter, versus negative cash flow of $36 million in the second quarter. BlackBerry had said it was targeting break-even cash flow by the end of the fiscal year in February 2015.

Colin Gillis, tech analyst at BGC Partners in New York, said Chen did a good job controlling expenses.

"The fact that he overachieved by turning cash flow positive this quarter - that's a great milestone," said Gillis. "It gets easier from here."

Excluding, a one-time non-cash debenture charge and restructuring charges, the company reported a profit of 1 cent a share. Analysts polled by Thomson Reuters I/B/E/S expected a loss of 5 cents.

The Waterloo, Ontario-based company reported a net loss of $148 million, or 28 cents a share, in the quarter ended Nov. 29. That compared with a year-earlier loss of $4.4 billion, or $8.37 a share.

BlackBerry launched its long-awaited Classic smartphone on Wednesday, hoping to help win back market share and woo customers still using older versions of its physical keyboard devices. The phone resembles its once wildly popular Bold and Curve handsets.

Separately, BlackBerry completed its acquisition of Secusmart, a privately held firm specializing in voice and data encryption.

(With additional reporting by Euan Rocha and Jeffrey Hodgson; Editing by W Simon and J Benkoe)

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