IS BLACKBERRY BACK?

The smartphone company posts an increase in revenue for the first time in two years,

WATERLOO— Shares in BlackBerry Ltd. rose by as much as 12.5 per cent Friday after the company reported a first revenue increase in two years on software sales gains and said its smartphone business is close to breaking even.

The company topped estimates for third quarter earnings and revenue, posting a $15 million (U.S.) or three cents per share operating loss on $557 million in sales. Revenue fell 31 per cent from a year earlier, but was up 12 per cent sequentially after nine consecutive quarters of declines.

The shares closed up $1.14 (Canadian) to $12.03 on the Toronto Stock Exchange, an increase of 10.47 per cent.

BlackBerry’s revenue has tracked an ongoing decrease in the company’s hardware subscriber base, which had fallen to about 30 million in the second quarter from a peak of more than 80 million reached a few years ago.

The consensus view of analysts was for a loss of 14 cents a share on revenue of $489 million in the fiscal quarter ended Nov. 28. In the period a year earlier, BlackBerry lost $148 million, or 28 cents a share.

Software and licensing revenue more than doubled year over year and for the first time offset a continuing decline in hardware related fees, the Waterloo-based company said. BlackBerry said it is on track to meet its target of $500 million in software sales for the fiscal year ending Feb. 29 as it pivots away from dependence on revenue from devices.

“BlackBerry hit a software number that investors have been looking for them to hit for quite some time,” said Morningstar analyst Brian Colello.

But the company sold just 700,000 smartphones in the period, down from about 800,000 in the prior quarter and about half the number a year ago. Average-selling prices increased to $315 from $240 after BlackBerry launched its high-end, Android powered Priv at the start of November.

BlackBerry did not break out results for the device but CEO John Chen told analysts on a conference call “the initial 30 days of sales has been quite positive.”

He said a more complete picture should emerge in subsequent quarters as BlackBerry invests to expand distribution and promotes the device through measures including instalment purchase plans.

The Priv retails in Canada for just under $800 unlocked, and Chen told reporters following the earnings call that the price is “a bit high.”

He said the price may not be sustainable and will likely be reduced as new Android devices come on the market in 2016.

Chen said the company may introduce a mid-range Priv next year and said BlackBerry will make a decision soon on whether it can make money in hardware.

He repeated that the pioneering mobile device company could exit smartphone manufacturing if losses continue but would maintain a presence by licensing its security software to other vendors across various operating platforms.

BlackBerry’s core clientele of government and law enforcement agencies and corporations in regulated industries rely on secure BlackBerry devices and Chen said his intent is to remain a hardware provider.

He said the decision on hardware depends on the sales performance of the Priv, suggesting the next two or three quarters will be pivotal.

But Chen expressed confidence that Priv sales will accelerate as distribution expands from four markets and just one carrier at launch.

The slider keyboard Priv will be available in 31 markets by the end of February and could be offered by more U.S. carriers, Chen said, adding that BlackBerry is also talking to corporate and government customers about selling directly to them.

Chen reiterated that the company would need to sell five million smartphones next year to make a profit on hardware. But he said BlackBerry is close to breaking even on devices, possibly within the current quarter or the next two, after lowering manufacturing costs.

“We are in that ballpark now.”