BlackBerry sells 1M Z10s, but loses 3M subscribers

BlackBerry (NASDAQ:BBRY) reported that in its fiscal fourth quarter, which ran until March 2, it sold 1 million units of its new flagship touchscreen Z10 smartphone, the first to run its BlackBerry 10 platform. However, in a troubling sign for the company, it also said that its subscriber base fell to 76 million, down from 79 million at the end of the previous quarter and 80 million the quarter before that.

All told, BlackBerry said it sold 6 million smartphones in the quarter, including the Z10 sales, which started Jan. 31. The sales do not include any U.S. sales of the Z10, which launched March 22 through AT&T Mobility (NYSE:T). BlackBerry also said it sold around 370,000 PlayBook tablets. During the year-ago quarter, BlackBerry shipped around 11.1 million BlackBerry smartphones and over 500,000 BlackBerry PlayBook tablets.

BlackBerry CEO Thorsten Heins said 55 percent of Z10 customers globally are switching over from other smartphone platforms, a higher figure than executives have previously indicated. He said Z10 demand has been better than anticipated and that the Z10 has now launched with 60 carriers in 40 countries, and that there are still more than 30 countries to come.

Heins reiterated that the Q10, BlackBerry's first BB10 phone with a physical keyboard, will be launched in April. He said the Q10 is in testing with 40 carriers in 20 countries.

Interestingly, Heins said that BlackBerry will launch a mid-tier BB10 device by the middle of its fiscal year, which means likely sometime in the late summer. "We are building a portfolio in this fiscal year," he said.

BlackBerry announced with much fanfare earlier this month that an unnamed, "established" partner placed an order for 1 million BlackBerry 10 smartphones, the company's largest single order ever. Though the company has declined to name the purchaser, it was wireless device distributor Brightstar, according to an AllThingsD report. The companies have declined to comment on the report. 

In a spot of bright news, the company said it swung to a net profit of $98 million, a reversal from a loss $125 million in the year-ago period. BlackBerry said revenue for the fourth quarter came in at $2.67 billion, just 2 percent from its fiscal third quarter but down 36 percent from $4.2 billion in the year-ago period. BlackBerry said 61 percent of its revenue in the fiscal fourth quarter was from hardware, 36 came from service revenue and 3 percent came from software and other revenue.

Heins indicated--as he did in December--that BlackBerry's service revenue structure will evolve as BB10 deployments accelerate. He said that the company expects to see a single-digit decline in service revenue in the current quarter and that while the company's legacy BlackBerry 7 service will continue to generate revenue, the company will look to new sources of service revenue. Heins said the company is actively developing services business models that could include new services for its BlackBerry Messenger user base, the possible licensing of BB10, the creation of unspecified "cross-platform offerings," services that leverage social media, advanced security tools and additional security features.

"We plan to stay in the services business," he said. Heins spooked investors last quarter by indicating that BlackBerry will transition to a tiered service revenue model, which analysts feared could reduce the company's service revenue. 

Despite the drop in subscribers, Heins said the company continues to see strong interest in corporate and government customers maintaining BlackBerry Enterprise Service. Earlier this month BlackBerry said it will launch a solution that will separate and secure work and personal data on mobile devices for third party platforms, including Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS. A similar feature, called BlackBerry Balance, is a core part of BB10. The new feature will be available by the end of June and will be managed through BlackBerry Enterprise Service 10. BES10 already offers mobile device management capabilities for Android and iOS devices.

Interestingly, Heins also said the company's strategic review helped transform it financially and make it more stable. He also said the company is considering bringing BB10 to vertical markets such as automotive, industrial, healthcare, security and defense.

The company said it had $2.9 billion in cash on hand, unchanged from the previous quarter. BlackBerry provided a limited financial outlook, noting it will increase its marketing investment by 50 percent sequentially in the current quarter to support the global launch of BlackBerry 10. The company said it thinks it will "approach breakeven financial results in the first quarter based on its lower cost base, more efficient supply chain, and improved hardware margins."

According to Gartner, BlackBerry captured 3.5 percent of the global smartphone market in the fourth quarter, down from 8.8 percent in the year-ago period. Similarly, research firm comScore found that BlackBerry captured 6.4 percent of the U.S. market in December 2012, down from 8.4 percent in September 2012.

BlackBerry also announced that Mike Lazaridis has decided to retire as vice chair and a director of the company. Lazaridis co-founded BlackBerry nearly 30 years ago and served as a co-CEO of the company until last year when Heins took over and Lazaridis was elected vice chair of the board. Lazaridis, who last week announced the launch of his new venture, Quantum Valley Investments, will step down from the BlackBerry board effective May 1, 2013.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Reuters article
- see this separate WSJ article (sub. req.)

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