BlackBerry ships 2.7M BB10 devices, but loses 4M subscribers

BlackBerry (NASDAQ:BBRY) reported a surprise loss for its first fiscal quarter, and though it reported an increase in smartphone sales compared with its fiscal fourth quarter, sales of new BlackBerry 10 devices are still struggling to gain traction. In a worrying sign for the company, BlackBerry said its subscriber base fell by 4 million in the quarter, from 76 million down to 72 million. The quarter highlights the challenges BlackBerry faces in reigniting demand for its phones and software through its new BB10 platform and devices.

blackberry q10

BlackBerry Q10

BlackBerry's shared were down 26 percent on the news to around $10.70 per share.

BlackBerry said it sold 6.8 million smartphones in the period, which ended June 1, up from 6 million in the fiscal fourth quarter but down from 7.8 million in the year-ago period. The company said it shipped 2.7 million BlackBerry 10 devices in the quarter, but did not provide sell-through figures.

The company shipped 100,000 PlayBook tablets, down from 370,000 in the fiscal fourth quarter and 260,000 in the year-ago period. During the company's earnings conference call, BlackBerry CEO Thorsten Heins said the company halted efforts to bring the BB10 platform to the PlayBook because Heins was unsatisfied with the user experience. He said the company will continue to support the PlayBook in its current configuration.

On the closely watched metric of BlackBerry's subscriber base, the company reported that the number of its subscribers fell by 4 million, with declines in North America, Latin America and the EMEA region offset by gains in Asia Pacific. The company acknowledged that there is continued churn in its subscriber base as it moves more to BB10.

During the call, Heins repeatedly stressed that the company is in the middle of launching its BlackBerry 10 device portfolio and getting its BlackBerry Enterprise Service 10 rolled out to enterprises, which he said are strongly adopting it. Heins said fiscal 2014 will be a "year of investment" and that the transition will take time. However, he said he is confident in BlackBerry 10's long-term viability. Heins said right now, based on customer feedback, BlackBerry is not contemplating splitting BlackBerry's devices business from its services business. He said enterprise customers want an end-to-end solution, encompassing devices and BlackBerry's secure services platform.

Heins also said that BlackBerry plans to have no more than six new devices in the market at any time and will release a new BlackBerry 7 device later this year to support sales to customers still on its legacy platform. Heins said "BlackBerry is getting very comfortable with who we are as a company and where we will fit in the market. We don't have to be all things to all people in all markets."

Worryingly, the company reported a loss from continuing operations of $84 million, a step back from the $94 million profit from continuing operations BlackBerry had in its fiscal fourth quarter. The company reported a net loss of $518 million in the year-ago period. The company partially blamed its sluggish fiscal first quarter results on foreign currency restrictions in Venezuelan, and noted that, excluding such an impact, adjusted earnings would have been around breakeven. The company said it expects to post an operating loss in its fiscal second quarter.

BlackBerry's revenue in the quarter was $3.1 billion, up 15 percent from $2.7 billion in the fiscal fourth quarter and up 9 percent from $2.8 billion in the year-ago period. Analysts were expecting revenue of $3.36 billion, according to the Wall Street Journal.  The revenue breakdown for the quarter was 71 percent for hardware, 26 percent for service and 3 percent for software and other revenue. BlackBerry said because of how the switch to BB10 is affecting its business, it will not specifically break out service revenue going forward.

The company's results for the quarter do not reflect many sales of the BlackBerry Q10, the company's first BB10 phone with a physical keyboard, which BlackBerry is counting on to help revive sales, especially with legacy BlackBerry users. The touchscreen Z10 was on sale during the entirety of the quarter. The Z10 is now available in 147 countries, and the Q10 is available in 96 countries, with 50 more coming in the fiscal second quarter.

The Q10 went on sale earlier this month from Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and T-Mobile US (NYSE:TMUS), and is expected to be available from Sprint Nextel (NYSE:S) later this summer. Heins has said that the company expects to sell "tens of millions" of Q10 devices. The company also recently launched the lower-end Q5, which has a physical keyboard and is aimed at emerging markets. Around 69 countries will launch the Q5 in BlackBerry's fiscal second quarter.

Heins said that "our carriers are with us and they're helping with promoting BlackBerry 10." He said BlackBerry's marketing efforts are not all highly visible TV advertisements, but also include behind-the-scenes work with carrier promotions, training retail sales representatives, videos showing the features of BB10 and more.

Looking ahead, BlackBerry said it continues to expect a bumpy road, warning that "the smartphone market remains highly competitive, making it difficult to estimate units, revenue and levels of profitability." The company will focus on more BlackBerry 10 smartphone launches and the deployment of BES 10. Further, BlackBerry said it will continue to invest in its BlackBerry Messenger service--headed to Google's (NASDAQ:GOOG) Android and Apple's (NASDAQ:AAPL) iOS "before the end of the summer,"  Heins said--as well as other "new services and emerging mobile computing opportunities."

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

Related Articles:
BlackBerry sales, earnings remain murky ahead of earnings announcement
Report: BlackBerry's next flagship smartphone, A10, to drop during holidays
BlackBerry in talks to preload Messenger on rival mobile devices
Verizon's Stratton: Microsoft, BlackBerry have a chance in enterprise market
IDC: Windows Phone shipments vault past BlackBerry in Q1
BlackBerry to take Q5 to emerging markets; releasing BBM to iOS, Android
BlackBerry's Heins: We expect 'tens of millions' of Q10 sales

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