23 Jun

Do BlackBerry’s better-than-expected results signal a turnaround?

WRITTEN BY Puneet Sikka

BlackBerry shows better-than-expected results

Late last year, analysts had feared that BlackBerry (BBRY) wouldn’t survive and that it could run out of cash soon. Those fears were allayed when BlackBerry announced its fiscal Q1 2015 results on Thursday, which were better than analysts’ expectations. BlackBerry’s revenues, at $966 million, were slightly better than analysts’ expectations of $963 million. But more importantly, the company’s loss per share of $0.11 was way less than the $0.26 that analysts were expecting. Last quarter’s, fiscal Q4 2014, results were mixed. Although earnings per share were better than expected last quarter, revenues of $976 million were below analysts’ expectations of $1.1 billion.

The fiscal Q1 results have given confidence to the market, suggesting that BlackBerry is on the course of a turnaround and could break even before the company’s own expectation of fiscal 2015 year end. The happy investors rewarded BlackBerry’s stock and the stock jumped 8% on Thursday and on Friday to close at $9.81 on Friday. Let’s take a closer look at how the company was able to exceed everyone’s expectations.

Do BlackBerry’s better-than-expected results signal a turnaround?

Smartphone sales increased after a gap of one year

As the chart above shows, BlackBerry smartphone shipments increased for the first time in the last five quarters. BlackBerry shipped around 1.6 million smartphones in fiscal Q1 2015 compared to the 1.3 million that it shipped in fiscal Q4 2014. The company sold 2.6 million BlackBerry smartphones through to end customers, which helped reduce channel inventory. Increasing smartphone sales is important for BlackBerry to avoid further market share losses in the smartphone operating system market currently led by Google’s (GOOGL) Android, Apple’s (AAPL) iOS, and Microsoft’s (MSFT) Windows Phone. The smartphone hardware market is led by Samsung (SSNLF), which has a global market share of around 31%.

Margins improved considerably under Chen’s leadership

BlackBerry reported adjusted gross margins of 48%, which were a big improvement from the 43% the company achieved last quarter. BlackBerry’s CEO, John Chen, also brought about a year-over-year reduction of 57% in operating expenses through a reduction in headcount and other cost-cutting initiatives. He mentioned that the company is on course to break even by the end of fiscal 2015.

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