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BlackBerry Dips Into Red, Drops Tablet Development

Waterloo, Ontario — BlackBerry reported higher sales, but posted a loss and said it would drop tablet development.

BlackBerry revenues rose 9 percent to $3.1 billion in the company’s first fiscal quarter ended June 1, compared with the year-ago period. But it posted a net loss of $84 million compared with fourth-quarter net income of $94 million and third-quarter net income of $14 million. The quarter’s losses are still better than the year-ago net loss of $518 million.

The company also said it expects to post net losses in the second quarter because of market competitiveness and the need to invest in promoting BlackBerry 10 OS smartphones and enterprise products and services. Sales and marketing expenses rose sequentially by $124 million in the quarter.

The company also announced it will drop tablet development and no longer bring the BlackBerry 10 to its PlayBook. The company will continue to support the PlayBook on its current operating system. President/CEO Thorsten Heins said he was not satisfied with the level of performance and user experience in bring BB10 to the PlayBook.

 He also said the company would not have more than six new devices in the market at any given time so the company can focus on differentiating its products. He said the company plans one more smartphone this year based on the older BlackBerry 7 OS.

For the quarter, North American revenues slipped 4.2 percent from the year-ago quarter to $761 million but rose sequentially by 30 percent.

With a full quarter of global BlackBerry Z10 sales under its belt but with the Q10 only beginning to roll out late in the quarter, the company’s smartphone shipments rose sequentially to 6.8 million from the previous quarter’s 6 million but were down from the year-ago 7.8 million.

Of the 6.8 million smartphones sold in the quarter, about 40 percent were BlackBerry 10 OS phones, and the rest were older BlackBerry 7 OS phones.

Tablet sales of 100,000 in the quarter were off from the previous quarter’s 370,000 and year-ago quarter’s 260,000.

Heins recommended the market and investors be patient as the company continues to make its transition to the BlackBerry 10 OS for smartphones and its transition in services businesses. “I am not looking at this short term,” he said. The transition “takes time.” This year “is our year of investment,” he said.

“Over the next three quarters, we will be increasing our investments to support the roll out of new products and services, and to demonstrate that BlackBerry has established itself as a leading and vibrant player in next generation mobile computing solutions for both consumer and enterprise customers,” said Heins. The investments include BlackBerry 10 smartphone launches, the roll out of BlackBerry Enterprise Service 10, the evolution of BlackBerry Messenger into a cross-platform mobile social messaging application, and the “launch other revenue initiatives associated with new services and emerging mobile computing opportunities,” he said.

The company is in a strong position to boost sales and marketing despite losses because the company had $3.1 billion in cash on hand at the end of the quarter, marking the highest level in three years, Heins said.

Heins emphasized that the turnaround strategy is not a device-only strategy and pointed to the preference by enterprises for an end-to-end security solution that includes devices.

The quarter’s financial results include restructuring charges of $26 million in pretax charges. Restructuring began in March 2012.

The quarter does not include sales of the new low-tier BlackBerry Q5, based on the BlackBerry 10 OS but intended for Asia-Pacific markets.