By Euan Rocha and Alastair Sharp
WATERLOO Ontario/TORONTO (Reuters) - BlackBerry Ltd posted a narrower-than-expected loss as the troubled smartphone maker's turnaround efforts started to pay off, raising hopes its chief executive can deliver on a pledge to return the company to steady profits.
Shares jumped more than 10 percent on Thursday after BlackBerry said it spent less cash than many expected and its gross profit margin rose from a year earlier.
BlackBerry also said its lower cost Z3 smartphone was selling well in Indonesia and its services business, which manages its own and rival mobile devices on the internal networks of large organizations, had won back some customers.
"The short trade is over in this name for now - for now," said BGC analyst Colin Gillis. "They've got enough liquidity, (and) they've given us clear profitability targets."
BlackBerry has been slashing costs and has more than halved its workforce over the last two years as part of a do-or-die push to turn its business around after losing ground to Apple Inc's iPhone and Samsung Electronics Co devices that run on Google Inc's Android system.
Chief Executive John Chen wants to remain a competitor in the smartphone segment, but he is focused on BlackBerry's services business, which made up 54 percent of revenue in the fiscal first quarter, up from 26 percent only a year earlier.
The company works with hundreds of large corporations and government agencies to securely manage their networks.
But there are early signs of recovery in BlackBerry's hard-hit hardware business. On a call with analysts, Chen was upbeat on the Z3, which was launched in Indonesia earlier this year. He said demand was strong and inventory has run low at some points.
The Z3 was built under a partnership forged last year with FIH Mobile, the Hong Kong-listed unit of Taiwanese electronics company Foxconn Technology Co Ltd, to help design, manufacture and sell devices.
As part of the deal BlackBerry no longer pays the full upfront costs for parts used in its devices. Instead, Foxconn, the trading name of Hon Hai Precision Industry, takes a share of profits on each device in return for the risk of inventory management.
Excluding special items, the company drew down $255 million in cash in the period, much less than the $784 million it used in the fiscal fourth quarter.
Gross profit margin rose to 46.7 percent in the fiscal first quarter to May 31, from 33.9 percent a year earlier.
"All areas of our business are making very good progress," said Chen on the call. "Financial objectives are on track, and strategy is on track, and the bottom line is we feel good about where we are."
The Waterloo, Ontario-based company reported net income of $23 million, or 4 cents a share, compared with a loss of $84 million, or 16 cents, a year earlier.
Excluding a one-time non-cash accounting gain and certain restructuring charges, the loss was $60 million, or 11 cents a share. Analysts, on average, had expected a loss of 25 cents a share, according to Thomson Reuters I/B/E/S. Quarterly revenue dropped to $966 million from $3.07 billion a year earlier.
Cash rose to $3.1 billion from $2.7 billion on a sequential basis, helped by the sale of real estate assets and a tax refund.
BlackBerry's Nasdaq-listed shares rose 13.2 percent to $9.39.
(Writing by Allison Martell; Editing by Franklin Paul, Sofina Mirza-Reid and Jeffrey Hodgson)