Shares of BlackBerry (NYSE:BB) shot up last week after the company reported better-than-expected earnings. BlackBerry posted a surprise profit, which was a dramatic improvement compared with the $423 million loss from the prior quarter. Gross margin also improved to 48%, while cash increased sequentially to $3.1 billion. That increase in cash was entirely attributable to selling real estate and getting a tax refund, and excluding those one-time items the company burned through $255 million.

BlackBerry recognized revenue on 1.6 million phones, while 2.6 million units were sold through to end customers. On the conference call, management said that roughly two-thirds of recognized revenue was from BlackBerry 10 devices, which implies that most of the sell-through was from older BlackBerry 7 phones. CEO John Chen also believes that the company can be profitable on hardware if it ships 10 million phones next year, and BlackBerry also announced its new Passport device to address the phablet market.

The struggling smartphone maker is making progress with its turnaround, as operating expenses were down 40% from a year ago. Going forward, it may be difficult to continue reducing costs as BlackBerry's network operations have high fixed costs. BlackBerry has legitimate strengths in software and services, but its hardware business leaves a little to be desired.

In this segment of Tech Teardown, Erin Kennedy discusses BlackBerry's earnings with Evan Niu, CFA.

(Relevant segment begins at 6:53.)