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UPDATE 4-BlackBerry loss less than feared, but revenue plunge worries

(Adds investor and analyst comment, updates market reaction)

TORONTO, March 28 (Reuters) - BlackBerry Ltd reported a smaller-than-expected loss on Friday as new chief executive John Chen slashed costs, but a 64 percent drop in revenue underscored the challenge he faces in turning around the struggling smartphone maker.

The Canadian company, which has lost most of the smartphone market to Apple Inc's iPhone and gadgets powered by Google Inc's Android operating system, has laid off thousands and agreed to sell most of its real estate.

Chen said he expects to be cash flow positive or neutral by the end of the current fiscal year, which runs to early March 2015. He does not expect to turn a profit until sometime in the following fiscal year.

"John Chen did what John Chen is known for. He came in and he's cut the cost base," said BGC Partners technology analyst Colin Gillis, who also noted the "precipitous" revenue drop. "He's buying himself some time."

Research and development expenses fell 24 percent in the fourth quarter from a year earlier, while selling, marketing and administration costs dropped 35 percent.

Shares of BlackBerry, whose global smartphone market share was below 1 percent at the end of 2013, rose in early trading but were down 0.8 percent at $8.97 midday. The stock is still up more than 30 percent from when Chen took over in November.

BlackBerry's Nasdaq-listed shares were trading above $60 in early 2011 but dropped sharply that year, and have not touched above $20 since.

Morningstar analyst Brian Colello said operating expense reductions were encouraging, to a point.

"The big question still remains what BlackBerry can do on the demand side," he said. "A lot of their moves have been supply related and internal, but we're still looking for strong signs that demand is improving."

Under Chen, the Waterloo, Ontario-based company is focusing on its services arm, which manages mobile devices on the internal networks of big clients.

The share of BlackBerry's revenue from hardware continued to decline in the quarter, to 37 percent, from 40 percent in the third quarter and 61 percent in the fourth quarter of last year.

Ross Healy, a portfolio manager at MacNicol & Associates, which has a small stake in the company, said BlackBerry is becoming a more attractive acquisition target.

"You can't cut your way to revenue, but what you can cut your way to is profitability," he said.

BACK TO THE FUTURE

The company's newer BlackBerry 10 phones have not lived up to high expectations, and after heavily promoting several devices with touch-screen keyboards, it is returning to its roots, emphasizing the physical keyboards its most loyal fans covet.

Last month BlackBerry unveiled a new "classic" model with a keyboard. Chen told Reuters in an interview that BlackBerry was designing three new keyboard-centric devices and would probably introduce them in the next 18 months.

On Friday's conference call, Chen said the company was set to begin a new production run of its Bold devices that run on the older BlackBerry 7 platform, as demand for them remains strong.

The company said it had recognized hardware revenue on about 1.3 million BlackBerry smartphones during the fourth quarter, compared with about 1.9 million devices in the third quarter.

It also said about 3.4 million devices were sold through to end customers, and this included shipments made and recognized before the fourth quarter. The company said 68 percent of these devices were BlackBerry 7.

Its net loss was $423 million, or 80 cents a share, for the fourth quarter ended March 1. That compared with a year-earlier profit of $98 million, or 19 cents a share.

Revenue fell to $976 million from $2.68 billion. Analysts on average had been expecting $1.11 billion, according to Thomson Reuters I/B/E/S.

Excluding restructuring charges and other one-time items, the company reported a loss of 8 cents a share. The analysts' average estimate was a loss of 55 cents.

(Additional reporting by Leah Schnurr in Toronto; Editing by Chizu Nomiyama, Jeffrey Hodgson, Sophie Hares and Meredith Mazzilli)