September 25, 2008 / 8:31 PM / 10 years ago

UPDATE 3-RIM's outlook disappoints as costs increase

(Adds co-CEO comments, details; in U.S. dollars unless noted)

By Wojtek Dabrowski

TORONTO, Sept 25 (Reuters) - Research In Motion RIM.TORIMM.O warned on Thursday that profit in the current quarter would come in lower than analysts had expected because of higher costs related to its newest BlackBerry smartphones, sending its shares down nearly 20 percent.

In addition to a light earnings-per-share outlook, the company revealed a gross-margin forecast that was softer than many had anticipated. RIM blamed increased expenses related to its latest handsets like the BlackBerry Bold, a high-end model targeting the company’s mainstay base of corporate users.

“This is a surprise, and not a positive one,” Canaccord Adams analyst Peter Misek said of the results. “For next quarter, gross margin ... is way lower than we thought.”

The disappointing news came as Waterloo, Ontario-based RIM reported a profit in its second quarter that was in line with forecasts. The company also said its enterprise business, mainly corporate customers, was still robust, even as economic uncertainty prevails in the U.S. market.

Even so, RIM’s shares sold off immediately after it released its results, dropping to $79.10 in after-hours trade, down 19 percent from their close at $97.53 on Nasdaq. Shares of competitor Apple Inc (AAPL.O) closed up 2.5 percent at $131.93 on Nasdaq, but also fell after the bell to $127.10.

For the three months ended Aug. 30, RIM’s earnings rose to $495.5 million, or 86 cents a share, from $287.7 million, or 50 cents, in the same period a year earlier.

The results were in line with the company’s June forecast and just shy of analyst expectations for a profit of 87 cents a share, according to Reuters Estimates.

RIM co-CEO Jim Balsillie told analysts in a conference call that the company’s newest, feature-rich handsets have higher costs associated with them, which in turn affects margins.

“This is particularly the case with (BlackBerry) Bold and other unannounced 3G product platforms,” he said.

It’s also difficult for RIM to pass on all those higher costs to consumers and still keep next-generation BlackBerry prices at attractive levels, Balsillie added.

RIM has recently announced BlackBerry models aimed at the broader consumer market, including a flip-phone BlackBerry Pearl. It is also preparing to launch a touch-screen version of its smartphone to compete more directly with Apple’s iPhone.


Analysts and investors have long held concerns that some of RIM’s large corporate clients could scale back BlackBerry purchases and upgrades as the economic downturn takes hold, hurting the company’s performance. The recent turbulence on Wall Street has underscored those concerns.

Balsillie has said that he sees a limited impact at most because the U.S. financial-services industry, which has been rocked by the downturn, makes up only a small part of RIM’s subscriber base.

On Thursday, he said corporate clients were still buying BlackBerrys and that the enterprise business “remains strong.”

For its third quarter, RIM expects earnings per share of between 89 and 97 cents — less than analyst expectations, according to Reuters Estimates. It also expects to add 2.9 million subscribers and to have a gross margin of 47 percent.

RIM said its revenue was $2.58 billion, up 88 percent from $1.37 billion a year earlier. Analysts had forecast $2.59 billion. For the third quarter, it said it expects revenue of between $2.95 billion and $3.1 billion.

The company said it added 2.6 million subscribers and that its total base is now about 19 million. (Reporting by Wojtek Dabrowski; editing by Frank McGurty)

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