RIM Drops as Investors Disappointed With Earnings Report for Third Quarter

By Hugo Miller - Sep 16, 2011 11:01 AM GMT+0700
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People take pictures of the Research In Motion Ltd. (RIM) BlackBerry PlayBook tablet computer on display during the BlackBerry DevCon 2010 developers conference in San Francisco. Photographer: David Paul Morris/Bloomberg

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Sept. 15 (Bloomberg) -- Daniel Ernst, an analyst at Hudson Square Research in New York, talks about Research In Motion Ltd.'s second-quarter performance and the outlook for its products. Ernst speaks with Matt Miller, Julie Hyman and Lisa Murphy on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Research In Motion Ltd. (RIMM), struggling to compete against Apple Inc. (AAPL)’s iPhone and iPad, plunged in extended trading yesterday after its earnings report disappointed investors for the third consecutive quarter.

“Credibility sinks further,” said Mike Abramsky, an analyst with RBC Capital Markets in Toronto, who rates RIM “sector perform.”

Profit, excluding some costs, fell to 80 cents a share, RIM said yesterday in a statement. Analysts predicted 88 cents, according to a Bloomberg survey. Revenue fell to $4.17 billion in the three months through Aug. 27, compared with the average estimate of $4.47 billion.

The company’s PlayBook is struggling to gain ground against the iPad, with the Apple Inc. device outshipping the RIM tablet 46 to 1 in the latest quarter. A range of new BlackBerrys with more advanced touch-screen features, RIM’s first new models in a year, have to lure customers away from Apple’s iPhone and others running Google Inc. (GOOG)’s Android software.

“It’s about growing the footprint and that’s where I think they’ve got problems,” said Mark McKechnie, a ThinkEquity LLC analyst in San Francisco who has a “hold” rating on RIM. The new versions of the BlackBerry Bold and Torch “are not really gathering new users,” he said.

RIM, based in Waterloo, Ontario, fell as much as $5.75, or 19 percent, to $23.79 in extended trading after closing yesterday at $29.54 on the Nasdaq Stock Market. The stock dropped 49 percent this year at yesterday’s close of regular trading.

Disappointing Shipments

The company shipped about 200,000 PlayBooks, compared with the average estimate of 490,000 units. Analysts have cut estimates for full-year PlayBook sales to an average of 2.2 million. In its last quarter Apple shipped 9.25 million iPads.

RIM shipped 10.6 million BlackBerrys last quarter. Analysts predicted 11.9 million, according to the average of 10 estimates compiled by Bloomberg.

Co-Chief Executive Officer Jim Balsillie attributed the sluggish shipments to lower-than-expected demand for older devices that have struggled to compete with the iPhone and Android devices such as the Samsung Galaxy. He also said on a conference call yesterday that RIM’s latest handsets, which run on a new BlackBerry 7 operating system, are “having an excellent reception.”

Co-CEO Mike Lazaridis said RIM will issue a software upgrade for the PlayBook next month that will include dedicated e-mail, contacts and calendar programs, as well as software to allow the PlayBook to run Android applications. RIM drew criticism for introducing the PlayBook in April without e-mail and a shortage of apps like Netflix Inc. (NFLX) movies.

‘Challenging’ Few Months

Lazaridis also said prototypes of phones built on a new QNX operating system that already underpins the PlayBook will be available “in the not-too-distant future” and that he will give more details at a conference in San Francisco next month.

“RIM is still going to have a challenging next few months until the QNX products are out and the Android app products are available,” said Alkesh Shah, an analyst at Evercore Partners. “The transition probably doesn’t finish until sometime mid to late 2012.”

RIM forecast third-quarter revenue of $5.3 billion to $5.6 billion and shipments of between 13.5 million and 14.5 million BlackBerrys. Earnings excluding charges related to job cuts will be in the range of $1.20 to $1.40.

Analysts estimated sales of $5.3 billion, 13.8 million units shipped and earnings per share of $1.38.

RIM also said that earnings for the year, excluding some costs, would be at the low end of its previous forecast of $5.25 to $6 a share.

Under Review

“We don’t trust those numbers,” said Jeff Fidacaro, an analyst at Susquehanna International Group in New York. “We thought $5.06, but that’s under review.”

RIM’s share of the global smartphone market dropped to 12 percent in the second quarter from 19 percent a year earlier, according to Gartner Inc. In the same period, Apple climbed to 18 percent from 14 percent, and Google’s Android, used in phones from Samsung Electronics Co. and Motorola Mobility Holdings Inc., rose to 43 percent.

Net income fell 59 percent to $329 million, or 63 cents a share, from $797 million, or $1.46, a year earlier.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net