Disappointing Quarter Raises Concerns About RIM, BlackBerry

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Is this a temporary setback for Research In Motion and its mighty BlackBerry, or a preview of things to come?

RIM and BlackBerry will be tested like never before in the coming months, thanks to the advance of competing smartphone devices and a less-than-invigorating quarterly earnings report that saw shares of RIM take a 15 percent nosedive on Friday. Many observers see RIM's disappointing sales as a sign there may be cracks in RIM's foundation and concern about BlackBerry ceding market share to competitors.

RIM's earnings for the quarter ended Aug. 29 were $475.6 million, at 83 cents per share, down from $495.5 million, or 86 cents a share, from the same quarter a year earlier. RIM attributed much of the profit disappointment to a charge of $112.8 million RIM incurred thanks to a patent settlement with Visto. Without that, said RIM, it would have earned $588.4 million at $1.03 per share.

Revenue was $3.53 billion, up from $2.58 billion a year ago, but fell short of the $3.62 billion predicted by most analysts in a Thomson Reuters poll.

Perhaps most discouraging for RIM, however, was that it came up short of expectations on the number of BlackBerry devices shipped during the quarter. RIM reported shipments of 8.3 million BlackBerrys and added nearly 3.8 million subscribers. Analysts had anticipated 8.5 million to 8.6 million BlackBerrys shipped and about 4 million new subscribers.

RIM co-CEO Jim Balsille told investors and analysts Thursday that RIM's numbers were a temporary setback -- and that RIM was poised for great growth over time.

"This stuff is going much more mainstream. And we are teed up to go much more mainstream. If this crosses over, as I think we are doing, we are in a good position and a very prosperous position," Balsille said during a conference call Thursday. "I don't think you should extrapolate too much over a little bump here or there."

Analysts weren't convinced, however -- especially since RIM projected revenue between $3.6 billion and $3.85 billion for its third quarter, solidly lower than the $3.92 billion most analysts expected.

The outlook prompted Goldman Sachs to downgrade its "buy" rating for RIM to "neutral."

"RIM is unlikely to maintain its over 50 percent share in North America in the face of increasing competition from Apple, Motorola and Palm, among others. Even in a still-benign competitive environment with two newly launched products, RIM lost share for the second consecutive quarter," wrote Goldman Sachs analyst Simona Jankowski in a research note.

Other firms followed suit. Raymond James, for example, cut its rating for RIM from "outperform" to "market perform." Deutsche Bank changed its RIM rating to "sell" from "hold."

Goldman's Jankowski also noted that RIM's strong growth outside North America might also be slipping.

"A second consecutive decline in international sales tempers our expectations for share gains overseas," she noted.

RIM has made substantial gains -- sales of its handsets are up 40 percent year-over-year -- and new phones like the BlackBerry Curve and BlackBerry Tour help help expand its smartphone line before the holiday shopping season. RIM will have to come up big, though, to convince analysts it isn't hitting a wall.

Do RIM's numbers represent a minor bump in the road or a major slowdown? Let us know your thoughts by leaving a comment in the Channelweb Connect community.

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