Bloomberg News

Research In Motion Shares Surge to Record on Outlook

September 29, 2006

Shares of Research In Motion Ltd. (RIM), maker of the BlackBerry handset, surged to a record after the company reported better-than-expected results and subscriber forecasts topped analysts' estimates.

The stock rose 19 percent after the company said yesterday that second-quarter profit increased 27 percent and predicted a record 800,000 new customers this quarter. Analysts including Deutsche Bank's Brian Modoff upgraded the stock and others raised their price targets after the report.

Co-Chief Executive Officer James Balsillie has attracted consumers with the new Pearl handset that adds a camera and music player to standard BlackBerry features such as e-mail and Web access. He has also added users by marketing to small and midsize businesses and investing in efforts to sell through retail stores amid competition from Nokia Oyj and Motorola Inc., the largest mobile phone makers.

``These numbers were awesome,'' said Peter Misek, an analyst at Canaccord Adams in Toronto, who rates the stock ``buy'' and said he doesn't own it. ``We were higher than the Street, but they even blew us away.''

The shares surged $16.59 to $102.65 at 4 p.m. New York time in Nasdaq Stock Market composite trading, giving the company a market value of $19.1 billion. The gain was the biggest since December 2003.

`Validation'

Profit this quarter will rise to 90 cents to 97 cents a share, and sales will be as much as $820 million, the Waterloo, Ontario-based company predicted late yesterday. That tops the 78-cent estimate of Mike Abramsky, an analyst with RBC Capital Markets. He expected the company to forecast 775,000 new users in the third quarter.

``The products are doing so well, and the carriers are gleeful,'' Balsillie said in an interview yesterday. ``This is a validation.''

Yesterday's report indicates the company has recovered from a patch of slower growth prompted by a patent lawsuit that was settled in March. That threatened to shut down the BlackBerry service in the U.S. The litigation scared away potential business customers and caused Balsillie, 45, to trim his subscriber forecast three times last fiscal year.

Deutsche Bank's Modoff upgraded Research In Motion's stock to ``hold'' from ``sell.'' RBC Capital Markets' Abramsky increased his price target for the stock to $140 from $100. Canaccord Adams's Misek raised his to $135 from $115, and Vivek Arya at Merrill Lynch boosted the estimate to $110 from $100.

New Subscribers

The company reported net income of $120.1 million, or 61 cents, on sales of $560.6 million in last year's third quarter.

Second-quarter net income increased to $140.8 million, or 74 cents a share, from $111.1 million, or 56 cents, a year earlier. Sales rose 34 percent to $658.5 million, Research In Motion said yesterday in a statement. Subscribers increased by 705,000 to 6.2 million.

The company is battling new competition from Nokia and Motorola, which have come out with more so-called smartphones that have e-mailing and Web access functionality.

Other rivals, such as Sunnyvale, California-based Palm Inc., are struggling to compete. The maker of the Treo handset last week reported first-quarter profit that missed the company's estimates, and the smallest sales gain in three years.

``When you release numbers like this everyone says maybe all these alternative BlackBerry-killers have been spinning a yarn,'' Balsillie said. ``It's a realization that all these trash-talkers were overplayed.''

Pearl Reviews

Positive reviews of the Pearl are attracting users and the product may become one of the most popular BlackBerrys ever, Balsillie said. Research In Motion is also starting to sell BlackBerrys in new countries. The company earlier this week started sales in Japan and plans to offer a Japanese-language device there as soon as April.

Research In Motion said in a separate announcement yesterday its audit committee found some instances of stock- option backdating and expects a restatement to cut reported net income since 1997 by $25 million to $45 million.

Yesterday's earnings conference call was delayed by 30 minutes and the financial statement came out about an hour later than analysts expected.

Balsillie said his late return from an overseas business trip, followed by meetings to complete the financial statements and the stock-option announcement caused the delay. The audit committee has been working on the options investigation since last summer, he said.

To contact the reporter on this story: Rebecca Barr in New York at rbarr1@bloomberg.net.

To contact the editor responsible for this story: Emma Moody at emoody@bloomberg.net.


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