Bloomberg News

RIM Drops to Four-Year Low After Forecast Misses Estimates

June 17, 2011

(Updates with closing share price in fifth paragraph.)

June 17 (Bloomberg) -- Research In Motion Ltd. dropped to its lowest level since 2006 after the BlackBerry smartphone maker said quarterly revenue may drop for the first time in nine years and unveiled plans to reduce jobs.

Revenue will be $4.2 billion to $4.8 billion in the fiscal second quarter, RIM said in a statement yesterday. That was less than the average analysts’ estimate for sales of $5.47 billion, according to a Bloomberg survey. Profit this quarter will be 75 cents to $1.05 a share. Analysts had predicted $1.40.

RIM is losing market share in the U.S. to Apple Inc.’s iPhone and handsets running Google Inc.’s Android software, in part because it hasn’t introduced a major new BlackBerry model since August. Cheaper Google phones are also making inroads in Latin America, Asia and Europe, threatening the popularity of less expensive BlackBerry models like the Curve.

“They are resting on their laurels,” Stephen Jarislowsky, chairman of Montreal-based Jarislowsky Fraser Ltd., said in an interview today. The firm was RIM’s sixth-biggest investor at the end of March with 10.2 million shares, and has reduced its holding by at least half since, he said. “Steve Jobs is a much better marketer than RIM,” he said, referring to Apple’s chief executive officer.

RIM, based in Waterloo, Ontario, plunged $7.58, or 21 percent, to $27.75 at 4 p.m. in Nasdaq Stock Market trading, the lowest level since Sept. 12, 2006. The stock has dropped 52 percent this year.

Dual CEOs

“Its product portfolio is just not up to snuff with its key competitors,” said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto, who manages about $14.5 billion, including RIM shares.

RIM has come under increasing scrutiny from investors after its stock slumped, the company lost phone market share, and its new PlayBook tablet computer, a rival to Apple’s iPad, was criticized by technology columnists. Last week, investor Northwest & Ethical Investments LP called for RIM to separate the roles of chairman and CEO as analysts question whether RIM’s co-CEO structure is the best way to manage the company.

“With dual CEOs, you have a challenge,” said Brian Modoff, an analyst at Deutsche Bank Securities in San Francisco, who rates RIM a “sell.” “There are teams that are working on certain functions, but only reporting to one or the other CEO, so there is a duplication in structure.”

New Product Delays

The company said yesterday it plans to eliminate an unspecified number of jobs and make organizational changes to accelerate product introductions. Benefits from the job cuts should start to appear in the third quarter, Chief Financial Officer Brian Bidulka said on the call.

“They definitely have some low-hanging fruit in terms of cutting costs,” Modoff said. “A streamlined structure would be beneficial for the company.”

The company unveiled a new version of its Bold phone last month with both the physical keyboard loved by BlackBerry users and the touch screen that made the iPhone popular. The Bold and other new devices will only be available late in the quarter, Co-CEO Jim Balsillie told analysts on a conference call yesterday.

The forecast “means new devices won’t make it into the second quarter,” said Tero Kuittinen, an analyst at MKM Partners in Stamford, Connecticut. “This is a quarter they really needed new devices to get them in there and they won’t.”

Kuittinen today cut his rating on RIM to “neutral” from “buy.” Robert Cihra at Caris & Co., Scotia Capital Inc.’s Gus Papageorgiou, Rod Hall of JPMorgan Securities Inc. also downgraded their ratings on the stock today.

Smartphone Market Share

Balsillie reiterated that he and co-CEO Mike Lazaridis are committed to retaining the executive structure. He told analysts yesterday that “completing the transition and taking the company to the next level of success is also something neither of us can do alone.”

Lazaridis added that he and Balsillie have “never been more committed” to RIM.

RIM’s share of U.S. smartphone subscribers dropped 4.7 percentage points to 25.7 percent in April from three months earlier, according to ComScore Inc.

Full-year profit will be $5.25 to $6 a share, excluding some costs, RIM said, down from a previous forecast of $7.50. Analysts on average predicted $6.24.

Net income in the first quarter, which ended in May, was $695 million, or $1.33 a share, compared with $769 million, or $1.38, a year earlier. Sales rose 16 percent to $4.91 billion.

‘Cut-Throat Competition’

The company said it shipped 500,000 PlayBooks last quarter after starting sales on April 19. Analysts predicted sales of 350,000 units, the average of six estimates compiled by Bloomberg.

RIM shipped 13.2 million BlackBerrys last quarter, compared with analysts’ estimates of 13.6 million. RIM said it will ship 11 million to 12.5 million phones this quarter, while analysts had predicted 13.7 million units.

“From my 60 years in the market, I’ve learned you have to sell your shares before the other guys,” Jarislowsky said. “All of these products go through the same cycle. First it was the radio, then it was TV. At a certain point, you get saturation and cut-throat competition on price.”

((Go to RIM US <Equity> CWP <GO> and follow directions for the webcast and a recording of yesterday’s conference call.))

--Editors: Jillian Ward, James Callan

To contact the reporters on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Jonathan Erlichman in New York at jerlichman1@bloomberg.net

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


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