RIM's outlook disappoints, shares tumble

TORONTO Thu Mar 24, 2011 6:37pm EDT

A man speaks on a BlackBerry mobile phone inside a shop in Kolkata January 31, 2011.REUTERS/Rupak De Chowdhuri

A man speaks on a BlackBerry mobile phone inside a shop in Kolkata January 31, 2011.

Credit: Reuters/Rupak De Chowdhuri

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TORONTO (Reuters) - Blackberry maker Research In Motion on Thursday warned its earnings would slip as it spends heavily on the launch of its PlayBook tablet, sending its shares tumbling as much as 12 percent.

While the Canadian technology company's net profit in the quarter ended in February jumped 32 percent, and it shipped a solid number of its BlackBerry smartphones, investor attention zoomed in on its less-than-rosy forecasts for the current quarter.

"The February quarter was fine. The May quarter guidance -- shocking might be too strong a word -- but it was very weak," said Matthew Thornton, an analyst at Avian Securities.

RIM's profit margins will take a hit and the company warned its earnings will miss analyst forecasts as it spends heavily to overhaul its operating system and introduce its tablet in a burgeoning market created by Apple's iPad. The PlayBook is due in North American stores on April 19.

RIM co-chief Jim Balsillie portrayed the near-term outlook as an anomaly needed to lay the groundwork for a resurgence.

"We believe the launch of new handsets beginning in Q2 and into the second half of the year, as well as the positive halo from the PlayBook launch, (will provide) an opportunity for improved growth in North America," he told a conference call.

RIM aims to shift the QNX-powered platform of its PlayBook on to its BlackBerry smartphones by early in 2012, he said.

Some figure the task is too great.

"What people are worried here is you've got one company, albeit a really good company, but they're trying to take on all the OS development, all the ecosystem development, work with the developers on apps, build the hardware, work with the carriers. ... Any one company that tries to do this by themselves will probably lose," said Ed Snyder, an analyst from Charter Equity.

DIFFICULTY IN U.S. MARKET

In the meantime, RIM is finding it increasingly difficult to impress consumers with its smartphones, particularly in the U.S. market. There the BlackBerry is steadily losing market share to snazzier competitors including the iPhone and Android devices.

But it is nurturing solid growth in global markets, where customers and carriers are impressed with its mid-range devices, cheaper data plans and applications such as BlackBerry Messenger, a free instant messaging service.

More than half its sales came from outside North America and Britain in the latest quarter, the company said.

RIM reported net profit of $934 million, or $1.78 per share, for the fiscal fourth quarter ended February 26, on revenue of $5.56 billion, it said.

Analysts, on average, had expected earnings of $1.76 per share and revenue of $5.64 billion, according to Thomson Reuters I/B/E/S.

"Generally looks like Q4 was in line with expectations, Q1 is a little lower on EPS due to research and development, along with sales and marketing associated with the tablet initiative," said Tavis McCourt, an analyst at Morgan Keegan.

In an unusual move perhaps intended to inspire confidence, RIM also forecast earnings for its full fiscal year, which started in late February.

It said it would earn more than $7.50 a share fully diluted, higher than the $6.81 average expectation of analysts. It made $6.34 a share in the year just ended.

"It's like 'I'm going to make it up in the last half of the year, don't worry' -- what gives them the confidence that that's going to happen?," said Colin Gillis from BGC Partners in New York.

Balsillie said he expects RIM to sell "millions" of PlayBooks in the next 12 months but said the company would not provide regular forecasts on the tablet sales.

POTENTIAL DISRUPTION FROM JAPAN

The company shipped 14.9 million BlackBerry smartphones in the quarter, and said that would likely fall to between 13.5 million and 14.5 million in the current quarter.

RIM said it expected to earn between $1.47 and $1.55 per share in the current quarter -- well below what analysts had forecast. It sees its gross margin slipping to around 41.5 percent.

RIM said it gave a wider guidance range due to potential disruption to RIM's supply chain in the aftermath of the Japanese earthquake this month. It said it had inventory on hand but delivery times for more supplies are uncertain.

Shares of the Canadian company plummeted as much as 12 percent in after-hours Nasdaq trade before settling 10 percent lower at $57.50.

(Additional reporting by Euan Rocha, John Tilak, Susan Taylor; Editing by Frank McGurty)

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