RIM shares plunge, but analysts focus on future
TORONTO (Reuters) - Shares of Research In Motion Ltd (RIM.TO)(RIMM.O) fell about 12 percent on Thursday as investors reacted to a disappointing profit outlook from the maker of BlackBerry smartphones.
But analysts praised RIM's plan to sacrifice short-term profit for investment in product development and marketing, and said the company will reap long-term benefits from moves such as launching TV advertising campaigns, hiring more staff and upgrading and expanding its network technology.
"Our view is that RIM is investing to capitalize on the unique growth opportunities here and now: increasing consumer adoption of smartphones, juicy carrier subsidies, and limited (albeit increasing) competition," Citi Investment Research analyst Jim Suva wrote in a note to clients.
"We think RIM made the tough decision to forgo short-term profit for longer-term growth."
Investors, however, appeared very much focused on the present as RIM's shares dropped C$17.40, or 12.1 percent to 126.60 on the Toronto Stock Exchange on Thursday morning. On the Nasdaq, they fell $17.01 to $125.33.
Prior to Wednesday's earnings report, RIM's stock had risen about 20 percent since early April.
RIM reported that its profit more than doubled to $482.5 million in its first quarter and that it added 2.3 million subscribers, or about 100,000 more than it expected. However, its earnings per share outlook for the second quarter was between 84 and 89 cents -- a penny short of the 90 cents expected by Wall Street.
But Jim Balsillie, the co-CEO of Waterloo, Ontario-based RIM, told analysts the company is expecting what could be its strongest second half ever, with several new product launches coming. He said the company would spend aggressively to take advantage of the opportunity.
Thus far, only the BlackBerry Bold -- a top-end handset aimed at RIM's mainstay base of business users -- has been announced. However, analysts expect RIM to also launch a number of consumer-oriented devices later this year as it seeks to diversify.
Tech blog and media reports have said the new smartphones will include a flip-phone BlackBerry and a touchscreen device that is seen as RIM's answer to Apple Inc's (AAPL.O) iPhone.
RIM, which is seeking to lure retail customers with the Pearl and Curve versions of the BlackBerry, has repeatedly dismissed the idea that it is threatened by the iPhone. Investors also appear unfazed, as RIM's shares have continued rising despite the iPhone's presence in the market.
"We believe that beginning this summer RIM will launch more than six new devices within the next 12-18 months that will propel future growth," Canaccord Adams analyst Peter Misek wrote in a note to clients.
He said the selloff the stock is experiencing is a buying opportunity, and kept his "buy" rating on the shares and raised his target for the share price to $225 from $200.
RIM's expenses will rise in tandem with those new device launches, analysts predict, as the company spends on marketing, as well as research and development and technology.
"We believe the company is investing to become a much more significant player in the handset market," UBS analysts Maynard Um and Jeffrey Fan wrote to clients. "Though it appears to be at the expense of near-term earnings, we expect the benefits to start to materialize this fiscal year."
($1=$1.01 Canadian)
(Reporting by Wojtek Dabrowski; editing by Peter Galloway)
