TORONTO/NEW YORK BlackBerry maker Research in Motion on Wednesday forecast profit at the low end of expectations because businesses are not buying its latest smartphone upgrades in the economic downturn.
RIM's shares tumbled more than 15 percent after the warning, which overshadowed an unexpected jump in BlackBerry subscriptions. The company, which competes with Apple Inc and Nokia, said net subscriber account additions are running 20 percent higher than the 2.9 million it forecast on December 18.
Flashy new smartphones such as the touch-screen Storm or high-end Bold were attracting new sales, the company said, but existing customers, mainly businesses, were not upgrading as frequently as expected, crimping profit margins.
"You probably see big financial institutions cutting costs," said James Cordwell, an analyst with Atlantic Equities in London. "It just shows (RIM is) not immune to the economic slowdown -- like anybody else."
Late last year RIM co-CEO Jim Balsillie said the current economic environment was "a more intense time than I've ever known."
Avian Securities analyst Matthew Thornton said RIM was probably selling "a lot more Storms, which carry a lower gross margin, and probably a lot less of their older legacy products, which carry much higher margins."
He added, "So you have a mix shift which weighs on margins and brings EPS to the low end of the range despite very good subscriber additions."
RIM said earnings per share and gross margin would come in at the low end of its forecast range, and revenue would be at or near the mid-point.
In December, RIM had forecast quarterly revenue between $3.3 billion and $3.5 billion, with earnings per share of 83 cents to 91 cents. Both were above Wall Street's estimates at the time. As a consequence, analysts ratcheted up their forecasts and the stock surged, gaining more than 40 percent year to date.
Wednesday's outlook signals RIM could miss the mean analyst forecast for earnings 86 cents per share, according to Reuters Estimates. Analysts were, on average, expecting revenue of $3.4 billion.
'DEVICE OF CHOICE'
RIM's main customer base is made up of business executives, lawyers, politicians and other professionals who use its BlackBerry handsets to send wireless email securely.
To diversify, RIM has pushed aggressively into the broader consumer market with multimedia-laden handsets like the Pearl model and the touchscreen BlackBerry Storm -- its answer to Apple's popular iPhone.
While the iPhone has been a hit with consumers, it has yet to gain enough traction with business users to threaten RIM's dominant position in the corporate, or enterprise, client market.
"Apple, at this point, appears to still have almost no market share at the enterprise," said Duncan Stewart, an analyst at DSAM Consulting in Toronto, adding the BlackBerry, with its full keyboard, "remains the device of choice" for companies.
While subscriber performance after the holiday season had exceeded its expectations, RIM said it anticipates subscriber additions in the current quarter to return to normal.
Shares of RIM dropped 16.5 percent on Wednesday to $47.62 on the Nasdaq market as investors digested the news. On the Toronto Stock Exchange, the stock shed 16.6 percent to
(Reporting by Franklin Paul and Sinead Carew in New York and Wojtek Dabrowski in Toronto; Editing by Frank McGurty)