December 15, 2011 / 9:31 PM / 8 years ago

RIM delays QNX phones, offers dismal outlook

TORONTO (Reuters) - Research In Motion posted a sharp drop in profit on Thursday, offered a dismal outlook for BlackBerry shipments around Christmas and delayed the likely arrival of a make-or-break overhaul of its smartphones, sending its shares tumbling.

A person uses the new Blackberry Bold 9900 at a release party to promote the BlackBerry OS 7 devices in Toronto August 3, 2011. REUTERS/Mark Blinch

RIM’s shares shed more than 7 percent after the company said it did not expect to release a line of BlackBerrys equipped with the new QNX operating system until late next year, long after its initial promise of a first-quarter delivery.

It was the latest in a long series of setbacks for a company that once dominated the smartphone market but, to the chagrin of investors, is now struggling to keep pace with the innovations of Apple Inc and other rivals.

To make matters worse, RIM said it would ship just 11 million to 12 million smartphones in the weeks around Christmas, a range that lines RIM up for the first quarter-to-quarter decline in six years during the crucial sales season.

The likely drop bodes poorly for RIM as it was banking on an improved BlackBerry 7 line, equipped with the legacy operating system, to stem defections until it could release the QNX line.

“The matter that they turned in a bad quarter shouldn’t come as a shock to anybody,” said John Jackson, an analyst at CCS Insight in Boston. “I think the more important issue for RIM is that it is highly unclear exactly when they’re going to be able turn things around.”

The Waterloo, Ontario-based company has been counting on the new operating system to make up ground lost to Apple’s iPhone and iPad and the slew of devices that make use of Google’s Android software.

RIM’s market share, particularly in the United States, has steadily eroded and its share price, down about 73 percent this year, has followed suit.

During a conference call with analysts, RIM explained that the QNX delay was necessary so it could make use of more powerful and energy-efficient chipsets expected to arrive in mid-2012.

“By then the ecosystem runs the risk of being abandoned,” said Colin Gillis, an analyst at BGC Partners in New York.

“They’ve already got tepid developer support and then they’re going to be rolling out these phones right smack in the (midst) of an iPhone 5 (launch) most likely,” he said, referring to the next iteration of Apple’s smartphone.

The dismal holiday outlook for between 11 million and 12 million smartphones compares with 14.1 million in the previous quarter and 14.8 million in the Christmas quarter last year.

“If consumer demand slows for their product the stuff is going to sit there and we could start seeing the ratcheting-down of units shipped and that’s the big concern,” Gillis said.

Even if RIM hits the high end of its Christmas quarter shipment target it will ship fewer BlackBerrys in this fiscal year than the previous one, the first ever such decline.

RIM’s co-chief executives Mike Lazaridis and Jim Balsillie, in an apparent bid to cool investor anger at their leadership, said they agreed to take an immediate pay cut to $1. The pair are also RIM’s two largest shareholders and share the chairmanship of the board.


Most of the numbers posted by RIM on Thursday were in line with a warning made by the company on December 2, including a huge writedown on unsold inventory of its unloved PlayBook tablet or a charge for an embarrassing global service outage in October.

RIM turned in an adjusted profit at $667 million, or $1.27 a share, in its third quarter ended on November 26.

The Canadian company generated revenue of $5.17 billion, sliding from $5.5 billion a year earlier.

Analysts on average had expected RIM to earn $1.19 a share on sales of $5.27 billion after the company’s warning.

In the third quarter a year earlier, RIM made $911.1 million, or $1.74 a share.

The intervening year has been mostly downhill for RIM, which made its name with secure, reliable communications for the world’s business and government elites before branching out into a now-crowded consumer market.

For the current quarter, RIM expects to turn a profit of between 80 and 95 cents a share on revenue of between $4.6 billion and $4.9 billion.


Including the $485 million pre-tax writedown on discounted PlayBook inventory and a $54 million charge related to the outage, RIM made a third-quarter profit of $265 million, or 51 cents a share.

It said it now has almost 75 million subscribers, up from the more than 70 million it reported at the end of its second quarter.

“They’re still adding a lot of subscribers, but they’re not selling enough phones,” said Tavis McCourt, an analyst at Morgan Keegan. “Are customers just going to upgrade to the iPhone and Android or are they really that loyal where they’re going to wait for a better BlackBerry?”

The stock fell to $14 in after-hours Nasdaq trade, after closing at $15.13. In February, just ahead of the PlayBook’s launch, RIM shares changed hands for as much as $70.

Additional reporting by Cameron French, Allison Martell, Jon Cook and Claire Sibonney; Editing by Frank McGurty

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