TMCnet News

RIM faces shrinking profits, international sales due to competition
[December 15, 2011]

RIM faces shrinking profits, international sales due to competition


(Canadian Press DataFile Via Acquire Media NewsEdge) By LuAnn LaSalle MONTREAL _ Research In Motion reports its finances Thursday, likely reporting shrinking profits and reduced global revenue growth from its aging lineup of BlackBerrys and dismal sales of its PlayBook tablet.



After announcing a big charge on its books a few weeks ago, RIM's profits are expected to erode sharply when the company discloses its latest quarterly earnings after markets close.

"They are profitable _ it's just that their levels of profitability are shrinking," said William Blair & Co. analyst Anil Doradla.


The Waterloo, Ont., company is still a major revenue producer _ with annual sales of well over US$20 billion and operations around the world.

But the smartphone maker continues to face intense competition from Apple and Android devices and has already lowered the bar for its third-quarter earnings.

RIM is still generating cash and profit and its earnings per share are positive, but those numbers are "falling down," Doradla said Wednesday from Chicago.

"They're still growing internationally, it's just a deceleration," he said of the slowing pace of sales outside North America as Google-powered Android smartphones and Apple's iPhone win over more consumers globally. He estimated RIM's international market share at 30 per cent.

"We expect Apple and Samsung to gain considerable smartphone market share from RIM, and HTC, in terms of sell-through during the quarter." Research In Motion (TSX:RIM) has warned investors that it will book a US$485-million charge before tax on the cost of discounting the price of PlayBooks by more than half to help boost sales.

As well, it expects about US$50 million in lost revenues from the massive outage in October that affected millions of BlackBerry email and text users around the world.

RIM has estimated that its adjusted third-quarter revenue, excluding the US$50-million cost related to the BlackBerry service outage, will come in at between US$5.3 billion and US$5.6 billion.

The company estimates its adjusted earnings per share between US$1.20 and US$1.40.

"It tells me that it is a company that not only has problems, but is not able to forecast the level of uncertainty in the business," Doradla said of RIM's revised financial guidance for the quarter.

Average analyst estimates compiled by Thomson Reuters put revenue at $5.26 billion in the third quarter, down four per cent from the same quarter in 2010. Earnings per share were estimated to be down 34 per cent to $1.15 from $1.74.

Other than the PlayBook tablet, RIM has few new products in the marketplace. It launched new versions of the BlackBerry Bold and Torch in late summer but won't have the new generation of BlackBerrys with a new, updated operating system out until early next year.

BMO Capital Markets analyst Tim Long, long bullish on RIM, has lowered his share price target to $26 from $50.

"The new products did not have the positive impact on the model that we had expected and the international strength is not enough either," Long wrote in a research note.

However, Long said he's sticking with his "outperform" rating for the company because RIM has growing subscribers, recurring revenues, strong international sales and a healthy balance sheet.

But he signalled potential problems with executives Jim Balsillie and Mike Lazaridis continuing to serve as co-CEOs and chairmen of the company. Activist shareholders have also complained about RIM's management structure.

"Management credibility is also taking another hit and changes may be needed to get a full valuation," he said.

RBC Capital Markets analyst Mike Abramsky said RIM faces a "high bar" for its new generation of BlackBerrys to be competitive with Apple, Android and Amazon applications, content and user experience. Amazon has recently released a tablet.

RIM cut about 2,000 jobs, or 11 per cent of its workforce, earlier this year to trim costs. But Abramsky said in a note that the company may have to restructure to reduce its cost structure even further.

(c) 2011 The Canadian Press

[ Back To TMCnet.com's Homepage ]