Shares of Research In Motion Ltd. RIM-T jumped more than 15 per cent in after-hours trading Thursday after the BlackBerry maker posted quarterly financial results that topped Wall Street expectations.
RIM posted a profit of $518.3-million (U.S.), or 90 cents per share diluted, on revenue of $3.46-billion for the quarter ended Feb. 28.
“We are very pleased to report another record quarter with standout subscriber growth that speaks volumes about the early success and momentum of our new Blackberry products,” RIM co-chief executive officer Jim Balsillie said in a statement.
RIM said gross margins, a figure closely watched by RIM analysts, was 40 per cent for the quarter, in line with expectations. The company said gross margins were expected to improve to between 43 and 44 per cent for the current quarter.
For the current quarter, RIM said it expects revenue of between $3.3-billion and $3.5-billion, with earnings of between 88 and 97 cents per share.
The company shipped 7.8 million BlackBerrys in the quarter, adding 3.9 million new subscribers.
Wall Street analysts, on average, had anticipated RIM to post revenue of $3.4-billion and earnings of 84 cents per share.
In December, RIM said it expected fourth quarter revenue in the range of $3.3-billion to $3.5-billion, and earnings of between 83 cents and 91 cents per share, diluted. The company said gross margins were expected to fall to between 40 and 41 per cent, down from 51.4 per cent in the same quarter last year.
Although the company initially said it expected to add 2.9 million new BlackBerry subscribers in the quarter ended Feb. 28, RIM said on Feb. 11 it anticipated that number to be about 20 per cent higher, translating to about 3.48 million new customers, due largely to better-than-expected holiday sales.
“RIM achieved a very strong start to the holiday buying season and the momentum carried on stronger than expected during the past seven weeks despite a seasonally slower time frame and the challenging economic environment,” Mr. Balsillie said in a statement at the time.
RIM also said it expected fourth quarter revenue to be “at or near the mid-point of the previously guided [December] range” and that gross margins would be at the “low end” of the previously guided range.
RIM's shares are down nearly two thirds from their lofty perch of above $150 (Canadian) each last June. But the company's stock slide picked up steam in September, when, with shares trading at around $101, the global economic downturn and concerns about the company's declining margins sent RIM's stock into a tailspin, eventually bottoming out near $44 in December.
The stock has since recovered somewhat, trading at around $60 Wednesday.
Although RIM rose to prominence as a business-first brand, the company has said that the key to the its future growth lies in becoming a major power broker in the consumer space as cellphone users increasingly upgrade to multifunction smart phones, placing the company in direct competition with the likes of Apple Inc. AAPL-Q, Nokia Corp. NOK-N, Samsung Electronics Co. Ltd. and Motorola Inc. MOT-N.
RIM's App World, a new online marketplace for games and other software designed to run on BlackBerry devices which debuted on Wednesday, is a key component of the company's new consumer focus.
Still, shareholders remain concerned about RIM's shifting emphasis away from its high-margin enterprise and business clients towards the much more competitive consumer market, where margins are lower, marketing costs are higher and manufacturers are under more pressure to develop hit devices to capitalize on shifting public tastes.
In a recent report, Veritas Investment Research warned that shares of RIM could fall another 25 per cent and that the company's “iconic status in the world of technology, tarnished recently by the slide in its stock price, is endangered.”
Although smart phone growth is expected to be the lone bright spot in the cellphone market – which most analysts believe will decline in 2009 – analysts say the recession and the dire financial straits many of RIM's corporate customers find themselves in could eat into the number of BlackBerry devices the company is able to sell, even as RIM expands its footprint in the consumer market.
UBS financial analyst Jeffrey Fan raised his net subscriber projections for RIM, but lowered his over-all hardware forecasts to reflect the current economic environment.
“We see limited scope for material upside share price movement as concerns over longer-term gross margins are unlikely to abate ...” he said in a research note delivered to clients this week.
RBC Dominion Securities analyst Mike Abramsky said investors would be encouraged if the company can show that gross margins have stabilized.
“Unprecedented uncertainty over gross margins has pressured RIM's valuation multiple and elevated share volatility, however, we expect RIM to offer sequentially stable Q1 gross margin guidance (40-40.5 per cent), helping restore investor confidence,” he said in a research note delivered to clients this week.
With Wednesday's earnings report, RIM will finally be able to close the book on a particularly tumultuous chapter in its history.
The quarter saw RIM executives forced to settle a pair of stock option backdating investigations with the Ontario Securities Commission and the U.S. Securities and Exchange Commission.
In the Ontario case, RIM and four of its executives – including co-CEOs Mr. Balsillie and Mike Lazaridis – agreed to pay a settlement of $77-million (Canadian), while the same four executives agreed to a settlement of $1.425-million (U.S.) with the SEC.
As well, RIM eventually emerged victorious in its bid for data security firm Certicom Corp. in the quarter, after its hostile takeover proposal for the company hit a number of snags, including an injunction from an Ontario judge.
RIM shipped its 50 millionth BlackBerry in January.
