Despite receiving a lukewarm reception from critics and the blogosphere, the BlackBerry Storm was in such strong demand in the latest quarter that the company is having trouble keeping its first-ever touch screen device in stock in North America, Jim Balsillie, Research In Motion Ltd.'s co-chief executive officer said Thursday.
But that demand proved to be a double-edged sword. Although there were better-than-expected sales of the Storm and the BlackBerry Bold, pricing pressures ate into the company's traditionally fat gross profit margin.
It was a tumultuous quarter which saw the BlackBerry maker's market capitalization cut in half, shareholders punishing its stock and analysts paring back their long-term price targets. But RIM shook off the gloom of the capital markets and reported solid results for the third quarter and a rosier-than-expected outlook for the fourth late Thursday.
It was the first time in the past three quarters that RIM's results topped Wall Street expectations. The company had already downgraded its financial forecast earlier this month, citing the rising U.S. dollar and slower BlackBerry sales as a result of the slumping economy.
For the second consecutive quarter, gross-margin guidance fell short of analyst expectations, prompting fears that RIM is cutting prices on its new smart phones as it looks to steal a greater share of the consumer market from the likes of Nokia Corp., Samsung Electronics Co. Ltd. and Apple Inc.'s iPhone.
But RIM said that its new high-end Storm and Bold devices accounted for a greater percentage of the company's sales than expected in the quarter, which was a key factor in shrinking gross margins to 45.6 per cent from 50.7 per cent in the preceding quarter.
The company said margins would continue to decline to between 40 and 41 per cent for the current quarter but would begin to grow again once the company began selling more Storm and Bold devices at lower costs of production.
Canaccord Adams financial analyst Peter Misek said the company's results should come as a relief to investors as retail consumers in the U.S. and Canada have cut back on spending.
“Clearly they have had to lower the prices on new products faster than expected,” he said. “But the sales growth is incredible in this market.”
RIM spent the second half of 2008 beefing up its line of BlackBerry devices at a breakneck pace – releasing four new devices in just seven months – and now appears poised to make the most of that groundwork by further expanding its business-user base while focusing more of its attention on retail consumers who are increasingly upgrading to multifunction smart phones.
“We are pleased to report record revenue results for the third quarter and we have entered the fourth quarter with strong momentum despite the challenging general economic conditions,” Mr. Balsillie said in a statement. “In fact we have enjoyed our best ever start to the holiday buying season over the past few weeks.”
RIM's declining margins pushed its shares into a nosedive this fall, dropping 53 per cent from $101 on Sept. 25.
RIM said the number of global BlackBerry subscribers jumped 14 per cent in the quarter to 21 million, up 75 per cent from its user base of 12 million at the end of 2007.
The company said profit rose 7 per cent over the same quarter last year to $396.3-million with earnings of 69 cents per share diluted.
Revenue jumped 66 per cent to $2.78-billion from $1.67-billion a year ago.
Research In Motion (RIM)
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