News

A series of successful new product launches by Research In Motion Ltd. delivered a record amount of new customers and profit in the last quarter. But news that the BlackBerry maker had grown 66 per cent to a $3-billion (U.S.) a year operation was dampened by a growing accounting problem.

RIM said U.S. regulators have stepped up their informal inquiry into how the company accounted for stock option grants into a full-fledged formal investigation.

"Whatever they have uncovered has raised the flag from orange to red," said Donald Thain, retired Professor Emeritus at the Richard Ivey School of Business and a specialist in corporate governance. "The problem is it raises suspicions that something more serious than was previously disclosed is wrong."

Commenting on the SEC's decision to launch a full investigation, RIM said in a news release: "The company believes that the focus of this investigation is substantially the same as the informal inquiry."

In trading on the Toronto Stock Exchange Thursday, RIM shares lost 8 per cent to trade at $153.20.

The added scrutiny comes despite the fact that the Waterloo, Ont., company has tried to head off any confrontation with regulators by jumping out in front with its own investigation. Last month, RIM took responsibility for errors that will lead to an approximate $250-million restatement of earnings, admitting that it had backdated stock options granted to employees. But the company said it found "no intentional misconduct" on the part of any employee or director.

In addition, Jim Balsillie voluntarily stepped down as chairman, while retaining his role as co-chief executive officer, and both he and Michael Lazaridis, also co-CEO, said they would contribute $10-million (Canadian) of their own money to the cost of the internal investigation.

Both the Ontario Securities Commission and the U.S. Securities and Exchange Commission said earlier that they were conducting informal reviews of their own.

On a quarterly conference call held by RIM last night, analysts given a chance to ask executives questions never mentioned the SEC, appearing more interested in hearing about how RIM would expand its growing platform of wireless features.

Mr. Balsillie told them to expect more soon from the company's new media player, which RIM first introduced last September on its first consumer device, the BlackBerry Pearl. The company has hinted in the past at deals in the works with content providers.

Many people are waiting to see how RIM will respond to Apple Inc.'s entry into the smart phone industry with the iPhone that is expected to launch in the United States in June.

The enormous publicity around the iPhone has helped RIM by making consumers think about their cellphones as much more than just a phone, Mr. Balsillie said. "Apple has done the industry an enormous favour."

RIM said it added one million BlackBerry subscriber accounts in the quarter, its biggest three-month gain to date, bringing the total number of users to about eight million. The company said it expected to add another 1.125 to 1.15 million customers in the current quarter.

A growing share of RIM's revenue is coming from the sale of BlackBerry devices, rising to 73 per cent in the quarter from 70 per cent a year earlier. Service fees from wireless operators accounted for 19 per cent of sales and software accounted for another 5 per cent, the company said.

RIM posted sales for the three months ended March 3 of $930.4-million, up from $561.2-million in the same quarter of last year.

Preliminary profit rose to $187.9-million or 99 cents a share from $18.4-million or 10 cents. Last year's profit was significantly reduced by a patent settlement payment to NTP Inc.

The preliminary profit figure topped analysts' expectations of 94 cents. But sales came up slightly short of the consensus estimate of $935.4-million, according to Bloomberg data.

For the full year, RIM reported sales of $3-billion, up 47 per cent from $2.1-billion a year earlier.

RIM forecast profit in the current quarter of between $1.01 and $1.09 a share, excluding some costs. It said sales will range between $1.03-billion and $1.08-billion.

That forecast compares with expectations from analysts of share profit of $1.05 on sales of $991.7-million.