Investors gave shares of Research In Motion Ltd. the worst drubbing in months Thursday, showing concerns that the company's profitability is waning in an intensely competitive marketplace.
RIM's stock fell 6 per cent after the company posted fourth-quarter results late Wednesday that disappointed. Sales for the three months ended Feb. 27 rose 18 per cent to $4.08-billion (U.S.), falling short of the company's own forecast and missing the average analyst estimate of $4.31-billion. Goldman Sachs Group Inc. cut its rating on RIM shares on Thursday to "sell" from "neutral."
At the same time, shares of rival Apple Inc. climbed 1 per cent after some U.S. media published positive reviews of its iPad tablet, due in stores this weekend. Shares of Google Inc. , whose Android software is gaining traction in the handset market, rose 0.5 per cent.
The three companies are in a fierce battle for leadership of the smart phone market, with RIM now facing mounting criticism that it has lost its long-time lead in innovation.
While RIM's international sales rocketed last quarter, growth slowed in North America, and the average selling price of BlackBerry devices slipped more than expected. RIM said it expects prices will fall further this quarter. In addition, the company stopped providing sales figures for the enterprise market, leaving analysts to guess the amount of growth and investors questioning whether the company is losing market share to Apple in the crucial business market.
"We believe the company will not be able to sustain its current level of profitability without a clearly differentiated ("breakthrough innovation") portfolio," Pierre Ferragu, senior analyst with Sanford C. Bernstein & Co., LLC, wrote in a report Thursday. He has an "underperform" rating on the stock and price target of $55. "The centre of gravity of the smart phone value proposition is moving further away from e-mail and closer to browsing and multimedia sharing. What matters in this new era is multi-tasking, graphic interface, processing power and broadband Web/IP based connectivity, where RIM does not have, in our opinion, a technical advantage."
The majority of analysts covering the Waterloo, Ont., company, however, remain bullish on the stock, with some seeing current weakness as a buying opportunity.
Mike Abramsky, of RBC Dominion Securities Inc., maintained his "top pick" rating on RIM shares and price target of $120. But he also said that the mixed results of the last quarter make the company "a show me story for now," a position RIM has found itself in many times previously.
He says competition from Apple and Google is spurring greater innovation from RIM. The company will likely launch 16 new consumer handsets this year, up from just five last year, including a touch screen device and a BlackBerry with a sliding keyboard.
"We believe there's new product in the pipeline that will begin in May and continue through the year and into next year," he said.
Mark McKechnie, an analyst with Broadpoint AmTech Inc., said the latest quarterly results challenge RIM's credibility, but he maintained his "buy" rating and $90 target price.
The company "remains a key player in the smart phone space. We look for visibility of compelling new products for a sustained move from current levels," he wrote in a report.
Many will be looking to RIM's annual wireless symposium event in Orlando, Fld., at the end of the month for early signs of that new product wave.