A Research In Motion BlackBerry StormLUCAS JACKSON
Research In Motion Ltd. cut a quarterly profit forecast that it made only a month ago, underscoring the major challenges the company faces in its fight with Apple Inc. and other competitors in the North American wireless market.
RIM issued lower guidance on Thursday for the company's fiscal first quarter, which ends May 28. The Waterloo, Ont., company now expects to earn between $1.30 (U.S.) and $1.37 per share. That is 7- to 16-per-cent lower than a forecast it released to investors in late March, which called for earnings of $1.47 to $1.55 per share.
RIM blamed the outlook on a shift in its sales mix. While it still expects to sell at least 13.5 million BlackBerry smart phones during the quarter, a growing percentage of those are lower-priced devices, which do particularly well in overseas markets. Delays in product testing and certification mean that RIM's newest high-end phones – expected to be unveiled at the company's annual conference in Orlando next week – will be a few weeks late to market, further hurting RIM's sales in the quarter.
"If we'd pulled in the schedules [for the new phones]earlier, these numbers would be different," RIM co-chief executive officer Jim Balsillie told analysts during a conference call Thursday.
"All things being equal, we would love to have these products out earlier and not be having this call."
RIM's BlackBerry PlayBook tablet, which went on sale earlier this month, was criticized by many reviewers who claimed the product seemed rushed to market. RIM appears to be intent on not seeing the same criticism made of its new smart phones.
RIM's share price took another beating after the company lowered guidance. The stock dropped as much as 11 per cent in after-hours trading, echoing a similar drop that took place last month, when RIM issued its initial guidance for the quarter.
Mr. Balsillie framed the lower guidance as a temporary issue, saying RIM expects to be back on track as soon as its new product offerings – which include smart phones powered by an upgraded version of the BlackBerry operating system – hit the market. Indeed, RIM said it was not changing its full-year guidance of $7.50 in profit per share, as it forecast stronger results in the second half of its fiscal year.
But analysts are increasingly becoming skeptical about just how temporary RIM's challenges are.
"Coming just a month after providing guidance, we believe [the newly lowered guidance]further damages already low credibility, making them the 'poster boy' for a show-me story from here, with little or no credibility given for their [full-year]outlook," said RBC Dominion Securities analyst Mike Abramsky in a note to investors.
RIM's new guidance also raised questions as to how the company could change its forecasts so significantly in just one month. The shift appears to be the result of a process RIM undertook to "confirm" its previous forecasts ahead of a meeting with investors. During that process, the company found BlackBerry sales were not as strong as expected.
More troubling for the company and its investors is the possibility that RIM may be suffering from a deeper malaise. In recent quarters, the smart phone-maker has experienced strong growth in many overseas markets, but has been losing North American market share to Apple's iPhones and other smart phones powered by Google's Android operating system. RIM's U.S. revenue dropped 9.2 per cent in the most recent fiscal year, to $7.8-billion.
But many of those overseas markets still have relatively underdeveloped cellular networks, meaning that consumers in those regions are largely unable to make use of high-end smart phone features such as software applications and streaming multimedia. As such, RIM's overseas customers tend to buy lower-end BlackBerrys.
"Let's face it, RIM does very well in emerging markets, and that's where you have some of this happening," said Ronald Gruia, an analyst at Frost & Sullivan.