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RIM's outlook darkens with delay of new smartphone

RIM reports earnings


Research In Motion Ltd.'s top executives cut their salaries to $1 as they delivered yet more dismal news to investors, telling the world the product that was supposed to save the company will come out almost a year later than promised.

The news that a new line of BlackBerrys with an upgraded operating system won't be released until late 2012, combined with a weak outlook for the company's fourth quarter, pounded RIM shares in after-hours trading. The stock fell more than 7 per cent to about $14 (U.S.).

"We ask for your patience and confidence," Mike Lazaridis, one of RIM's two chief executive officers, told analysts on a conference call to discuss third-quarter earnings.

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"We realize we've not met expectations."

Both Mr. Lazaridis and co-CEO Jim Balsillie said they were disappointed with the BlackBerry's precipitous drop in popularity in the United States, the company's most important market, and blamed much of the failure on marketing and advertising – which they promised to overhaul with a "comprehensive" blitz to drive sales of its latest batch of BlackBerrys.

But RIM's grim results on Thursday – the company reported a $265-million (U.S.) quarterly profit, down 70 per cent from a year earlier – and another delay of crucial products seemed to confirm things will get worse for the Waterloo, Ont.-based smartphone giant before they get any better.

For critics, it was more proof that RIM remains unable to close the gap with more nimble rivals, such as the numerous device-makers using Google Inc.'s Android operating system.

The delay of the new phones running on BlackBerry 10 software "could be the final nail in RIM's coffin," said Kris Thompson, an analyst with National Bank Financial. "It's likely game over for RIM. A turnaround is very, very speculative … This is truly a sad day."

After such a brutal year for RIM, in which its stock has dropped around 80 per cent and the company has been hounded by calls for top management to step aside, it seems almost inconceivable that the RIM can endure much more criticism. The firm's stock is already hovering around book value – meaning the total value of the company assets, minus its liabilities – and heading into this set of results, industry analysts were again speculating about precisely how RIM should break up and sell the company.

Although RIM warned on Dec. 2 that it would miss earnings targets, the bleakness of its fourth-quarter guidance still caught some observers off guard.

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The company shipped 14.1 million BlackBerrys in the third quarter, but warned it was only going to ship between 11-million and 12-million units in the fourth quarter – a number some still consider optimistic. Revenues will shrink from $5.2-billion in the third quarter to between $4.6-billion and $4.9-billion in the fourth, the company said, and earnings per share will also drop. Earnings per share, which beat analysts' estimates at $1.27 in the third quarter, will drop to between 85 cents and 90 cents in the fourth quarter.

"Next quarter's BlackBerry outlook is troubling given that it includes December sales, which is a traditionally very strong sales month for RIM," said Kevin Restivo, a mobility analyst at IDC, a global research firm. "The BlackBerry 10 delay sets the stage for a potentially rockier shorter term."

Still, RIM's co-CEOs were upbeat on the conference call with analysts. RIM remains profitable, debt-free and has more than $1-billion in cash on its balance sheet.

"While we remain solidly profitable … we recognize our shareholders may feel we've fallen short," Mr. Balsillie said. "The last few quarters have been some of the most trying in the recent history of this company … [But]we're more committed than ever."

Even as RIM's smartphone market share in the U.S. dwindled to only 9 per cent, Mr. Lazaridis highlighted emerging market strength in Argentina, Mexico and South Africa – where RIM has seen 731-per-cent year-over-year growth, according to research firm Canalys. Indeed, RIM's hardware revenues outside North America grew by 56 per cent in the quarter.

But the rapid international expansion of cheap smartphones running Android poses a threat to that growth, and RIM's executives stressed that they were dedicated to the U.S. market – noting the marketing and advertising campaign would likely make an impact on earnings.

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One analyst on the conference call questioned whether RIM was betting on becoming a low-cost device maker – a far cry from its status as the smartphone of Wall Street – but Mr. Balsillie stressed that this wasn't the case.

To read our earlier live coverage and discussion, click here.

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