RIM Warns Earnings Down, Subs Up
Sales of Research In Motion's new BlackBerry Storm has prompted RIM to up its fourth-quarter sales prediction by 20 percent but lower its gross margin and earnings-per-share projections. Why? New subscriptions cost more than upgrades.It was a nice holiday season for Research In Motion and its new BlackBerry Storm. The Canadian cell phone maker scored a company record number of activations, and with strong sales continuing in the post-holiday period, RIM is now forecasting fourth-quarter net subscriber account additions to be more than 20 percent higher than the 2.9 million it had predicted in December.
Yet, RIM is also predicting that gross margin and earnings per share for the fourth quarter will be at the low end of the previously guided ranges. In December, RIM said it expected fourth-quarter per-share earnings of between 83 cents and 91 cents, revenue between $3.3 billion and 3.5 billion and margins of 40 to 41 percent. "A variety of factors, including product mix, lowered channel inventory levels and an increased ratio of new subscriber sales to upgrade and replacement sales, are contributing to the degree of outperformance in subscriber growth relative to revenue and earnings performance within the quarter," RIM reported Feb. 11.
With the introduction of the BlackBerry Storm and its new tactile touch-screen Nov. 21, RIM has sold nearly 500,000 of the new handset directly aimed at challenging Apple's popular iPhone. With a look similar to Apple's iPhone, the Storm comes with a 3.2-inch screen, preloaded with Facebook, Microsoft Word and PowerPoint. The device features built-in GPS, a 3.2-megapixel camera, video recording capability, a media player and a removable battery.
The downside? New subscribers cost RIM more than upgrades. The company, based in Waterloo, Ontario, also said that gains should revert back to "more normalized" levels in the fiscal first quarter. RIM will report actual fourth-quarter net subscriber account additions and actual fourth-quarter financial results on April 2.
"RIM achieved a very strong start to the holiday buying season, and the momentum carried on stronger than expected during the past seven weeks despite a seasonally slower timeframe and the challenging economic environment," said Jim Balsillie, co-CEO at RIM. "We are pleased with our leadership and momentum in the market after shipping our 50 millionth BlackBerry smartphone in January and introducing a range of new products that are achieving exceptional early results and helping attract record levels of new customers to the BlackBerry platform."