Research In Motion forecasts profit in low-range
Research In Motion Ltd., the maker of the BlackBerry phone, fell as much as 13 percent on the Nasdaq after saying profit will come in at the low end of its targets, signaling the company sacrificed margins to gain customers.
The Waterloo, Ontario-based company had projected fourth- quarter profit of at least 83 cents a share, compared with the 86-cent average of estimates compiled by Bloomberg. Subscriber gains will be 20 percent higher than the 2.9 million forecast in December, Research In Motion said today in a statement.
Gross margin, or the percentage of sales left after production costs, also will be at the lower end of the December targets, Research In Motion said. The company has introduced new models such as the Bold and the Storm in the past year to compete with Apple Inc.’s iPhone 3G, vying for a dwindling pool of consumer spending as the economic slump intensifies.
“Storm and Bold demand is running very strong,” said Samuel Wilson, a San Francisco-based analyst with JMP Securities LLC. “Both carry lower gross margins and there’s a lot of promotional activity.” Gross margin probably will widen as promotions subside, Wilson said.
The stock fell $6.63 to $50.41 at 9:34 a.m. New York time in Nasdaq Stock Market trading. Earlier it dropped to $49.64, the biggest decline in more than three months.
The company introduced the touch-screen Storm in November in the U.S. exclusively through Verizon Wireless. The two began a “buy-one-get-one-free” sale last week as the recession deepens into the worst financial crisis in at least 25 years. Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961.
Storm Competition
So-called smart phones such as the Storm are capable of surfing the Web and downloading video at high speeds. Apple, based in Cupertino, California, debuted the latest model of the iPhone in July. Palm Inc. also plans to introduce a new model, the Pre, in the first half of the year.
The new devices will give Research In Motion increasing competition as the pool of new subscribers in the U.S. shrinks, with more than 80 percent of people already carrying a mobile phone.
The smart-phone market overall will grow next year even as sales of other devices drop, research firm IDC said in December. The market will expand 8.9 percent worldwide in 2009, compared with a 1.9 percent drop for the rest of the handset industry.
The company expects fourth-quarter sales to be “at or near the mid-point” of the forecast range of $3.3 billion to $3.5 billion. Analysts on average projected $3.4 billion.
“The market always suspects that Research In Motion is going to beat their guidance, and because they’re not, everyone’s interpreting that as bad news,” said Charlie Wolf, an analyst with Needham & Co. in New York. “It’s a modest negative - the market’s overreacting.”