By Rob Garretson
There was something for everyone in Research In Motion’s
announcement of financial results after the stock market closed Thursday. For
fans, the BlackBerry maker reported a surge in quarterly profit and revenue and
offered a positive outlook for the current. And for skeptics, the company
reported fewer new subscribers in the quarter than expected, a sign of
intensifying competition from Apple and makers of smartphones based on Google's
RIM shipped 12.1 million Blackberries during its fiscal
second quarter that ended August 28, up 45 percent from a year ago. Yet the
bulk of them were apparently replacement units for existing users. RIM’s net
addition of 4.5 million new BlackBerry subscribers in the quarter was down from
4.9 million in the preceding quarter and below the company’s forecast of between
4.9 million to 5.2 million new accounts it expected to add.
RIM co-CEO Jim Balsillie, in a conference call with Wall
Street analysts, acknowledged that subscriber growth was hurt by competing
products hitting the market over the summer – an obvious reference to Apple’s
hot-selling iPhone 4 and a raft of new Android-based smartphones – as well as
user concerns in markets like India and the United Arab Emirates that service
might be disrupted over security issues.
RIM is hoping to see stronger sales and subscriber gains in its
third quarter, he said, when its new OS 6-bsed BlackBerry Torch rolls out in
more markets. Yet analysts warn that initial
sales of the device have been weak.
RIM is the dominant supplier of smartphones to the
enterprise, due to the email integration and device management capabilities of
its server software. Yet much of its growth in recent years has come from
consumers, and the Canadian company is falling behind Apple and makers of Android
phones in the high-end consumer market, particularly since the June launch of
the iPhone 4 and Verizon’s rolled out updates to the Motorola Droid that runs a
more current version of Android.
RIM’s answer has been the touchscreen BlackBerry Torch,
which runs its new OS 6 software, but early reviews of the new platform suggest
that it isn’t a sufficient advance over the latest Apple and Android software
not be enough to keep BlackBerry competitive.
Calling it the most successful launch in the company's
history, Balsillie did not disclose how many units of the Torch sold in the
quarter, only that he expects sales to pickup aid the launch was, but he didn't
disclose how many units sold. He said subscriber additions were particularly
soft early in the second quarter but that they strengthened following the
release of the Torch and remain strong in the current quarter.
RIM remains the leading smartphone platform in the U.S.,
according to the lastest data from comScore, which said earlier this week that
BlackBerry accounted for 39.3 percent of the nation’s 53.4 million smartphone
users during the three months ending in July, followed by Apple with 23.8
percent and Google with 17 percent, up from only 12 percent the previous
Research firm IDC expects RIM to lose market share in the
enterprise for the first time this year. IDC forecasts that BlackBerry’s share
of the worldwide business market will drop to 36.4 percent by the end of the
year, down from 39.9 percent at the end of 2009.
"RIM is under a significant threat, and we now expect
the contribution to earnings of the corporate segment to shrink going
foward," wrote Sanford Bernstein analyst Pierre Ferragu in a note to
investors. Sanford Bernstein recently surveyed companies and found nearly
three-quarters are preparing to support non-BlackBerry devices. (See Wall
Street Turning Away from Blackberry.)
Mike Abramsky of RBC Capital Markets notes that RIM’s
ability to post such strong earnings in the face of declining subscription
growth is a sign of perseverance, particularly outside North America. “The
market may be overlooking the resiliency of RIM’s business and possibly
overstating competitive threats,” he wrote, maintaining a US$90 per share price
target for RIM stock.
Despite the positive earnings news, Colin Gillis of BGC Partners
cautioned in a note to clients, “the concern about the Android platform assault
and the changing economics to RIMM as the company pursues the low end of the
smartphone market remains intact.”
Analysts also had mixed reaction to RIM’s statement that it
will stop releasing figures on new subscriber additions after its next
quarterly statement, due out in December.
RIM said it earned $797 million, or $1.46 a share, in the
quarter ended in August, up from $476 million, or 83 cents a share, a year
earlier. Revenue increased 31 percent to $4.62 billion. For its fiscal third
quarter, RIM is forecasting revenue of $5.30 billion to $5.55 billion and net
subscriber additions of 5 million to 5.4 million.
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