RIM 2Q earnings up 72 percent but outlook soft

By: AP
By: AP

NEW YORK (AP) -- The stock of Research in Motion Ltd. plunged in extended trading Thursday after the BlackBerry maker said the cost of launching new smart phones would eat into near-term profits.

The company is launching three major new models in the current quarter, and the cost of ramping up production will trim the company's gross profit margin, co-Chief Executive Jim Balsillie said.

"We really just pack it full of features and cost-reduce later," Balsillie said of the new models. "There will be an impact on hardware gross margin."

RIM's U.S.-listed shares were down $20.39, or 21 percent, at $77.14. If that price lasts into Friday trading, the stock will set a new 52-week low.

After the close of regular trading Thursday, RIM said it expects earnings to come in between 89 cents and 97 cents per share in the current quarter, which ends Nov. 29. Analysts polled by Thomson Reuters had been expecting earnings of 98 cents per share.

However, the company expects revenue of $2.95 billion to $3.10 billion, above analysts' expectations of $2.94 billion.

RIM said its gross margin would be 47 percent in the quarter, compared to 50 percent expected by analysts.

Analyst Matt Thornton at Avian Securities said it was the low gross margin that was discouraging investors, even if it was understandable.

"When you're ramping new products and you're still at very low volumes ... the margins are typically under pressure till you get to scale," Thornton said. The aggressive revenue range indicates that the company is holding up well against the competition and economic headwinds, he added.

RIM has started to sell a new flagship model, the Bold, in overseas markets, and said it would launch soon in the U.S. as well. The company has also announced its first clamshell model, to be sold by T-Mobile USA. It's also widely expected to reveal a model with a touch screen. Executives appeared to allude to it on the call, saying that a third major new model would go on sale in the U.S. toward the end of November.

Also Thursday, the Waterloo, Ontario-based company said it earned $495.5 million, or 86 cents per share, in the fiscal second quarter, which ended Aug. 30. That was a 72 percent rise from net income of $287.7 million, 50 cents per share, in the same quarter last year.

Revenue was $2.58 billion, up 15 percent from a year ago.

Analysts polled by Thomson Reuters had expected earnings of 87 cents a share, excluding items, on revenue of $2.6 billion for the quarter.

RIM sold 6.1 million BlackBerrys in the quarter, and expects to sell 7 million in the current one. Of its new customers, 60 percent were not getting BlackBerrys through their employers, demonstrating that the company has successfully broadened the appeal of its e-mail-oriented phones beyond the corporate clique that formed its core market.

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