Reflecting the tough economic scenario, BlackBerry maker Research In Motion Limited (RIMM, RIM.TO) Tuesday said the company expects third-quarter earnings and revenues to be lower than its previous forecast, citing unfavorable currency movements as well as a less-than-estimated unit shipments of existing products. However, on a positive note, the company said that in spite of the impact of a delay in product launch dates and general economic weakness, customer response to the new BlackBerry products launched this quarter has been exceptional.
Announcing the preliminary results for the period ended November 29, Research In Motion said third-quarter earnings are expected to be in the range of $0.67-$0.71 per share, reflecting an income tax rate of 40%-42%. This was lower than the initial forecast of $0.89-$0.97 per share, primarily due to lower-than-estimated revenue and unfavorable impact of the strengthening U.S. dollar during the quarter.
Subject to final review, Waterloo, Canada-based Research In Motion now expects third-quarter adjusted earnings per share in the range of $0.81-$0.83, reflecting a tax rate of about 29%-30%. On average, 36 analysts polled by First Call/Thomson Financial expect third-quarter earnings of $0.91 per share with the low and high estimates being $0.80 per share and $0.98 per share, respectively. Analysts' estimates typically exclude one-time items.
Adjusted earnings per share exclude a negative impact on the company's tax rate due to the significant depreciation of the Canadian dollar relative to the U.S. dollar in the quarter. The company noted that it plans to report a tax provision in the third quarter, which is higher than previously forecast. The incremental portion of this provision is expected to be reversed in a future quarter.
The company's revenue for the third quarter is expected to be in the range of $2.75-$2.78 billion, lower than the previously forecasted revenue range of $2.95-$3.10 billion, yet about 65% more than the revenue generated in the year-ago period. Analysts expect revenue in the range of $2.81 billion-$3.10 billion, with the consensus estimate at $2.96 billion.
The lower-than-expected revenue is due to two key factors - the impact of the depreciation of certain foreign currencies relative to the U.S. dollar during the quarter and lower-than-estimated unit shipments of existing products. While about one third of the difference between forecasted and preliminary revenue is expected to be due to depreciation of foreign currencies, the lower-than-estimated unit shipments reflect general economic weakness in the U.S. and shifts in product launch dates within the quarter.
With the global economy going through a crisis, manufacturers of high-end products are having a tough time. Treo smartphone maker Palm, Inc. (PALM), Research In Motion's smaller rival, warned Monday that its second quarter revenue would come in well below analysts' expectations as well as the year-ago and prior quarter levels because the economic slump has greatly intensified the negative impact on the already slowing product sales.
Nokia Corp. (NOK), the world's biggest maker of mobile phones, recently lowered its outlook for industrywide mobile device volumes for the fourth quarter and full year 2008.
Research In Motion's gross margin for the third quarter is expected to be between 45% and 46%, which is lower than expectations due primarily to product revenue mix and foreign exchange impacts within the quarter.
The smartphone maker estimates that about 2.6 million new BlackBerry subscriber accounts were added in the quarter, up 57% from last year, but less than the expectation of 2.9 million new additions.
However, according to the company, the situation is much rosier for new products in the recent weeks. Research In Motion has experienced particularly strong momentum for these products with daily net subscriber account additions reaching a record level on the day the BlackBerry Storm was launched in the U.S. The company achieved a record number of weekly net subscriber account additions during the last week of the third quarter. The strong demand for new products has continued into the fourth quarter, the company added.
Commenting on the preliminary results, Jim Balsillie, Co-CEO of the company, said, "Initial sales of new products have been very positive and we believe we have the strongest smartphone portfolio in the industry by far, however product launch timing, general economic conditions and foreign exchange volatility have tempered our results in the third quarter. We believe RIM is well positioned to capitalize on the increasing smartphone market opportunity and we remain focused on driving growth in the fourth quarter of fiscal 2009 and beyond."
Last month, after the release of the BlackBerry Storm, JMP Securities maintained its "Outperform" investment rating and $80 price target on Research In Motion. Noting the robust demand for the new product, the brokerage said that given the product and market trends, it believes that the company can continue to grow over the next year. "While overall market factors could overwhelm Research in Motion's underlying fundamentals, we believe risk-reward is favorable enough that the stock should outperform the Nasdaq over the next 12 months," the firm said.
The company is scheduled to announce third-quarter results and provide guidance for the fourth quarter of fiscal 2009 after the close of market on December 18.
RIMM closed Tuesday's regular trade at $37.32, down $2.48 or 6.23%, on 41.79 million shares, which is the lowest level since November 2006. The stock dropped $0.22 in the extended trade. For the past year, the shares have been trending in the range of $35.76-$148.13.
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