BlackBerrys feeling the squeeze as smartphone rivals smarten up

BlackBerry maker RIM on Thursday said it sold fewer BlackBerry phones than analysts had expected and the company's quarterly earnings were hurt by a legal settlement.

Even though RIM still saw strong sales of BlackBerrys, the news sent the company's stock price tumbling in after-market trading. Many are now wondering if RIM's disappointing sales are an indicator of a wider smartphone slowdown or if the news is an indication that the company is losing its edge in an increasingly competitive market.

RIM's co-CEO, Jim Balsillie, said the company is still in very good shape.

"This stuff [smartphones and mobile applications] is going much more mainstream," he said during the conference call. "And we are teed up to go much more mainstream. If this crosses over, as I think we are doing, we are in a good position and a very prosperous position."

He told investors and analysts that they shouldn't look too deeply into the sales numbers for hidden indications of a market slowdown. And despite a lacklustre forecast for the next quarter, he said sales are set to explode in the long term.

"I appreciate looking for trends," he said. "But I don't think you should extrapolate too much over a little bump here or there."

Balsillie said profits fell four per cent in the second fiscal quarter due in large part to charges associated with a legal settlement.

For the quarter that ended 29 August, the company said it earned $475.6m, or 83 cents per share, compared to profits of $495.5m, or 86 cents per share, for the same period a year ago.

What really hurt the company's profits was a charge of $112.8m related to the settlement of a patent dispute with Visto. Excluding this charge, RIM said it would have earned $588.4m, or $1.03 per share for the quarter.

Revenue rose to $3.53bn from $2.58bn per year earlier. Analysts had expected earnings of $1 per share on revenue of $3.62bn, according to Thomson Reuters.

RIM also reported it shipped slightly fewer devices than what analysts had expected. The company said it shipped about 8.3 million BlackBerry devices during the quarter, adding about 3.8 million new subscribers. Analysts had expected the company to add about four million new subscribers on shipments between 8.5 million and 8.6 million.

RIM said it expects revenue of between $3.6bn and $3.85bn for the third fiscal quarter that ends 28 November. And it expects earnings per share to be between $1 and $1.08.

These forecasts are slightly lower than analysts' third-quarter revenue of about $3.9bn. And they wanted to see RIM add 4.3 million new subscribers instead of the four million to 4.3 million new subscribers the company predicts.

Although Wall Street was disappointed in RIM's results, the fact remains that the company is still growing handset sales. In fact, sales are up about 40 per cent compared to a year ago. But because RIM has been known to have even higher growth rate, some analysts are disappointed with these figures and are punishing the company's stock, which had been up earlier on Thursday in anticipation of the company's earnings news. After the market closed, shares were down 10 per cent or more.

So the big question remains: what do RIM's results mean for the rest of the industry?

RIM leads the market in smartphone sales in the US. But the company has many competitors nipping at its heels. Apple has reported strong growth of the iPhone, especially its new iPhone 3GS, introduced in June. And there are new Google Android phones from HTC and Motorola coming to market soon.

So it's quite likely that sales of smartphones will continue to climb, as Balsillie predicts. But he admitted during the call that the challenge the company faces is in executing its strategy. This means making sure RIM's latest products get out the door on time.

"I really like our strategy," Balsillie said. "I know we are doing all the right things. But we have a lot of execution risk...And who knows what's going to happen."

Original article: RIM profit and BlackBerry sales disappoint from CNET News.com