RIM On The Edge

 

Miriam Marcus, 02.11.09, 07:45 PM EST

BlackBerry maker's shares fall 14.5% on weak fourth-quarter forecast.

 

Research in Motion investors were far from impressed by stronger than expected new subscriptions. Their thumbs were busy selling shares in the BlackBerry maker on disappointing earnings guidance.

Shares in Research in Motion (nasdaq: RIMM - news - people ) lost $8.28, or 14.5%, to close at $48.76, on Wednesday, after the company forecast fiscal fourth-quarter earnings that were at the low end of Wall Street’s prior expectations.
 

The Waterloo, Ontario-based smartphone maker said it is logging healthy sales to new subscribers of its latest models, such as the touchscreen Storm and high-end Bold, but existing customers, mainly businesses, were not upgrading as frequently as expected as consumers scale back on spending amid a weakening economy. (See "Research In Slow Motion.")

That is eroding its profit margins, partly because the high-end new handsets that are selling well cost more to make. RIM said it expects gross margins to slip from 45.6% in the third quarter to the low end of previous projections of 40% to 41%.

"You probably see big financial institutions cutting costs ... and the consumer is just not getting a new handset," said Atlantic Equities analyst James Cordwell. “It just shows they're not immune to the economic slowdown like anybody else."

The company said it expects net subscriber account additions to be 20.0% higher in the current quarter, which ends Feb. 28, than the 2.9 million additions it forecast on Dec. 18. Earnings per share will come in at the low end of its forecast range of 83 cents to 91 cents, and revenue will be at or near the mid-point of $3.3 billion and $3.5 billion. When RIM outlined guidance in December, it was above Wall Street’s estimates, but analysts have since increased their expectations, pushing RIM’s stock up 48.4% between Dec. 18 and Tuesday’s close.

Based on Wednesday’s announcement, RIM could miss analyst estimates for 86 cents per share in the current quarter. The company is expected to report quarterly earnings on April 2.