Research In Motion Ltd. took a hit of nearly half-a-billion dollars on its PlayBook tablet, but it was troubling news about sales of its BlackBerry smartphones that stoked fresh worries from investors about the tech giant.
The August launch of sleek new BlackBerrys was supposed to stem the bleeding and protect the company's share of the mobile phone market until next year, when it will unveil a new line of devices running on improved software called BBX.
But the company warned Friday of disappointing sales and earnings, and said it expects to ship fewer BlackBerrys in the fiscal fourth quarter, which covers the Christmas period, than the 14.1 million it shipped in the third. RIM said it doesn't expect to meet its previously announced adjusted profit target of $5.25 to $6 (U.S.) a share for this fiscal year.
It was the third time this year that Canada's largest technology company has revised downward the outlook for its business. The negative news sent its stock down about 9 per cent to $17.08 (Canadian) and had analysts questioning, again, the company's direction under co-chief executive officers Mike Lazaridis and Jim Balsillie.
"RIM's recovery window is almost closed," National Bank Financial analyst Kris Thompson wrote in a research note to clients. He noted that the decline in BlackBerry shipments came "on the back of the largest launch in the company's history."
Part of the problem is that consumers and industry observers saw the new BlackBerrys as "me-too" devices – improved versions of RIM's core product but not more compelling than Apple's Inc.'s iPhone or the slew of new Android devices.
In the United States, RIM's largest single market at 27 per cent of total revenue in the last quarter, the trends have been devastating: As wireless operators engaged in a marketing war over new fourth-generation networks, RIM's 3G BlackBerrys failed to get any attention. RIM's share of the U.S. smartphone market has slumped to 9 per cent from 24 per cent a year earlier.
"If you look at the promotions in the U.S., [wireless companies]are really focused on 4G, and you've really got to get into those promotional windows to drive sales," said a former RIM executive who spoke on condition of anonymity.
Wireless carriers also have to spend less to subsidize cheaper Android phones than they do for BlackBerrys, the executive added, giving companies like AT&T and Verizon Wireless more incentive to market Android phones. "It's all the Android guys that are working on fairly slim margins, that are driving the cost of the goods to the carriers down. … The [average monthly revenue per user to a carrier]from an Android or a BlackBerry are pretty much the same now."
Although some analysts had predicted smartphone declines, the details came with a few additional negative surprises. RIM also said its revenue for the third-quarter would come in below the expected range of between $5.3-billion and $5.6-billion (U.S.), in part because of a $50-million charge related to a global BlackBerry outage in October.
"The bleeding continues," said Chris Umiastowski, an independent consultant who followed RIM as a Bay Street analyst for a decade. "RIM really has no shot left beyond making BBX a success."
The writedown on the PlayBook was widely expected, however. The tablet computer has sold nowhere near as well as analysts first forecast; in order to drive sales, the device is now being discounted at the retail level by $300, bringing the entry-level version to about $200.
RIM took a $485-million charge related to its PlayBook inventory. After tax, the hit to earnings is $360-million.
RIM said it sold more than 150,000 PlayBooks in the quarter and Mr. Lazaridis said the company "is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy." Mike Abramsky, an analyst at Royal Bank of Canada's capital markets unit, described that level of sales as "sluggish."
Friday's tribulations are simply the latest in a string of bad headlines for the Waterloo, Ont.-based company. On Friday, RIM employees were still trading e-mails about two employees who made news this week for being so drunk on a Beijing-bound Air Canada flight that the plane had to land in Vancouver, delaying other passengers by 18 hours.
Despite huge success in overseas markets, perceptions of RIM in North America remain grim. While RIM employees attempt to revive the company, they are also in the midst of a staff reduction that will remove some 2,000 people from the payroll.
Another former RIM executive with knowledge of the situation said the cuts have left some work groups operating without managers, leaving many people still fearing that they too will be laid off.
"It's a high-stress environment but people still want to turn the company around," the former executive said. "When you get a taste of being No. 1, that sticks with you."