Research In Motion Ltd. posted yet another round of disappointing quarterly earnings, including especially weak shipments of its high-end PlayBook tablet, as competitors relentlessly stalk the BlackBerry maker.
The Waterloo-based company posted revenue of $4.2-billion (U.S.) for the fiscal quarter ended Aug. 27, down 10 per cent from a year earlier. Adjusted profit for the period was $419-million or 80 cents a diluted share. According to Thomson Reuters, analysts expected second-quarter revenue of $4.5-billion and share profit of 87 to 90 cents.
But perhaps the worst news was PlayBook's sales. RIM shipped 200,000 units during the quarter, indicating limited demand for the product in the face of Apple's iPad line, which dominates the market. Analysts had expected PlayBook shipments in the 500,000 range.
RIM shares tumbled as much as 18 per cent in after-hours trading following the earnings release, hitting a fresh five-year low.
Both RIM smart phones and tablets are facing increasing competition from tech giants Apple and Google, while other players are also gaining ground.
"The issue is that the gap between RIM and other [major] smart phone platforms isn't shrinking, it's widening," said Colin Gillis, senior technology analyst at BGC Financial. "Apple sells more iPads in two days than RIM shipped all quarter."
Mike Lazaridis, RIM's co-CEO, admitted in a conference call that the PlayBook shipments number "is well below where we'd like it to be," and that the past few quarters have been challenging.
He said the new line of BlackBerrys, released last month, have seen strong sales, but were only available for the last couple weeks of the quarter.
In an attempt to re-energize PlayBook sales, RIM is expected to roll out a wireless software update later this year that fixes several major issues with the tablet, adding calendar and e-mail apps, as well as a tool that allows users to run apps on the PlayBook originally designed for Google's Android operating system – a measure intended to counter criticism of the PlayBook's relatively limited app selection.
Analysts have generally become much more pessimistic about RIM over the course of this year. The stock has lost about half its value since January. Bernstein Research analyst Pierre Ferragu said in a recent note he expects investors "to lose all confidence in RIM's earnings power."
The disappointing performance has spurred calls for radical change at the BlackBerry maker. A number of investors have demanded the CEO and chairman positions – both currently held by Mike Lazaridis and Jim Balsillie – be split. Others have called for the two CEOs to step down and hand control over to a new management team. One analyst floated the idea that the company be split into separate network and handset divisions.
In response, RIM has taken a number of cost-cutting steps. This summer, the company announced it will lay off about 2,000 employees, or 10 per cent of its work force. Mr. Balsillie also promised a stricter focus on RIM's core projects.
The company's "cost-optimization program" cost $118-million in the second fiscal quarter, according to RIM. The company added that there may be more charges related to the program in subsequent quarters.
In recent weeks, the company had seen a small reversal of fortunes. A number of analysts said their research indicated the company's newest line of smart phones, including the new version of the popular BlackBerry Bold, were selling well. Indeed, sales of the newly released phones caused several analysts to increase their price target on RIM's shares. Even Mr. Ferragu said the stock may have some upside in the near term.
But the greater test for RIM will come early next year, when the company launches the first of its brand new mobile devices powered by the QNX operating system. RIM will eventually move all its high-end devices to the new operating system, and much of the company's future rests on whether its QNX phones can close the gap with the market leaders, Apple's iPhone and a slew of phones powered by Google's Android operating system.
Unfortunately for RIM, its first QNX-powered device – the PlayBook – has gotten off to a particularly weak start.
"It amounts to the channel [retailers and resellers mostly] not asking for the PlayBook, which means a lack of primary demand for the RIM tablet," said Forrester analyst Ted Schadler. "RIM will have to rethink their core differentiation and focus on a smaller market than the mass market to be truly successful."