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Research In Motion climbs after earnings report

The wireless handheld maker's stock is up more than 40 percent in trading after the company blew past Wall Street expectations.

Shares of Research In Motion, the maker of the BlackBerry handheld wireless communications device, soared on Tuesday, a day after the company announced it had crushed Wall Street's expectations for quarterly sales and earnings.

News of increased revenue and profitability helped boost RIM's stock $19.37, or 42.02 percent, to $65.47.

On Monday, the company reported revenue of $153.9 million for the third quarter of fiscal 2004, up 107 percent from the $74.2 million in the same period a year ago. Analysts had expected the company to post revenue of $146.5 million.

It also earned $16.3 million, or 20 cents a share, for the quarter, compared with a loss of $92.8 million, or $1.21 a share, in the year-earlier period. Excluding expenses from ongoing patent litigation, the company said it earned $25.5 million, or 31 cents a share. Analysts expected earnings of 17 cents a share, versus a loss of 19 cents a share last year.

"We expected the results for the quarter to be high," said Robert Stone, an analyst with S.G. Cowen. "But we didn't expect them to beat the earnings number by as much as they did."

The company attributed the strong outcome to higher-than-expected subscriber growth, especially in Europe, and strong sales through its carrier channels. The momentum is expected to continue for the next two quarters.

As a result, executives aggressively increased expectations, predicting revenue between $195 million to $210 million in the fourth quarter of fiscal 2004 and revenue between $220 million and $240 million for the first quarter of fiscal 2005.

Encouraged by the optimistic outlook, several analysts upgraded the stock to reflect the heightened expectations. S.G. Cowen went from a "market perform" rating to a "strong buy"; J.P. Morgan hiked its rating from "neutral" to "overweight"; Pacific Crest upped the stock from "neutral" to "buy"; and Bear Stearns went from "peer perform" to "outperform."

"The company has reached a tipping point where sales are growing much faster than expenses," said Stone. "The margin for profitability more than tripled from the second quarter to the third quarter."

Analysts also said that with $531.6 million in cash and investments, the company is well funded and in good position for growth.

RIM's strong performance starkly contrasts with that of other handheld makers, like PalmOne, which sells a combination of wireless and non-wireless handheld devices. Last week PalmOne, which was created from the merger of the hardware spinoff of Palm and former rival Handspring, announced quarterly revenue of $271.2 million for the second quarter of fiscal year 2004, up 5 percent from the $257.9 million reported during the second quarter a year ago. Income from continuing operations was $2.6 million, or 7 cents per share in the second quarter. But including discontinued operations, the company made a net loss for the quarter of $4.1 million, or 11 cents per share.

PalmSource, the software portion of the Palm spinoff, also reported earnings on Monday. The company, which provides Palm's operating system for mobile devices, reported revenues of $16.8 million for the second quarter of fiscal 2004, a 13 percent increase from the $14.8 million in revenue for the second quarter of fiscal 2003.

But the company also reported a net loss of $9.1 million, or 89 cents per share, based on generally accepted accounting principles (GAAP). This compares with a GAAP net loss of $8.3 million, or 83 cents per share, for the same period a year ago.

"Research In Motion appears to be executing brilliantly and is a stand-out success in the wireless data space," said Paul Coster, an analyst with J.P. Morgan Securities in a note to investors. "While risks remain, we believe that Research In Motion is outpacing competition."