RIM Q3 as expected, but confidence is soaring

Customer response to new BlackBerrys such as the Storm and Bold prompted RIM to issue guidance way above previous expectations despite the economy.

Tom Krazit Former Staff writer, CNET News
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Tom Krazit
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RIM's new BlackBerry Bold has the company confident about its upcoming quarter. RIM

Updated 3:30 p.m. PST with details following the conference call.

Research In Motion's third-quarter results were a little disappointing, as expected, but a strong holiday season is giving it reason to be very optimistic.

The company had already revealed that it expected third-quarter revenue and profit to be lighter than originally expected, and the official numbers released Thursday were in line with those revised expectations at $2.8 billion in revenue and net income of $396.5 million. Adjusting for the tax complexities involved with RIM's Canadian base of operations and its heavy U.S. presence, earnings per share of 83 cents were a penny ahead of analyst estimates polled by ThomsonOne.

However, in a press release RIM said that "we have enjoyed our best ever start to the holiday buying season over the past few weeks," owing to the recent launches of the Storm and Bold. As such, it provided guidance well above what analysts were expected for the upcoming quarter.

RIM now expects revenue of $3.3 billion to $3.5 billion and earnings per share of 83 cents to 91 cents during the current quarter, far outdistancing analyst estimates of $3 billion in revenue and earnings per share of 83 cents.

Updated 3:30pm: Product delays that hurt RIM's third quarter results are giving it cause for celebration in the fourth quarter, said Jim Balsillie, co-CEO of RIM, on a conference call Thursday afternoon. The Storm is doing particularly well, he said, setting a single-day record for new BlackBerry subscribers during the day it went on sale.

The company said it is having trouble keeping up with demand for the Storm, reviews of which were lukewarm. Rumors have been circulating this week that RIM and Verizon, the exclusive U.S. carrier of the Storm, have been dealing with a high rate of returns for that device, but a RIM spokesman shot down those rumors Thursday with a statement saying "The Storm has the lowest return rate of any of our PDAs and at this point in its life cycle, it has the lowest return rate of any PDA we currently sell."

RIM's priority over the past year has been to diversify its customer base away from enterprise customers toward consumers, and it's making progress: 45 percent of RIM's BlackBerry customer base now comes from consumers, Balsille said. The timing on that shift is fortuitous, given how the state of the economy is likely to put a lid on business spending for a quarter or two.

Balsillie was not asked how his products were faring against the iPhone 3G, RIM's main competitor at this stage of the game. That might be because the two companies do not report earnings on the same schedule, making direct comparisons a little difficult until market share numbers are released from the usual suspects. Apple is expected to sell around 6.4 million iPhones worldwide during the October to December period, while RIM shipped 6.7 million BlackBerries worldwide from September to November and expects to sell between 7.5 million to 8 million units in the current three-month period.

One sore spot for RIM is that its gross margins are declining as sales of the new models accelerate, but at around 40 percent, they are still healthy. Balsillie promised to wring cost savings from the products as the volumes grow.