Sept. 26 (Bloomberg) -- Research In Motion Ltd., maker of the BlackBerry e-mail phone, fell the most in more than eight years on the Nasdaq after competition from Apple Inc.'s iPhone curbed its profit forecast for the second quarter in a row.

Earnings will be 89 cents to 97 cents a share in the third quarter, hampered by the cost of building more advanced devices and selling them at lower prices, Research In Motion said yesterday. Analysts in a Bloomberg survey had predicted earnings of 99 cents on average for the period, which ends Nov. 29.

The company is battling a challenge from the iPhone and other competitors with four new models, boosting development and marketing costs. The iPhone's $199 price tag may limit how much Research In Motion can charge for its latest products, making them less profitable than older models. Gross margin, or the percentage of sales left after production costs, will drop to 47 percent in the current period, from 50.7 percent last quarter.

``The gross margin is a nightmare,'' Peter Misek, an analyst with Canaccord Adams Inc. in Toronto, said in a Bloomberg Radio interview. ``We certainly didn't expect that.''

Research In Motion, based in Waterloo, Ontario, fell $26.77, or 27 percent, to $70.76 on the Nasdaq Stock Market at 4 p.m. New York time, the biggest one-day drop since April 2000.

RBC Capital Markets analyst Mike Abramsky in Toronto cut his rating on the stock to sector perform from outperform, citing concern over profit margins and an economic slump.

Two in a Row

While Research In Motion's sales forecast met analysts' projections, the profit missed estimates for the second straight quarter. The company also has had to delay the U.S. release of one of its new phones, the BlackBerry Bold, until October. That device was designed to compete directly with the iPhone.

Handset makers are racing to establish themselves in the booming market for so-called smart phones, devices that manage e- mail and the Web. Shipments of the products may more than double to 288 million units in 2009 from last year, according to Stamford, Connecticut-based research firm Gartner Inc.

Research In Motion plans to increase its market share over the next few quarters, even if that means reducing profits in the short term, co-Chief Executive Officer Jim Balsillie said yesterday on a conference call. Gross margin in the fourth quarter may drop further, the company said.

``Does it change the profitability structure of the company? That's the concern,'' said James Faucette, an analyst with Pacific Crest Securities in Portland, Oregon. He recommends buying Research In Motion shares, which he doesn't own.

Expensive Features

Research In Motion is working on a touch-screen phone and an update to its Curve consumer model, in addition to the Bold and a flip-phone version of its Pearl, Abramsky said.

Some of the new phones are more expensive to make because they have more features, Balsillie said. The Bold, for example, has a brighter screen.

``It's difficult to pass on all these costs to customers,'' Balsillie said.

Sales this quarter will rise to as much as $3.1 billion, the company said yesterday. That topped analysts' average estimate of $2.96 billion.

The outlook also dragged down Marvell Technology Group Ltd. The company gets as much as 9 percent of annual revenue from sales of communications chips to Research In Motion, according to Friedman Billings Ramsey & Co. analyst Craig Berger in New York.

Marvell shares fell $1.06, or 9.9 percent, to $9.70 on the Nasdaq, the lowest level since 2004.

Second Quarter

Research In Motion's second-quarter net income rose 72 percent to $495.5 million, or 86 cents a share, from $287.7 million, or 50 cents, a year earlier, the company said. Analysts predicted a profit of 87 cents on average for the period, which ended Aug. 30. Revenue climbed 88 percent to $2.58 billion, compared with a projection of $2.59 billion from analysts.

Sales and marketing costs almost doubled in the quarter, rising to $379.6 million, while research and development spending more than doubled, climbing to $181.3 million.

Research In Motion added 2.6 million users last quarter, compared with a 2.64 million estimate from Perez-Fernandez. The company expects to add 2.9 million users this quarter, missing Perez-Fernandez's projection of 3.09 million. Research In Motion currently has about 19 million BlackBerry users.

The company, which once focused mainly on corporate users, is offering cheaper phones to reach customers outside the business world. In the past quarter, Verizon Wireless reduced the price tag on the BlackBerry Pearl to $79 from $99. About 40 percent of Research In Motion's users are now consumers, while the rest are business customers.

To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net

Last Updated: September 26, 2008 16:09 EDT