April 3 (Bloomberg) -- Research In Motion Ltd., the maker of the BlackBerry phone, surged the most in more than five years in Nasdaq trading after first-quarter profit and sales forecasts exceeded analysts’ projections.

RIM said yesterday that earnings will amount to at least 88 cents a share, compared with the 82-cent average of estimates compiled by Bloomberg. Sales in the period ending May 30 will climb to as much as $3.5 billion, also beating expectations.

Profit margins also are improving as RIM finds new ways to reduce costs for phone hardware, Co-Chief Executive Officer James Balsillie said. The increases helped defuse investor concern that discounts on BlackBerrys were eroding profitability, said Shaw Wu, an analyst at Kaufman Bros. LP.

“Margins have been under pressure for a few quarters,” said Wu, who rates RIM a hold. “This is the first time we’ve seen some stabilization and a potential rise.”

Deutsche Bank analyst Brian Modoff raised his rating on RIM to hold from sell, saying subscriber gains and new products should bolster the company in the near term. RIM rose $10.20, or 21 percent, to $59.29 at 4 p.m. New York time in Nasdaq Stock Market trading. That’s the largest gain since December 2003.

The Waterloo, Ontario-based company said gross margin, the percentage of sales left after production costs, will be at least 43 percent this quarter, beating San Francisco-based Wu’s estimate of 40 percent to 41 percent.

Subscriber Gains

“RIM launched a record number of new products during the year and the acceptance of these products outpaced our expectations,” Balsillie said on a conference call yesterday. The company is faring well in the recession and should increase its market share, he said.

Balsillie’s upbeat comments contrast with those in February, when he said part of the recent declines in gross margin was “permanent.”

RIM expects to add 3.7 million to 3.9 million net subscribers this period. It gained 3.9 million in the fourth quarter, beating the 3.48 million estimate of Ehud Gelblum, an analyst at JPMorgan Chase & Co. in New York.

RIM introduced the touch-screen Storm and less expensive models like the Pearl Flip last year to broaden the BlackBerry’s appeal beyond corporate customers, who account for more than half of subscribers. Luring consumers has become increasingly important after financial services companies have cut 287,000 jobs globally.

Verizon Wireless will sell a new version of the BlackBerry with features similar to Palm Inc.’s planned Pre phone, a person familiar with the situation said yesterday. The new BlackBerry will have a touch-screen and keyboard, said the person, who declined to be named because development is still in progress. Palm has said it will release the Pre by the end of June.

In the fourth quarter ended Feb. 28, net income climbed 26 percent to $518.3 million, or 90 cents a share, from $412.5 million, or 72 cents, a year earlier, RIM said. Analysts on average predicted 84 cents. Sales jumped 84 percent to $3.46 billion.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net; Connie Guglielmo in San Francisco at cguglielmo1@bloomberg.net

Last Updated: April 3, 2009 16:14 EDT