Feb. 17 (Bloomberg) -- Research In Motion Ltd. Co-Chief Executive Officer James Balsillie said some of the recent drop in profit margin for BlackBerry devices may be permanent.

Research In Motion fell 18 percent in Nasdaq trading last week, after saying profit and its gross margin, or the percentage of sales left after production costs, would both be toward the bottom of its previous forecast in the fiscal fourth quarter.

“Some of it was permanent, some of it is temporary, and we see lots of ways to earn that back and we invest to earn that back,” Balsillie, 48, said in an interview at the Mobile World Congress in Barcelona yesterday.

Research In Motion is offering discounts on its new touch- screen Storm to broaden its appeal beyond business users and take market share from Apple Inc.’s iPhone. Verizon Wireless and Waterloo, Ontario-based Research In Motion started a “buy-one- get-one-free” offer earlier this month.

Last week’s announcement suggested that discounts on new models, such as the Storm and the Bold, are eroding margins. The Storm, introduced in November for $199.99, is now sold for $99.99 with a service plan on Amazon.com Inc., the world’s largest online retailer.

“Sometimes you have to price and promote and invest into the phase of the business you’re in,” Balsillie said.

Research In Motion, which shipped its 50 millionth BlackBerry in January, fell C$3.51, or 5.9 percent to C$56.54 at 4:10 p.m. in Toronto Stock Exchange trading. The stock plunged 15 percent on Feb. 11 on the outlook for profitability.

Margin Issue

The shares face “near-term pressure over margin concerns,” RBC Capital Markets analyst Mike Abramsky said today in a research note after meeting with Balsillie in Barcelona.

The stock should rise, lifting Research In Motion’s price- earnings ratio closer to that of competitors, as handset sales growth accelerates and new products like the Storm and Bold are introduced in new markets, Abramsky said. He expects the stock to outperform its peers.

The company’s price-earnings ratio, a measure of the stock’s affordability, is 14.5, compared with 17.6 for Apple.

“If we didn’t have the market-share growth, if we didn’t have the sales acceleration, if we didn’t have the subscriber acceleration, I might be concerned,” Balsillie said. “If sales are going up and we’re gaining market share, the stock market is irrelevant.”

Subscriber Growth

Research In Motion said last week the number of new subscribers will be 20 percent higher than the 2.9 million forecast in December as buying levels remained “strong” after the Christmas season.

The company faces possible competition from Palm Inc.’s plan to introduce the touch-screen Pre phone in the first half of the year. Demand for smartphones, which allow users to surf the Web, stream video and e-mail, may grow this year even as overall mobile-phone sales shrink, according to researcher IDC.

The market for smartphones will expand 8.9 percent worldwide in 2009, compared with a 1.9 percent drop for the rest of the handset industry, IDC predicts.

Balsillie is optimistic about Research In Motion’s prospects amid the global slowdown in demand for mobile phones.

“You have to pay attention to the broader context, but we’re prospering and wireless has become a necessity for businesses and users,” Balsillie said. “These are uncertain times, unique times, but we are super fortunate to be a sector that has very special attributes for people and for business, and that it is essential. Our business is strong and our margin structure is intact.”

To contact the reporters on this story: Simon Thiel in Barcelona at sthiel@bloomberg.net; Hugo Miller in Toronto on hugomiller@bloomberg.net

Last Updated: February 17, 2009 16:15 EST