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RIM Falls Most in 18 Months as PlayBook Cuts Into Forecasts

Research In Motion Ltd. (RIMM), maker of the BlackBerry smartphone, fell the most in 18 months on the Nasdaq Stock Market after forecasting first-quarter revenue and profit that missed analysts’ estimates.

Profit will be $1.47 to $1.55 a share as the company spends more on research and steps up marketing for its PlayBook tablet and new smartphones, RIM said yesterday in a statement. Analysts had predicted profit of $1.66 on average, excluding some costs, according to estimates compiled by Bloomberg.

RIM’s PlayBook, due in the U.S. April 19, will have to play catch-up with Apple Inc. (AAPL)’s iPad, which came out more than a year ago. New BlackBerry models like the Torch, designed to compete with Apple’s iPhone and premium devices built on Google Inc. (GOOG)’s Android platform, may not be enough to stop consumers defecting to rivals, said William Power, a Robert W. Baird & Co. analyst.

“With Apple and Android both on a roll in the U.S., we believe RIM will be facing long odds to win back lost customers,” Power said. In emerging markets, where RIM’s cheaper Curve model has sold well, new Android devices have the potential to take share, he said.

Power reduced his rating on Waterloo, Ontario-based RIM’s shares to “underperform” from “neutral” and Brian Modoff, an analyst at Deutsche Bank AG, cut his recommendation to “sell.” Caris & Co. analyst Robert Cihra reduced his rating to “above average” from “buy.’”

RIM fell $7.20, or 11 percent, to $56.89 at 4 p.m. in Nasdaq trading, for the largest decline since Sept. 25, 2009. That reversed gains the stock had made in recent months, leaving it 2.1 percent lower this year.

Sales Forecast

Revenue will be $5.2 billion to $5.6 billion in the first quarter, which ends in May, the company said. Analysts had estimated $5.65 billion on average.

Getting into new products requires a big investment, Chief Executive Officer Jim Balsillie told analysts on a conference call yesterday.

“We’re investing in opening up a new category, bringing in a new platform -- this is no time for half measures,” he said. “This is a time of enormous investment and transition.”

The company aims to use its close ties to the corporate world to get business users interested in the PlayBook. RIM is discussing possible orders of more than 10,000 tablets with “several” corporate customers, Balsillie said. The PlayBook will be able to play software applications from Google’s Android, RIM said.

“It’s a winner, it’s such a winner,” Balsillie said.

Apple’s Lead

The PlayBook is built on a new operating system developed by QNX Software Systems, a company that RIM bought a year ago. The QNX software also will begin appearing in BlackBerry smartphones starting in 2012, Balsillie said.

Apple has sold more than 15 million iPads to date and has said that over 65 percent of Fortune 100 companies are testing or deploying the device, including Procter & Gamble Co. (PG) RIM has shown the PlayBook to a “significant” portion of the same companies and interest in the device is “very high,” the company has said.

RIM’s share of worldwide smartphone sales slipped to 14 percent in the fourth quarter from 20 percent a year earlier, according to Canalys, a British research company. Apple’s share was unchanged at 16 percent, while Android’s more than tripled to 33 percent.

JPMorgan Chase & Co. (JPM), Bank of America Corp. and Citigroup Inc. are among the banks that began testing iPhones and Android devices late last year, with an aim to letting employees use them for work, according to people familiar with the trials.

BlackBerry Sales

RIM’s fourth-quarter net income rose to $934 million, or $1.78 a share, from $710 million, or $1.27, a year earlier. Revenue climbed 36 percent to $5.56 billion in the period, which ended Feb. 26.

The company shipped 14.9 million BlackBerrys last quarter. Analysts had estimated 15 million. RIM expects to ship 13.5 million to 14.5 million BlackBerrys this quarter, compared with the 14.8 million estimated by analysts.

RIM’s gross margin -- the percentage of sales left after production costs -- will be about 41.5 percent this quarter, short of the 42.7 percent predicted by analysts. The PlayBook’s gross margin will be lower than for BlackBerry phones, because of the research and development costs going into the device.

“Higher spending on R&D and marketing makes sense, but the gross margin is going to need some explaining,” said Steven Li, an analyst at Raymond James Ltd. in Toronto. He has an “outperform” rating on the stock.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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