Research In Motion Ltd. (RIMM) shares fell 14 percent as analysts said a reduced profit forecast hurts management’s credibility and raises pressure on the company as it heads into an annual trade show next week.
The Waterloo, Ontario-based company lowered its outlook for this quarter, a month after providing figures. Profit will be $1.30 to $1.37 a share, RIM said yesterday, instead of $1.47 to $1.55, a forecast below analysts’ estimates at the time.
“This further damages already low credibility, making them the ‘poster boy’ for a show-me story from here,” Mike Abramsky, an analyst at RBC Capital Markets in Toronto, said in a research note. He slashed his price estimate for RIM stock to $55 from $90 and his rating to “sector perform” from “top pick.”
RIM is struggling to compete against Apple Inc. (AAPL) and Google Inc. (GOOG) in the smartphone market. The company, which will host the BlackBerry World conference starting on Monday, has to update its BlackBerry lineup and provide some evidence its products can do better against Apple’s iPhone and devices that run Google’s Android operating system, said Paul Taylor, chief investment officer at BMO Harris Private Banking in Toronto.
“Management needs to deliver on the product side,” said Taylor, who manages about $14.5 billion including RIM and Apple shares. “That includes competitive next-generation smartphones and building out the app library.”
Apple offers more than 350,000 software applications, or apps, and Google’s Android Market has more than 150,000, compared with more than 25,000 in BlackBerry App World.
RIM fell $7.94 to $48.65 at 4 p.m. New York time in Nasdaq Stock Market trading for the biggest drop since September 2009. The stock has lost 16 percent this year.
Four other analysts -- Jefferies & Co. Inc.’s Peter Misek, Cormark Securities Inc.’s Richard Tse, Gleacher & Co. Securities’ Stephen Patel and National Bank Financial’s Kris Thompson -- reduced their ratings on the stock.
Co-Chief Executive Officer Jim Balsillie told analysts on a conference call yesterday that he wished the new products would come sooner to replace current BlackBerry devices.
“The issue is an aging that happens in your higher-end products and it affects margin,” Balsillie said. “All things being equal we would love to have these products earlier and not be having this call. Because it’s such a big upgrade, it takes longer.”
Scrap co-CEO structure?
Sameet Kanade, an analyst at Northern Securities Inc. in Toronto, suggested the company should consider adopting Android for its range of consumer devices to stay competitive. He also said RIM should scrap its two-CEO structure.
“It is apparent that this dual structure is not working at RIM,” he wrote in a note. “A change in management structure is required and believe the vote is clearly in favor of Mr. Mihalis ‘Mike’ Lazaridis, who is the technical brains behind the company.”
In updating its forecast, RIM said BlackBerry shipments will be at the lower end of the range of 13.5 million to 14.5 million it projected last month, and the mix of devices will shift toward cheaper models. Sales in the quarter ending May 28 will be “slightly below” the $5.2 billion to $5.6 billion the company had forecast.
Analysts had predicted earnings of $1.50 a share on sales of $5.44 billion, the average estimates compiled by Bloomberg.
‘Off a Cliff’
“The sales on their existing devices must have fallen off a cliff,” said Matt Thornton, an Avian Securities LLC analyst in Boston who has a “neutral” rating on the stock. “They are getting hit by a combination of a stale portfolio and heated competition on devices.”
RIM said shipments of its PlayBook tablet computer, which started selling in the U.S. April 19 to challenge Apple’s iPad, are in line with its previous estimates.
The company said full-year earnings will be about $7.50 a share, after projecting earnings in excess of $7.50 last month. The company said it anticipates “strong” revenue growth in the third and fourth quarters, helped by new BlackBerry models and “prudent” cost management.
“Anytime a company guides down, that’s not good,” said BMO’s Taylor. “It’s a little uncomfortable how backloaded in the year their product cycle is.”
RIM’s share of global smartphone sales fell to 14 percent in the fourth quarter from 20 percent a year earlier, according to Canalys, a British research firm. Android’s share more than tripled to 33 percent and Apple was unchanged at 16 percent.
The forecast shows that higher-end BlackBerrys like the Torch, designed to compete with the iPhone and Android devices, are missing estimates, said Michael Walkley, an analyst at Canaccord Genuity Ltd.
“Higher-end phones have not sold so well,” said Walkley, who has a “hold” rating on the stock. “The investment community was already skeptical about the full-year guidance of $7.50 and this gives them reason to be more skeptical.”
RIM has a chance to show off new products next week in Orlando, Florida. Though the company may introduce new touch- screen devices and possibly new smartphone software, the forecast cut risks overshadowing any announcements next week, Abramsky said.
“Clearly, they need to refresh their product lineup,” said Charles Golvin, an analyst at Forrester Research Inc. “They need to put their phones on a diet. They need a little sexy.”
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