Research In Motion Ltd. (RIM), which disappointed investors last week for the third quarter in a row, will probably fall short of full-year forecasts too amid intensifying competition from Apple Inc. (AAPL) and Google Inc. (GOOG)
RIM said it will earn $5.25 to $6 a share, excluding some costs, for the fiscal year ending in January. To do that, the Waterloo, Ontario-based company will have to make at least $3.12 in the second half of the year, including $1.82 in the fourth quarter if it hits the mid-point of its third-quarter forecast. RIM has never made that much, and, given the new devices coming from Apple and Google’s partners, it’s unlikely to do so this time, said Cowen & Co LLC analyst Matt Hoffman.
“Management doesn’t see reality the way the market sees it right now,” said Hoffman, who is based in Boston and has a “market underperform” rating on the stock. “I don’t see how they can get to $1.82 when they’re facing all this competition.”
RIM’s forecast is based in part on early demand for a range of new BlackBerrys with more advanced touch-screen features, its first new phones in a year. Still, the devices will have to stand out against Apple’s iPhone 5, new phones from Motorola Mobility Holdings Inc. that run Google’s Android software and Nokia Oyj (NOK1V) handsets that use Microsoft Corp. (MSFT)’s Windows Phone.
“RIM is underestimating the increasingly competitive smartphone environment,” said Michael Walkley, an analyst with Canaccord Genuity Ltd. who has a “hold” rating on the stock. “We worry the refreshed RIM products will not change consumer sentiment or regain lost customers.”
Tenille Kennedy, a spokeswoman for RIM, referred to comments by executives including Co-Chief Executive Officer Jim Balsillie about strong demand for new products and said the company stands by its forecast.
The company is showing no progress in the tablet computer market. It shipped about 200,000 of its PlayBook tablets last quarter, down from 500,000 the quarter before and less than half the 490,000 that analysts had estimated. RIM’s tablet was outshipped by Apple’s iPad 46 to 1 in the latest quarter.
RIM said it will unveil new software for the PlayBook next month that will let customers use native e-mail and run Android applications. Still, analysts had cut estimates for full-year PlayBook sales to an average of 2.2 million, even before last week’s earnings report.
Apple will probably release a third version of its market- leading iPad in 2012, JPMorgan Securities analyst Mark Moskowitz said last week.
Analysts are skeptical RIM can hit its earnings forecast, even after the company said results would be at the low end of the range. Analysts expect profit of $4.78 per share for the year, excluding some costs, according to the average estimate from a Bloomberg survey of 49 analysts.
Just six of the analysts have estimates within the company’s provided range, while 43 are below that level, according to Bloomberg data.
“We don’t trust those numbers,” said Jeff Fidacaro, an analyst at Susquehanna International Group in New York who estimates RIM will make $4.63 per share. The highest estimate is for RIM to make $5.60 a share and the lowest is for $3.50, according to the Bloomberg survey.
RIM fell 21 cents, or 0.9 percent, to $23.72 at 4 p.m. New York time on the Nasdaq Stock Market. The stock has dropped 59 percent this year.
RIM’s share of the global smartphone market dropped to 12 percent in the second quarter from 19 percent a year earlier, according to Gartner Inc. In the same period, Apple climbed to 18 percent from 14 percent, and Android, used in phones from Motorola and Samsung Electronics Co., rose to 43 percent.
Balsillie said last week that lower-than-expected demand for older devices hurt sales last quarter, when the company shipped 10.6 million BlackBerrys or more than 1 million less than analysts had estimated. RIM’s latest handsets, which run on a new BlackBerry 7 operating system, are “having an excellent reception,” he said.
RIM’s problem is that those new phones are only now making up the ground they’ve lost to current Apple and Android devices, according to Cowen & Co.’s Hoffman.
BlackBerry 7 “catches up with phones that were launched 12 months ago,” he said. “We do not anticipate BB7 being competitive once those new versions of all those operating systems are in the market over the next few weeks.”
Hoffman estimates RIM will earn $1.20 in the third quarter, $1.10 in the fourth quarter and $4.43 in the full year.
The company forecast third-quarter revenue of $5.3 billion to $5.6 billion and shipments of between 13.5 million and 14.5 million BlackBerrys. Earnings excluding charges related to job cuts will be in the range of $1.20 to $1.40, it said.
Alkesh Shah, an analyst with Evercore Partners Inc. in New York, projects that RIM would need to record sales of about $6 billion, to reach a fourth-quarter profit of at least $1.80.
“Hitting that revenue number would be very difficult,” said Shah, who estimates revenue will be about $5.62 billion.
RIM would have to reverse a revenue decline to make those numbers. The company would need to boost sales in the fourth quarter about 8 percent compared with a year earlier to hit $6 billion, after revenue fell 9.8 percent last quarter. According to Bloomberg’s analyst survey, RIM’s sales are estimated to be about $5.65 billion in the fourth quarter.
Shah says his “optimistic” prediction that RIM will ship 53 million BlackBerrys and 1.5 million PlayBooks for the year only gives the company earnings of $4.90 for the full year.
“It’s a pretty steep ramp up to even hit the low end,” he said. “RIM is still going to have a challenging next few months.”
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