Research In Motion: What Slowdown?

Analysts figured cuts in corporate tech spending would hurt the BlackBerry maker's earnings. But smart marketing to consumers has paid off

If there's supposed to be a big slowdown in corporate IT spending, then someone forgot to tell Research In Motion (RIMM). The Canadian maker of the wildly popular BlackBerry wireless device reported sales that doubled over the year-ago quarter and profits that grew even better over the same period.

But then corporate spending was really only part of the story for RIM, which has over the year made a concerted push into consumer markets with new, sleeker devices, adding cameras and music-playing features it had long eschewed.

Profits Soar

Clearly RIM's new image—less suit, more T-shirt—is paying off. Sales for the quarter were $1.67 billion, a 100% improvement over the $835 million reported a year ago, and a 22% boost from $1.37 billion in sales during the prior quarter. Profits came in at $370.5 million, or 65¢ per share, 111% better than in the year-ago quarter, and a 28% improvement sequentially.

RIM's powerful results delivered a strong counterpoint to the conventional wisdom that tech spending by large corporations, the company's bread-and-butter customer base, is heading into a slowing period. The ongoing credit crunch, which has pummeled the financial community and resulted in restructuring and layoffs at banks and other institutions, would appear to drive right to the heart of that base. Investment bankers and financial executives are big BlackBerry addicts, and in most cases their devices are paid for by employers.

Yet the company appears to have suffered no ill effects whatsoever. RIM added a net 1.65 million subscribers, and shipped 3.9 million units, finishing the quarter with 12 million Blackberry users. Nearly half of the new subscribers were either consumers or small business accounts, RIM co-Chief Executive Jim Balsillie told analysts.

The numbers beat analysts' expectations; many of them had predicted revenue of $1.65 billion, per-share earnings of 62¢, and 1.7 million net subscriber additions. "Sales and earnings were much better than we expected, but I think they may have been a little conservative on the forecast," says James Faucette, analyst with Pacific Crest Securities in Portland, Ore.

RIM's forecast for the current quarter, its fiscal fourth, looked even stronger. RIM projects sales will come in between $1.8 billion and $1.87 billion, with earnings per share coming in at 66¢ to 70¢. The company also said it will add another 1.82 million subscribers. RIM shares, having finished the regular trading session on Dec. 20 up more than 4%, to $106.99, soared in after-hours action by more than $10 a share, to $117.63.

Pricing Strategy Aims at New Users

"They were obviously helped by AT&T (T) keeping their price on the BlackBerry Curve device at $99," says Tavis McCourt, an analyst at Morgan Keegan.

During a conference call with analysts, Balsillie noted that the BlackBerry has crossed the line from being a product aimed mainly at business users to one aimed also at mainstream consumers. In addition to new consumer-friendly devices, carriers pushed their subscription plans downward to attract entry-level users.

Balsillie told analysts that on Black Friday, the day after the Thanksgiving holiday in the U.S., the company hit a record for the highest number of new subscribers in a single day. Black Friday, he said, has historically tended to be an "unusually slow day" for subscriber additions. Sales were led heavily by the newest Pearl smartphone, a smaller version of the popular BlackBerry device, with carriers such as Verizon Wireless, a joint venture of Verizon (VZ) and Vodafone (VOD); T-Mobile, a unit of Deutsche Telekom (DT); and Sprint Nextel (S).

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