WATERLOO, Ont. - Shares in Research In Motion Ltd. (TSX:RIM) dropped almost 17 per cent Wednesday after the BlackBerry maker said it expects fourth-quarter profits will come in at the lower end of its profit guidance.
The Waterloo, Ont.-based smartphone company said the more modest earnings forecast came despite strong numbers of net subscribers in the quarter and revenue that is expected to reach the middle of a previously forecast range.
"RIM achieved a very strong start to the holiday buying season and the momentum carried on stronger than expected during the past seven weeks despite a seasonally slower time frame and the challenging economic environment," co-CEO Jim Balsillie said in a statement.
"We are pleased with our leadership and momentum in the market after shipping our 50 millionth BlackBerry smartphone in January and introducing a range of new products that are achieving exceptional early results."
RIM had said earlier it expected earnings per share between 83 and 91 cents US for the fourth-quarter, with revenue reaching between US$3.3 billion and $3.5 billion. It now expects to see revenue at or near the mid-point of that prior guidance.
The company's stock lost $11.84 to $59.04 in afternoon trading at the Toronto stock market, from a 52-week high of $150.30 and low of $44.23.
RIM attributed its more conservative outlook in part to the mix of products now available on the market.
It also said a stronger-than-expected holiday season will lead to a more than 20 per cent boost in net subscriber account additions for the quarter. The company had previously said it expected 2.9 million net subscriber accounts for the period.
"RIM expects net subscriber account additions in Q1 to reflect a more normalized average weekly run-rate, as the first quarter will not include the type of holiday surge experienced in Q4," the company said.
However, Kaan Yigit, a telecom analyst at Solutions Research Group., said he's confident that RIM will weather the economy.
"Any business doing anything in this economy is suffering from margin erosion of some kind," he said in an interview.
"Everything we look at from our research on the consumer side shows very strong demand for wireless -- and smartphones in particular. We don't see that pace slowing down substantially, even though it's a recessionary environment."
While RIM's improved subscriber numbers beat expectations, the revised revenue and earnings forecasts raise questions about RIM going forward, UBS analyst Jeffrey Fan wrote in a note to clients.
"New questions as to whether there is pricing pressure impacting gross margins, where the bottom on gross margins are, and the outlook for hardware end demand are likely to be key issues," Fan wrote.
On Tuesday, RIM won a bidding war for Mississauga, Ont.-based encryption technology firm Certicom Corp. (TSX:CIC) after VeriSign (Nasdaq:VRSN) decided not to trump the smartphone company's $130-million offer.
The acquisition came on the heels of a settlement between key RIM executives and the Ontario Securities Commission over allegations they participated in a practice known as stock option backdating.
Backdating involves creating an option on a certain day, but pricing the stock option at a price sometime in the past when shares were even cheaper -- making the potential profits higher.
Co-CEOs Jim Balsillie and Mike Lazaridis as well as former CFO Dennis Kavelman were slapped with $77 million in fines and restitution in the settlement.
Balsillie will also be prevented from being a director of any company for a year -- although he'll be allowed to remain an executive of RIM.
The commission said the executives were negligent in overseeing the option backdating, but did not commit fraud.
