Research in Motion said its third quarter sales and earnings will be lower than expected primarily due to "shifts in product launch dates" and a weak economy.
In a statement late Tuesday, RIM said that revenue for the third quarter will be $2.75 billion to $2.78 billion. The company had forecasted revenue of $2.95 billion to $3.1 billion. Earnings will be 81 cents a share to 83 cents a share, lower than the 89 cents a share to 97 cents a share RIM projected. Wall Street was expecting earnings of 90 cents a share on revenue of $2.94 billion. The earnings miss had been telegraphed for weeks.
RIM put a few hedges to make the miss sound better. For instance, RIM said that its revenue will still be up 65 percent from a year ago and a third of the sales problem was because of "the significant depreciation of the Canadian dollar relative to the U.S. dollar in the quarter." RIM, based in Ontario, used to benefit from the strong Loonie relative to the dollar. Simply put, RIM went for the brass ring in the third quarter and missed (much like it did in the second quarter).
The money quote is this:
The remaining difference is primarily due to lower than estimated unit shipments of existing products, which RIM believes is a reflection of general economic weakness in the United States and shifts in product launch dates within the quarter. Subject to final review, gross margin in the quarter is expected to be between 45-46 percent. The lower than expected gross margin is due primarily to product revenue mix and foreign exchange impacts within the quarter.
The key line is the one about key product line dates shifted. Translation: The Storm (review). Verizon Wireless and RIM botched the Storm launch and I'm still waiting for mine. In theory I should have received it already, but instead I get emails like this:
The Storm launched too late to seriously impact RIM's third quarter, but if Verizon would have gotten just a few of them in customers hands RIM had a shot to hit its numbers.
RIM said it will add 2.6 million BlackBerry accounts in the third quarter, down from 2.9 million projected. In the statement, Jim Balsillie, co-CEO at RIM, said the company is well positioned for the future and he was confident that the firm's portfolio was solid.
Generally speaking, analysts were expecting RIM to issue the profit warning. What was a bit worrisome is RIM's margin outlook, which surprised a few analysts. JMP Securities analyst Samuel Wilson sums up the consensus view:
We are clearly disappointed in the failure of RIM to make its estimates for the quarter. While the currency issues we can understand, the company did have trouble executing during the quarter. However, given the strength of Storm and Bold sales thus far, plus low valuation and expectations, we believe the stock is a compelling value here. Our channel checks continue to suggest that Storms and Bolds are selling briskly, with the Storm still sold out in most stores.
The big question for RIM now is whether the Storm and Bold--the company's two primary launches this quarter--will be able to sustain their early momentum.
UBS analyst Maynard Um noted:
RIM indicated daily net sub adds reached a record level on the day of the US Storm launch and record weekly net adds in the last week of the quarter, likely a result of pent-up demand. However, we are more concerned that demand could dissipate beyond the initial up-take, particularly in light of slowing global GDP.
Also see: Verizon Wireless paid me to take a Storm