RIM's second quarter revenue light as is the outlook

Research in Motion's second quarter revenue and third quarter outlook fell short of expectations.

RIM reported second quarter earnings of $475.6 million, or 83 cents a share, down from $643 million, or $1.12 a share, a year ago (statement). Adjusted net income for the second quarter was $1.03 a share reflecting a tax rate of 28.5 percent and excluding a charge of $112.8 million to settle a patent litigation with Visto. Wall Street was expecting earnings of a $1 a share. RIM detailed the charges related to Visto in July.

However, sales were the big issue for RIM. The company said second quarter revenue was $3.53 billion, up 3 percent from a year ago. The rub: Wall Street was expecting sales of $3.63 billion. RIM did ship 3.8 million devices in the second quarter.

The outlook was also disappointing. For the fiscal third quarter ending Nov. 28, RIM said it expects revenue to be between $3.6 billion and $3.85 billion. Wall Street had been expecting sales projections of $3.95 billion. Meanwhile, third quarter earnings per share were projected to be between $1 a share and $1.08 a share. Wall Street had been looking for $1.08 a share. RIM also said it expects to add between 4 million and 4.3 million net subscribers in the third quarter.

On a conference call, Balsillie said RIM is showing some growth in international enterprise sales and consumer expansion in the U.S. RIM said it will ship 9.2 million to 9.9 million devices in the third quarter. Average selling prices will be $320 in the third quarter.

Here's how RIM lined up with Cowen & Co. and consensus estimates with problem areas highlighted:

The reaction was predictable as shares were whacked in after hours trading. In fact, the more Balsillie talked on the conference call the more RIM shares fell:

Among other items from RIM:

• The company shipped 8.3 million devices.
• It added 3.8 million net BlackBerry subscriber accounts for a total of 32 million.
• 81 percent of RIM's revenue in the quarter came from devices with 14 percent from service.
• Balsillie said RIM will launch new products and applications with Verizon "in the upcoming months." He also talked up the success of the BlackBerry Tour.
• And the company ended the quarter with $2.5 billion in cash, equivalents, short and long-term investments.

Jim Balsillie, co-CEO of RIM, was upbeat on the holiday buying season noting that the company had a strong portfolio. However, gross margins have been declining. For the six months ended Aug. 29, RIM's gross margin was 43.8 percent, down from 50.7 percent a year ago.