RIM beats Street, says momentum will continue into holidays

RIM reports better than expected second quarter earnings and offers a strong outlook that reflects optimism of a strong holiday season.
Written by Sam Diaz, Inactive

If investors are worried about the health of Research in Motion amid reports that the smartphone game is a two-man race between Apple and Google, it didn't show when RIM released better than expected second quarter earnings this afternoon.

For the quarter, the company reported net income of $797 million, or $1.46 per share, on revenue of $4.62 billion, a 31 percent jump over the year-ago quarter. Wall Street had been expecting earnings of $1.35 per share on revenue of $4.47 billion. (Statement PDF)

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During the quarter, the company shipped about 12.1 milion devices and added about 4.5 million net new subscribers. In a statement, co-CEO Jim Balsillie was bullish on the quarter and the road ahead. He said:

RIM set another new record in the quarter by shipping over 12 million BlackBerry smartphones. This accomplishment and RIM's solid financial results during the second quarter were driven by effective business execution and strong demand for RIM's portfolio of BlackBerry smartphones and services in markets around the world. We expect a continuation of this momentum in the third quarter as we extend the rollout of new products including the BlackBerry Torch into additional markets and benefit from heavy promotional activities and increasing customer demand as we head into the holiday buying season.

During a call with analysts, Balsillie had plenty to talk about and accentuated his words for emphasis in several instances. In a nutshell, the commitment from enterprise customers, the growth in international markets, the introduction of Blackberry 6 and even the rise of the prepaid market led the company's strong quarter. Those factors are driving a strong forecast heading into the holidays.

For the third quarter, the company projected earnings to be in the range of $1.62 - $1.70 per share and revenue to come in between $5.3 billion and $5.55 billion. Analysts had been expecting a forecast of $1.39 per share on revenue of $4.8 billion.

The launch of the Blackberry Torch, the first device running Blackberry 6, led to a meaningful (his emphasis) increase of run rate in the United States and that has continued into into the early part of the third quarter. He said it was also important to note that the early success has been among consumers and prosumers because enterprises tend to run their own certifications on a new OS independently. One of the reasons for a bullish outlook, he said, is because enterprise activity will kick up.

He also highlighted the aggressive marketing for the Torch by AT&T in the U.S. and said that advertising and marketing efforts will become greater - partially fueled by additional carriers picking up Blackberry 6 devices - as we head toward Black Friday.

On the International front, Balsillie highlighted Asia and Latin America, specifically Colombia, Mexico and Argentina as high-growth markets. In addition, there are plans to roll out with 75 additional carriers around the world in the third quarter.

Prepaid on the international front is also seeing a notable uptick, he said, making note of Vodafone Spain. The U.S. is also gaining ground as companies such as Boost, MetroPCS and Cricket are bringing smartphones into the mix - with social networking capabilities being a driver in those markets.

The markets are being identified and targeted by demographics, regions and other factors. Case in point: expect a lot of those advertising efforts to target the youth market, prepaid customers and social networking junkies.

Finally, Balsillie addressed the security concerns coming out of India and the Middle East by saying that discussions are continuing but that there is optimism about the outcome.

Shares of RIM were up more than two percent in regular trading, closing at $46.49. Shares were up more than five percent in after-hours trading.

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