Research In Motion Falls as Profit Margins Narrow

Feb. 11 (Bloomberg) -- Research In Motion Ltd. fell the most in almost five months on the Nasdaq after saying profit will come in at the low end of its targets, signaling the BlackBerry maker sacrificed margins to gain customers.

Gross margin, or the percentage of sales left after production costs, also will be at the lower end, Research In Motion said today. The results suggest the latest models, such as the Storm and the Bold, have won fewer customers than some of the older BlackBerrys, according to analysts.

“There was a lot of hope that the Bold and Storm would be blockbuster products,” said Scott Pope, a Chicago-based analyst with First Analysis Corp. “Customers may not be responding as well as expected to the newer products.”

Subscriber gains will be 20 percent higher than the 2.9 million forecast in December, Research In Motion said. The company introduced more consumer-friendly models to compete with Apple Inc.’s iPhone 3G, vying for a dwindling pool of spending as the economic slump intensifies. Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961.

“They cannot grow in the way they’ve been growing if they just focus on the enterprise,” said Anil Doradla, an analyst with William Blair & Co. in Chicago. “The only issue and challenge is the minute you get into the consumer space, some of the business models are changing.”

The stock fell $8.28, or 15 percent, to $48.76 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest decline since Sept. 26. Research In Motion has dropped 48 percent in the past year.

Storm Deals

The company introduced the touch-screen Storm in November in the U.S. exclusively through Verizon Wireless. The two began a “buy-one-get-one-free” sale last week as the recession deepens into the worst financial crisis in at least 25 years. Amazon.com Inc., the world’s largest online retailer, now sells the Storm for $99.99 with a service plan, according to its Web site.

Waterloo, Ontario-based Research In Motion had projected fourth-quarter profit of at least 83 cents a share, compared with the 86-cent average of estimates compiled by Bloomberg. The company said in December that margins narrowed as new phones, such as the BlackBerry Storm, made up for a larger percentage of sales.

So-called smart phones such as the Storm are capable of surfing the Web and downloading video at high speeds. Apple, based in Cupertino, California, debuted the latest model of the iPhone in July. Palm Inc. also plans to introduce a new model, the Pre, in the first half of the year.

The new devices will heighten competition for Research In Motion as the pool of new subscribers in the U.S. shrinks, with more than 80 percent of people already carrying a mobile phone.

Smart Phones

The smart-phone market overall will grow next year even as sales of other devices drop, research firm IDC said in December. The market will expand 8.9 percent worldwide in 2009, compared with a 1.9 percent drop for the rest of the handset industry.

Research In Motion expects fourth-quarter sales to be “at or near the mid-point” of the forecast range of $3.3 billion to $3.5 billion. Analysts on average projected $3.4 billion.

“Tech has been able to perform well, and now we’ve got RIM coming out with this and it shows that no sector is safe,” said Suzanne Bodlovic, an independent equity futures trader at the Chicago Board of Trade. “Everyone’s earnings are going to be less then expected.”