RIMM: Raises Q4 Subscriber Forecast, Cuts EPS

Research in Motion (RIMM) shares were down sharply Wednesday in early trading, after the company raised its forecast for subscriber growth for its fiscal fourth quarter ending February 28 - while cutting its EPS outlook for the same period. The news, which among other things implies pressure on pricing, also appears to be hurting shares of other handset makers. The disclosure is going to reignite concerns about RIMM’s falling gross margins, and increase worries about heightened competition in the smartphone sector.

The details::

• RIMM said it now sees Q4 subscriber net adds 20% above the 2.9 million it forecast on December 18. The company said it had recorded net adds in December and continued to see strong growth after the holidays.
• But the company said it expects Q1 net adds “to reflect a more normalized average weekly run rate” since it will not include a “holiday surge.”
• RIMM also said it is “reaffirming” its Q4 financial guidance, with revenue at or near the mid-point of the previous guidance range of $3.3 billion to $3.5 billion, but with gross margin and EPS “at the low end” of the range. The company had forecast EPS of 83-91 cents a share and gross margin of 40%-41%.
• RIMM said that a variety of factors, “including product mix, lowered channel inventory levels and an increased ratio of new subscriber sales to upgrade and replacement sales” are contributing to the outperformance of subscriber growth relative to revenue and EPS.

The company expects to report Q4 results on April 2.

In early trading Wednesday, RIMM was down $6.99, or 12.3%, to $50.05.

Palm (PALM) was down 21 cents, or 2.7%, to $7.60; Apple (AAPL) was down $2.33, or 2.4%, to $95.50.

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Comments

[jenny:]

RIMM is rumored to be doing a buy-one-get-one free deal on their BlackBerry's with Verizon customers...I cant decipher whether this is an act of disparity or a good move to help double unit numbers. There now down almost 17% but sentiment is bullish (www.predictwallstreet....) so I'm not exactly sure what is going on. I think Q4 reports are going to be pretty disappointing.

Feb 11 01:13 PM

[Hayweed:]

Margin compression while subs increase. Must be the buy one get one sale at Verizon and I assume that this means that Verizon is not paying for the free phone or is getting a big discount. Looks like tough times for Rimm. Always amazed that the company is an over promise under deliver mode for the past 4 quarters.

Feb 11 01:14 PM