RIM Co-CEO:Seeing Strong Growth In Subscribers Outside USA

TORONTO -(Dow Jones)- Shares of Research In Motion Ltd. (RIMM) are up after hours Wednesday, as the BlackBerry maker's third-quarter earnings exceeded expectations.

And while RIM's patent dispute with NTP is weighing on subscriber growth, that hasn't filtered through to the firm's top and bottom lines, as RIM maintained fourth-quarter earnings and revenue guidance. The Waterloo, Ontario, firm still sees fourth-quarter net of 76 cents to 81 cents a share on revenue of $590 million to $620 million. This despite narrowing fourth-quarter subscriber guidance to 700,000 to 775,000, from 775,000 to 825,000.

On a conference call Wednesday, RIM Chief Financial Officer Dennis Kavelman indicated that the recent introduction of new BlackBerry models, such as the 8700, has triggered a strong upgrade cycle that is contributing to fourth-quarter revenue.

Still, it was the second time RIM lowered its fourth-quarter subscriber forecast in the past two months. In November, the company cited delayed launches of two new BlackBerry models as the reason for the lowered forecast. This time, however, the firm acknowledged that uncertainty over the patent dispute is hurting subscriber growth.

A Virginia court could soon ban BlackBerry use in the U.S. due to a previous patent-infringement verdict against RIM in the NTP case. The looming decision has generated close media attention and made some RIM customers uneasy. RIM has more than 4 million subscribers, the bulk of them in the U.S., including many on Wall Street. The company also counts the U.S. government as a big BlackBerry user, and the Department of Justice recently weighed in with a friend-of-the-court briefing expressing its concern about a possible BlackBerry outage.

RIM Chairman and co-Chief Executive Jim Balsillie said on the call that he isn't aware of many current BlackBerry subscribers implementing contingency plans in advance of a potential BlackBerry shutdown.

Still, the uncertainty has weighed on RIM's stock, which is down about 25% year to date. But the soap opera case could still end up being resolved in RIM's favor if the U.S. Patent and Trademark Office rejects NTP's patents. The PTO is reviewing all five disputed NTP patents and rejected each patent in preliminary rulings. More recently, it rejected three of the patents in secondary reviews. It also indicated that it's expediting the review and anticipates final rejections on some of the patents within six weeks.

The upshot is that some RIM watchers believe the firm may end up settling for far less than $1 billion, perhaps less than $450 million. During the call, RIM's Balsillie indicated that the sides continue to negotiate through a court-appointed mediator. He didn't elaborate.

In its earnings press release, RIM indicated it's maintaining a previously recorded $450 million litigation accrual as the best current estimate of any future settlement with NTP. However, the firm indicated that a settlement could end up being far greater or less than that amount.

Balsillie continued an offensive against NTP that began earlier this week with an op-ed column in The Wall Street Journal. The executive said he believes RIM has acted responsibly throughout the dispute and that the PTO's recent actions vindicate RIM. He also said RIM believes that Judge James Spencer, the Virginia District Court judge presiding over the case, should consider the PTO's recent actions when deciding whether to impose a BlackBerry ban. However, he acknowledged there is no guarantee that the judge will consider the PTO's actions in his decision.

If a ban is ordered, RIM will introduce a modified version of its BlackBerry system designed to work around NTP's patents, Balsillie said. He said the company expects to reveal details of its workaround shortly. In an interview after the call, he said the firm hopes to reveal these details before the end of the year.

Asked about coming competition from big-name players such as Nokia, Motorola and Microsoft, Balsillie said RIM has always faced stiff competition and this is no different. He noted RIM's average selling prices are forecast to increase in the fourth quarter, suggesting that the firm's margins aren't coming under pressure. He also said that RIM is seeing strong subscriber growth outside the U.S.

After closing down 0.5% at $61.76 Wednesday, RIM is up 5.9% to $65.40 after hours.

Company Web Site: http://www.rim.net

-By Stuart Weinberg, Dow Jones Newswires; 416-306-2026; stuart.weinberg@dowjones.com

(END) Dow Jones Newswires "

Posted to the site on 22nd December 2005