UPDATE: Research in Motion Shares Slip on Disappointing Outlook

NEW YORK (Dow Jones) -- Shares of Research In Motion slid nearly 9% in premarket trading Thursday, a day after the wireless device maker signaled that future earnings may come under pressure as it ramps up spending to sustain its breakneck growth rate.

The maker of the popular BlackBerry line of smart phones is coming under increased pressure from competitors such as Apple Inc, which is preparing to launch a faster, cheaper version of its iconic iPhone next month.

As a result, Research In Motion is planning to launch several new products itself in the coming months, which will lead to an increase in spending at the company that has delivered four consecutive quarters of triple-digit earnings growth.

"While the investments are significant, we believe they make sense, and should fuel significant unit growth over the next two years, in both the enterprise and consumer markets," wrote analysts at Thomas Weisel Partners.

Shares of Research In Motion have soared more than 65% over the past five months as investors banked on continued strong sales of the popular BlackBerry devices.

"They really are thinking long-term, spending to support these major new products that are coming out," said Morgan Keegan analyst Tavis McCourt. "But I'm still a little worried about the impact of the iPhone on the August quarter."

The company managed to continue its strong run for the first fiscal quarter, which ended May 31. RIM reported earnings of $482.5 million, or 84 cents a share, for the period compared to earnings of $223.2 million, or 39 cents a share, for the same quarter last year.

Revenue grew more than 100% to $2.24 billion from $1.08 billion last year.

Analysts were expecting earnings of 85 cents a share on revenue of $2.27 billion, according to consensus estimates from FactSet Research.

The company said it shipped about 5.4 million new devices during the quarter. About 2.3 million new subscribers were added during the period, bring the total subscriber base to more than 16 million.

Forecast causes concern

For the current quarter ending Aug. 30, RIM projected revenue in the range of $2.55 billion to $2.65 billion. Analysts had been expecting revenue of $2.44 billion for the period, according to FactSet data.

The company said earnings are expected to come in between 84-89 cents a share, compared to current forecasts calling for 90 cents a share in earnings, according to FactSet data.

During a conference call with analysts, Research In Motion CEO Jim Balsillie said the company planned to increase its investments in the business ahead of "our strongest second half ever," referring to the second half of the calendar year.

"To support the anticipated growth in the second half we've been investing and expanding in a number of areas to insure we can scale to meet the opportunity ahead of us," Balsillie said on the call, referring to everything from new engineering hires to a national TV advertising campaign. "This is a multi-pronged approach that spans several areas of the business."

RIM's next significant product launch will be the BlackBerry Bold, a 3G device expected to go on sale sometime this summer. The company is also expected to launch a touch-screen version of the BlackBerry called the Thunder later in the year, though RIM has not confirmed such a plan to date.

But the company is expected to face heavy competition from the new 3G version of the iPhone from Apple, which will go on sale early next month at prices starting at $199 -- about half the current cost of the product.

Balsillie did not mention the iPhone directly on the call. When an analyst asked if the company thought its customer base would overlap with the new iPhone, the CEO simply said "Nah."

Street still bullish

Research In Motion is heavily favored on Wall Street. About 75% of the 32 analysts covering the stock rate the shares as a buy, according to data from Thomson Reuters.

Despite the recent run on the share price, most brokers expect the stock to gain even more ground. Price targets on the shares range from $120 to $225, with the current median target set at $165.

"We'll take any sell-off on RIM as a buying opportunity. The trend towards smart phones is a long-term opportunity," Romeo Dator, fund manager with U.S. Global Investors, Inc., said after the earnings report on Wednesday.

Dator dismissed recent reports that the BlackBerry Bold may have its launch date delayed by a few weeks, though he admitted it could give an opportunity to the iPhone.

"That would be quite an opportunity for Apple at the expense of RIM," Dator said. "But we're of the opinion that people will wait for that product if it's just a matter of weeks."

McCourt of Morgan Keegan maintains a neutral rating on RIM's shares, noting that the iPhone could prove to be larger-than-expected competition for the company.

"But I'm not bearish at all on RIM over the long term," he added.

(END) Dow Jones Newswires

Posted to the site on 26th June 2008