In a fittingly dismal end to a disastrous year, Research in Motion on Friday gave investors an unscheduled warning that third-quarter revenue and earnings fell short of estimates, sending shares (NASDAQ: RIMM) of the BlackBerry maker down 10% in early trading.
RIM also announced it would take a $485 million pretax charge against its vast inventory of unsold PlayBook tablets and warned that it won't meet earnings forecasts for the full fiscal year.
Shares fell in Friday morning trading to as low as 16.74, or 10.0% below Thursday's closing price of 18.58. RIM's stock was down 68% for the year through Thursday, and 71% based on Friday's low.
The Canadian device maker's third quarter ended on Nov. 26. RIM is scheduled to release its full third-quarter earnings on Dec. 15, so Friday's announcement was a surprise.
But the news isn't. RIM's BlackBerry continues to lose market share and the PlayBook tablet has been an unmitigated disaster. The early glimpse of Q3's disappointing, if not unexpected, numbers are sure to increase shareholder unrest and prompt renewed calls for the firing of co-CEOs Mike Lazaridis and Jim Balsillie.
RIM said in a statement on Friday that revenue for the third quarter "is expected to be slightly lower than the previously guided range of $5.3-5.6 billion." It also said it expects earnings per share "to be at the low to mid point of the $1.20-$1.40 per share range" previously forecast.
It gets worse:
The Company is still in the process of finalizing its fourth quarter outlook, and based on preliminary estimates, RIM expects unit shipments in the fourth quarter to be below third quarter levels. The lower expected shipments in the fourth quarter are due to several factors including lower than expected sell-through in the third quarter and RIM’s current view of fourth quarter demand. The Company no longer expects to meet its full year adjusted diluted earnings per share guidance of $5.25-6.00.
Despite the grim reality outlined above, RIM couldn't resist some delusional happy talk:
Based on the positive response to the (PlayBook) promotions that are underway in select markets, RIM believes this strategy will accelerate adoption of its QNX-based platform by consumers and enterprises, as well as help to drive the development of a vibrant application ecosystem in advance of its next generation BlackBerry smartphones. ...
Since the launch of the new promotions across consumer and enterprise channels in the United States and Canada late in the third quarter, the Company has seen a significant increase in demand for the PlayBook. ...“RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy. Although a number of factors have led to the need for an inventory provision in the third quarter, we believe the PlayBook, which will be further enhanced with the upcoming PlayBook OS 2.0 software, is a compelling tablet for consumers that also offers unique security and manageability features for the enterprise,” said Mike Lazaridis, Co-CEO at Research In Motion.
Two things: I'll believe there's a "significant increase in demand" for the PlayBook when I see the sales numbers. Right now, at least to any sober investor, those are just words -- and dubious ones at that. Don't forget, RIM has been revising down guidance all year, which means the company's forecasts have been, to put it kindly, overly optimistic.
Secondly, as I mentioned earlier this week, it doesn't matter whether RIM thinks it has a "compelling tablet for consumers" if buyers aren't compelled to buy it. And they haven't been. What's going to make that change? A permanent $199 price tag? How much money is RIM losing on each one of those sales?
If the strategy is to seed the market with cheap PlayBooks to attract developers to the ecosystem, well, it's not likely RIM can just will that to happen.
Any more than it can will enterprises to reinstate RIM as the de facto vendor for enterprise mobile needs. The horse has left that barn and it isn't coming back. And without its enterprise edge, how can RIM compete in a BYOD world of iPhones and Androids?
The answer to that is pretty clear.