Research In Motion (NASDAQ:RIMM) posted solid fiscal second-quarter earnings, beating Wall Street's diminished expectations, and the Canadian BlackBerry maker issued a positive outlook as well. However, the company missed its forecast for BlackBerry subscriber account additions.
RIM--which has vaulted into the No. 4 handset maker spot via the sheer global reach of its BlackBerry devices--has recently come under pressure from analysts who view the company's products as trailing those of its competitors. RIM released a new flagship product, the Torch, in August with AT&T Mobility (NYSE:T), which sports a refreshed operating system--but the actions have not quieted concerns about BlackBerry's prospects.
In a conference call with analysts, RIM co-CEO Jim Balsillie said AT&T's marketing campaign for the Torch was one of the largest for a BlackBerry device ever, and that RIM now has the highest level of exposure it has ever had in the U.S. market. He also said the Torch will be made available at 75 more carriers globally in the third quarter. Additionally, Balsillie said the company's new operating system--BlackBerry 6--will be made available via additional U.S. carriers as Black Friday approaches at the end of November.
However, during the question and answer portion of the call, Balsillie talked at length about whether and how RIM can remain competitive in the high-end smartphone market.
"And I think in terms of what BlackBerry does, it still has a tremendous number of attributes that really serve the market in the way that we align it for the service and for the carrier and for the segment that's supposed to address," he said, according to a transcript of the call from SeekingAlpha. "And I think it's dangerous to frame all this in a high-end arms race and I think you're going to see our capacity to go beyond what could have been expected by anyone and yet, still address the issues of cost effectiveness, security, efficiency, and desired form factors, so our specialty has been in resolving a paradox and if you don't resolve that, if you don't innovate to resolve that paradox, robbing Peter to pay Paul isn't really a solution because you're just shifting strategies and so the feature phone is upgrading to a smartphone. You know I think our guidance just shows what's happening and if you saw the road map and you saw the engagement strategies you would see that we're being very prudent in our approaches but this is really a promising space."
Balsillie also addressed the security concerns raised by governments in India, the United Arab Emirates and other countries that have dogged RIM during the quarter. To diffuse the situation in India, RIM agreed to give security agencies in that country greater access to its services, thereby scoring a two-month reprieve from a ban in the country while the Indian authorities evaluate the new solutions.
Balsillie said RIM continues to have constructive discussions with governments around the world, but also said there are a great deal of "contradictory rumors" about what the company is doing. He said that RIM will be "respectful of government needs," but added that RIM "cannot compromise the security architecture of the BlackBerry Enterprise Solution." Balsillie said RIM has "no master key or back-door key" to its customers' encrypted data, and that "end-to-end encryption is a fundamental part of the system design."
As for the BlackBerry maker's financials, RIM posted second-quarter earnings of $796.7 million, up from $475.6 million in the year-ago quarter, when the company was hit with a legal charge of $112.8 million. In July 2009, RIM agreed to pay mobile email vendor Visto $267.5 million for a license on all Visto patents and the transfer of certain Visto intellectual property. RIM's revenue in the second quarter clocked in at $4.62 billion, up 31 percent from $3.53 billion in the year-ago period and up 9 percent from $4.24 billion in its fiscal first quarter.
The vendor shipped 12.1 million BlackBerry devices in the quarter, up 45 percent from 8.3 million in the year-ago quarter and 11.2 million in the first quarter. RIM added around 4.5 million Blackberry subscriber accounts in the quarter--below its forecast of 4.9 million to 5.2 million--bringing its total subscriber base to around 50 million.
The company said it expects a have a strong fiscal third quarter, which ends Nov. 27, and expects to record revenue in its fiscal third quarter of between $5.3 billion to $5.55 billion. RIM said it expects gross margin for the next quarter to be around 42 percent, and its net subscriber account additions to be in the range of 5 million to 5.4 million.
RIM's stock was up around 8 percent to around $50 per share in after-hours trading immediately following the release of its quarterly numbers.
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