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RIM Reaper Comes for Tech Faithful

Michael Goodman

The maker of the ubiquitous BlackBerry handheld device said late Tuesday that it will post third-quarter earnings and revenue below both its prior projection and current Wall Street estimates.

The company's revenue forecast of $2.75 billion to $2.78 billion, for example, was as much as 7% below analysts' consensus projection of $2.96 billion.

Shares of RIM fell as much as 4% in early trading, but bounced back to a recent gain of nearly 1% to $37.68 as the broader market climbed in an attempt at an almost-unheard-of sixth rally in eight sessions.

Regardless of the near-term settling of RIM shares, the company has confirmed something we should have already guessed: An economic recession combined with an historic downsizing of Wall Street, along with a pinch of strength in the dollar isn't good for business.

RIM said about two-thirds of its revenue shortfall was due to fewer product shipments, with the rest coming from falling foreign currencies against the dollar. RIM said it would add 2.6 million net new subscribers in the corner, below its forecast of 2.9 million subscribers.

A couple of points that are worrisome for RIM investors and tech traders in general: First, with each passing week, investors are hoping to get additional insights into how long any economic sluggishness may last. Unfortunately, the most common forecast from tech companies seems to be: "We really have no idea." Uncertainty is the worst news of all.

Today, we've had RIM's bad news, and on Thursday, investors will brace for Nokia's(NOK Quote) analyst day, where many analysts expect the company to tear down its 2009 forecasts for cell phone industry shipments.

Second, this is no time for tech sellers of things under the current economic dynamic of consumers worried about job security and plunging house prices. This was understandably the fate for a company like Dell(DELL Quote), which was already reduced to middling growth and has seen its global market share evaporate.

But with RIM's warning, we're again in the rarified air of companies that offer products that are hugely popular and enjoy a competitive advantage. Shares of GPS-device maker Garmin(GRMN Quote), for example, are just a week removed from their 52-week low as investors have continued to lose faith in the stock after the company warned in late October that its fiscal 2008 results would miss estimates.

And even mighty Apple(AAPL Quote) was reduced to Black Friday come-ons for everything the company sells, other than its iPhone, now perhaps truly the Last Gadget Standing.

The stronger tech businesses right now are those that are keeping the customer tethered. Companies like IBM(IBM Quote) and Hewlett-Packard(HPQ Quote) are making it through on the strength of their IT services (and printing cartridges, in H-P's case).

Similarly, some software companies are holding up well, due to the recurring revenue scheme. Salesforce.com(CRM Quote) is now trading at levels it was at six weeks ago. How many tech companies can claim that?

RIM investors are now left returning to that same question: How long is it going to last? The problem is, the answer may be more complicated than waiting for the return of a healthier consumer and business customer. RIM's market share is more precarious as customers have more incentive to shop around, and both the iPhone and a reported upcoming smartphone by Nokia are taking dead aim at high-end BlackBerrys.

A recent panning of the company's new BlackBerry Storm by the New York Times' gadget reviewer David Pogue didn't help matters.

Ironically, RIM's best near-term bet may be a decline in the dollar, which some analysts now see as overextended. The dollar has risen 30% against the euro in the past five months.

Such is the state of tech gadget makers these days: rooting for currency fluctuations.