A Little Interest Helps RIM Hit Its Earnings Mark

Interest income helps the BlackBerry pager maker hit earnings estimates.
By Tish Williams ,

Updated from 5:03 PM

Research in Motion

(RIMM)

could be the only handheld device maker to get through its quarter standing. The enterprise-focused company met Street expectations by posting $77 million in revenue and 5-cents-a-share earnings in its first quarter of fiscal 2002, nosing above consensus estimates of $76 million in revenue and 5-cents-a-share earnings, as tracked by

Multex.com

. Nonetheless, RIM, maker of the BlackBerry pager, did not manage to get into the black with the revenue from its handhelds, but instead needed $9.2 million in interest income to hit its earnings mark.

Last year in the first quarter, RIM posted $27 million in revenue. Shares of RIM's stock closed up $1.86, or 6.8%, to $29.40 in Thursday trading in anticipation of the good news, 25% above where it traded when it reported fourth-quarter earnings in April.

Despite a large decline in revenue from the

AOL

-enhanced

(AOL)

$90.1 million fourth quarter of 2001, the numbers for the first quarter of 2002 that ended June 2 should have investors patting themselves on the back. (RIM had advised onlookers that it got a one-time boost from a sales partnership with AOL in the fourth quarter and predicted more like $75 million to $80 million in revenue for the first quarter.)

While consumer-driven

Palm

(PALM)

wreaked havoc on its side of the sector with excess component buys and the need to slash prices to move products -- taking

Handspring

(HAND)

down with it -- the enterprise market treated RIM relatively politely. The number of new BlackBerry subscribers grew slower than expected with the company adding 47,000 of them, a decline from the previous quarter. Last quarter RIM shipped 79,000 BlackBerry devices to its resellers, but that number fell to 67,000 this time around.

During the quarter RIM used $23.3 million of its sizable cash hoard on its "working capital investment" and buildings, leaving it with $698.6 million. The handheld maker stuck to the high end of its projections with 38% gross margins, and let its sales and marketing expenses creep up slightly to 28% of revenue rather than keeping them even with the fourth quarter's 25% of revenue.

RIM expects only modest improvement in its second quarter. CFO Dennis Kavelman predicted the company would grow revenue 4% to $80 million with gross margins of 37% to 39%. Don't be surprised to see earnings figures clipped as lower U.S. interest rates and a slightly smaller base of capital decrease RIM's investment income to the $6 million to $7 million range. Expect a 5% to 10% jump in research and development spending and in sales and marketing expenses.

Kavelman said he expects RIM's noncarrier and direct-sales partners to provide "low" sales. Co-CEO Jim Balsillie blamed the publicized channel missteps -- recently

Aether Systems

(AETH)

has been targeted for high inventories of RIM devices -- on inadequacies in reseller sales forces. Additionally, Balsillie blamed the reported rocky start with some larger customers of the new Notes-based BlackBerry on software integration problems.

Balsillie saved his strongest words to deny the information in a June 6

CIBC World Markets

report that said RIM's relationship with AOL had deteriorated. AOL resells RIM devices through its AOL Anywhere program. Balsillie called the allegations "completely erroneous" and refuted an item that pointed to RIM hiking prices on devices sold to AOL, insisting RIM has maintained a consistent handheld price with AOL. AOL gave RIM a big chunk of business in the fourth quarter of 2001, but it hasn't reordered any equipment and RIM's estimates do not include any expectations of sales to AOL.

RIM upheld guidance of $370 million to $390 million for the full year and stuck to a third-quarter pickup scenario in which RIM generates $95 million to $105 million in revenue. Balsillie pointed to

BT Cellnet's

rollout of RIM devices on general packet radio service (GPRS) networks in Europe this fall as an end-of-2001 booster.

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