Forget Earnings, What Will RIM Say About AOL?

Rumors of a rift two weeks ago have sent the BlackBerry pager maker's shares down.
By Tish Williams ,

Research in Motion (RIMM) has a chance to clear its name.

After the bell Thursday when the enterprise handheld device maker reports earnings for its first quarter 2002, which ended May 31, take the time to read its posture regarding sugar daddy

AOL

(AOL)

. On June 6, a

CIBC World Markets

report freaked out investors when analyst Tom Sepenzis insinuated that RIM had irked large and potentially huge customer AOL. Could their little darling have overplayed its hard-to-get angle, enough to tick off an AOL that powered fourth-quarter 2001 revenue to $90.1 million, far beyond analyst estimates of $74.3 million?

After RIM's shares dropped 8% that day, other analysts jumped in to defend its reputation. While neither AOL nor RIM would comment on the rumors, the Street's signal was clear. AOL was still in the game with RIM, and AOL was not a big factor in Research in Motion's expectations of a back-to-normal quarter with $75 million to $80 million in revenue. RIM warned analysts not to expect a one-time boost from AOL to continue into the first quarter of 2002. The Street expects $76 million in revenue and a 5-cents-a-share profit. RIM's stock has declined 27% since the report was issued, alongside consumer handheld makers

Palm

(PALM)

(down 31%) and

Handspring

(HAND)

(off a whopping 47% after its June 7 earnings warning).

Also on the body-language checklist is RIM's stance regarding the upcoming August quarter. At the end of the fourth quarter, RIM forecast a pickup to $80 million to $90 million in revenue by the second quarter of 2002 (its August quarter). But analysts at

Merrill Lynch

are skeptical of RIM's potential to ramp up in this challenging economy, calling instead for a $76 million August quarter. Merrill has done banking recently for RIM.

Investors have good reason to be nervous about the future, given that RIM partners, such as

Aether Systems

(AETH)

, have made comments about excess inventory in the channel. However,

UBS Warburg's

Edel Ebbs calmed clients by saying "the inventory issue may be somewhat overblown in these lean days of news flow." UBS Warburg hasn't done underwriting for RIM.

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