Updated from 9:25 a.m. EDTShares of Research In Motion ( RIMM) were throttled after the BlackBerry maker missed sales expectations and issued disappointing revenue guidance. The selloff came despite the fact that the company beat the Street's pro forma earnings expectations and posted a 92% jump in sales. On Wednesday morning, RIM's stock was off $2.08, or 2.8%, to $72.32. In its fiscal fourth quarter, the wireless email service and device provider lost $2.6 million, or a penny a share, compared with a profit of $41.5 million, or 23 cents a share, in the year-ago period. The company's sales came in at $404.8 million, up from $210.6 million in the fourth quarter a year ago. RIM's bottom line in the just-completed quarter was affected by two big factors: a $294.2 million charge related to a patent settlement and a tax-asset gain of $151.6 million. Excluding those two factors, RIM would have earned $140.1 million, or 71 cents a share, in the quarter. However, that pro forma result excludes any tax charges because of the tax gain the company recorded. Had the company recorded its normal tax provision, its earnings would have been lowered by $7 million, or about 4 cents a share. According to Thomson First Call, the consensus view from analysts -- which seemingly included the tax provision but not the litigation charge or the tax benefit -- was for earnings of 65 cents a share in the quarter on $410 million in sales. RIM had predicted that it would earn 60 cents to 67 cents a share excluding the litigation expense on revenue ranging from $390 million to $410 million. In its fiscal first quarter, RIM reiterated its sales forecast but brought down the top end of its earnings outlook by a penny, citing a higher tax rate. The company now expects to earn 51 cents to 56 cents a share on a GAAP basis in the quarter on sales ranging from $430 million to $455 million. The company predicted it would earn between 57 cents and 63 cents a share in its fiscal second quarter, on sales ranging from $460 million to $485 million.
Analysts had forecast the company would earn 68 cents a share sans expenses in both the first and second quarters, on $454.52 million and $495.24 million in sales in the first and second quarters, respectively. The company announced last month that it had agreed to pay $450 million
to settle its long-running legal dispute with patent holding company NTP. RIM had already set aside $137 million toward a settlement. In addition to the charge it took in the just-completed quarter, it also recorded a $20 million intangible asset on its balance sheet related to the settlement. The tax gain recorded is related to tax credits the company received for losses in past quarters. Accounting rules had prevented the company from fully recognizing those credits in the past because of its history of losses and the uncertainty surrounding its litigation with NTP, according to company CFO Dennis Kavelman. Because the company has resolved the NTP matter and projects ongoing profits, RIM was able to recognize those tax credits as a gain on its income statement and believes that it will be able to use them in the future. In the quarter, RIM saw better-than-expected sales of its software, but weaker-than-expected sales of its hardware, Kavelman said. Indeed, hardware sales constituted 69% of the company's total revenue, down from 71% in the previous quarter. The shift was a result of several factors, Kavelman said. On the hardware side, RIM's carrier partners moved to reduce their inventory of devices. As a result, RIM shipped 242,000 phones and pagers in the quarter, down from 313,000 in its third quarter. Carriers are running their businesses conservatively, Kavelman said. After having trouble with backlogs of companies' products, they are cutting back their entire inventory of smartphones and pagers, he said. "We're getting tarred with a broad brush," he said, adding that he thinks "this is a short-term thing."
Partially offsetting the hardware troubles, the company saw a surge in customers upgrading to its recently released update for its BlackBerry Enterprise Server, Kavelman said. "We had a perfect storm in software this quarter," he said. The shift to software did have a positive benefit: the higher margin sales helped the company's gross margin jump to 56.8% of revenue, up from 52.3% in the third quarter and 49.1% in the year-ago period. The company expects its gross margin to settle in the mid-50s, percentagewise, "going forward," Kavelman said. RIM added 470,000 subscribers in the quarter to its BlackBerry service, up from 387,000 in the third quarter, giving it a total of 2.51 million subscribers at year end. The company had just 1.07 million subscribers at the end of its previous fiscal year.