RIM Extends Ride

The BlackBerry maker trounces sales estimates.
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Updated from 5:59 p.m. EST

BlackBerry maker

Research In Motion

(RIMM)

has another shot at extending its wild market ride.

The company's much-touted Pearl phone drove profit and helped Ontario-based RIM post third-quarter EPS that beat Street forecasts by a penny.

But more importantly, RIM proved it has the chops to hold its own in an increasingly competitive business -- something that wasn't lost on the market, which drove up stock by nearly 6% after hours on Thursday.

For the third quarter, net income was $176 million or 93 cents a share. In the same period a year ago, RIM earned $120.2 million or 61 cents a share.

Adjusted to exclude regular stock option expenses, RIM reported a profit of 95 cents a share or $179.6 million. On that basis, it beat Thomson First Call estimates of 94 cents a share. A year ago, RIM earned $139.40 million or 71 cents a share.

RIM reported revenue of $835.1 million compared with Street expectations of $815.9 million for the quarter ended Dec. 2. Revenue was up 49% from $560.6 million in the same quarter last year.

Shares of RIM rose $7.85, or 5.87%, to $141.55 in recent extended trading.

RIM's much-hyped Pearl phone, characterized by CEO Jim Balsillie as the "most successful BlackBerry launch ever," was a hit with consumers and sweetened the quarter for the company.

"Our approach has been 'try to create a new market,' " says Balsillie. "It has always been a compromise before. You could either get a data device or a stylish phone, but with the Pearl it's a small, sexy, stylish phone with a strong data platform."

Pearl has and will be a pivotal product for RIM , says Carmi Levy, an analyst with the Canadian firm Info-Tech Research Group.

"Pearl is a sign that RIM wants to play, and play to win in the consumer and 'prosumer' market," he says. "Essentially before this, they were stuck in its vertical niches within the corporate enterprise market. But Pearl will help them go beyond that," says Levy.

Handhelds Hold Up

RIM said the revenue breakdown for the quarter was about 75% for handhelds, 17% for service, 5% for software and 3% for other revenue.

About 875,000 BlackBerry subscriber accounts were added in the quarter. At the end of the quarter, the total BlackBerry subscriber account base was roughly 7 million.

That will continue to grow dramatically, says Balsillie because of the way Pearl has changed the market with its attempt to offer a converged "no compromise" device.

It also puts tremendous execution pressure on the company, the CEO concedes.

"We are launching the device on all these carriers, growing our existing base, enhancing our servers and middleware, and so our overwhelming priority in the near term is execution," says Balsillie.

For the fourth quarter, RIM expects revenue to be in the range of $900 million to $940 million, well above analysts' expectations of $861.49 million.

Earnings per share for the fourth quarter are expected to be in the range of 92 cents to 99 cents, compared with expectations of 98 cents a share. This excludes regular stock option expense of about $5 million and adjusted EPS will be in the range of 95 cents to $1.02 per share.

The third-quarter results are pending a restatement related to RIM's historical noncash charges associated with past option grants, the company said.

The company is investigating its historical option granting practices and has said the impact of any restatement will be immaterial.

RIM will file final financial statements for the second and third quarters of fiscal 2007 after the completion of the review by the fiscal year-end of March 3, 2007.