RIM and Palm issue revenue warnings
Published: 3 December, 2008
RIM may be whipping up a Storm with its Vodafone-backed touchscreen handset, but it is still facing a serious squeeze from larger smartphone players and has lowered its forecasts for its third quarter revenues, only a day after a similar warning from another enterprise device maker under huge pressure, Palm.
RIM says revenues in its third quarter, which ends on December 31, will be in the range of $2.75bn-$2.78bn, down from its previous estimate of $2.95bn-$3.1bn. However, this would still represent a 65% leap on the same period last year.
About one-third of the shortfall will be down to the decline of some currencies against the US dollar, said RIM, and the rest, more worryingly, will be attributed to lower than expected unit shipments, especially of older products. This reflects the transition period as RIM's new and high profile smartphones, the 3G Bold and Storm, gain market traction - a process made more painful by delays to the Storm's launch at Verizon Wireless in the US. The lowered forecasts also highlight RIM's continuing over-dependence on the pressurized north American market.
Gross margin in the quarter is also expected to be lower than previously indicated, at 45-56%, mainly because of foreign exchange factors and a shift in product mix to consumer devices. RIM expects the number of net new BlackBerry subscribers added in the quarter to be about 2.6m, again down from previous forecasts of 2.9m, but up on 57% year-on-year. On the back of new devices, daily net subscriber account additions reached a record level on the day the Storm launched in the US, and the last week of the third calendar quarter was also a record.
Meanwhile, Palm has more deep seated problems, with no killer device to boost its quarter. The company is still in a holding pattern, waiting for the release of its new Nova software platform next year, and its Treo smartphones are falling out of favour as they look increasingly tired against the Apple, RIM and Samsung alternatives - while the popular consumer Centro hits margins with a retail price of just $99.
Palms warned that revenues for its fiscal second quarter would be in the range of $190m to $195m, far below consensus analyst estimates of $331m, prompting a 12% plunge in the stock to a new low. The stock has lost 80% of its value in just three months. Analysts reacted savagely, with Pablo Perez-Fernandez at Global Crown Capital voicing the views of many, cutting its forecasts on "our expectations of a terrible February quarter, worries about liquidity in light of larger than expected losses, and the complete lack of visibility into Palm's revenue potential." He added: "Palm was hit by the simultaneous collapse in demand and rapid deterioration in pricing."
Many analysts are looking for Palm to become the subject of a takeover bid as it burns up cash while it waits for Nova.
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