BlackBerry Storm sales bode well for Research in Motion

Research In Motion announced financial results on Thursday that matched a warning it gave earlier this month, but executives said sales of the BlackBerry Storm touch-screen handset and other new products are brightening the company’s future.

RIM’s revenue in the third quarter ended Nov. 29 was $2.78 billion, up 66 per cent from a year earlier. Net income was $396.3 million, or $0.69 per share, up from $370.5 million or $0.65 per share a year earlier. Adjusted earnings, excluding the effect of the Canadian dollar’s depreciation on RIM’s tax rate, were $0.83 per share.

The profit met analysts’ expectations compiled by Thomson Financial, while revenue was slightly below the consensus estimate of $2.82 billion. But RIM had lowered its own forecast for the quarter on Dec. 3. Thursdays results were in line with that forecast.

The quarter was hurt by the economic downturn, but also by delays in the release of the BlackBerry Storm. When that phone finally went on sale Nov. 21 in the U.S. and Dec. 10 in Canada, customers lined up outside many stores, and net subscriber additions for BlackBerry devices hit record levels in the U.S. The device is also offered by Vodafone UK.

The Storm is expanding the market for RIM, with more than 70 percent of the new devices being sold to first-time BlackBerry users, the company said.

RIM now is struggling to keep up with demand for the Storm, though executives said on a conference call that supply problems should clear up in the coming weeks. Along with the Storm, the recently introduced BlackBerry Bold and BlackBerry Curve 8900 are also selling strongly, the company said.

Largely on the strength of those products, RIM forecast a big jump in revenue in the current quarter to between $3.3 billion and $3.5 billion. A high percentage of those sales is already booked, executives said. The popularity of the new models will also drive up the average selling price of RIM’s products to $370 from $337 in this quarter. Earnings per share in the current quarter should be between $0.83 and $0.91, the company forecast.

RIM is well-equipped to take advantage of a shift in the industry toward smartphones, executives said. Another smartphone maker, Palm, is having less success with the trend. On Thursday, Palm reported revenue in its fiscal second quarter, ended Nov. 30, of $191.6 million. That was down from $349.6 million a year earlier.

Palm sold 599,000 smartphones in the quarter, down 13 percent from a year earlier, and revenue from smartphones fell 39 percent. The company reported a net loss of $508.6 million, or $4.64 per share. Not counting a tax-related charge and other special items, Palm lost $80.2 million or $0.73 per share. Analysts had estimated a loss of $0.38 per share on revenue of $214 million.

“We’re working through an undeniably difficult period,” Palm President and CEO Ed Colligan said in a prepared statement. The company is now gearing up for the release of a new Linux-based operating system, code-named Nova, which reportedly may be unveiled at the International Consumer Electronics Show to be held next month in Las Vegas.

Although the BlackBerry Storm needed a firmware upgrade for U.S. Verizon customers just two weeks after going on sale, business users are still expected to warm up to the touch-screen handheld.

Despite the early problems, business users will still find value in the Storm, said Gartner Inc. analyst Ken Dulaney. Large businesses are already familiar with centralized BlackBerry security and management, Dulaney said, adding that various bugs will be worked out with the new device.

A firmware update was available to Storm customers last Friday, two weeks after the smart phone went on sale by Verizon Wireless Inc. Users had complained about several problems, including lagging performance, especially when switching the Storm from landscape to portrait views by using its internal accelerometer.

Since the Storm is sold exclusively by Verizon Wireless in the U.S., Dulaney said a large company that already has a contract with Verizon will find the Storm a suitable alternative for users who want an Apple Inc. iPhone.

“It’s a BlackBerry,” Dulaney said. “RIM will fix it. And if you have to use Verizon, and people are pushing for an iPhone, then you have a choice” by recommending they use the Storm. By comparison, the touch screens on phones from LG and Samsung are “poor,” Dulaney said.

Verizon officials had high expectations for enterprise sales of the Storm prior to its release. They noted the high penetration of BlackBerries among business users, the Storm’s new touch screen and its capability for use in many countries around the globe.

Verizon spokeswoman Brenda Raney said that upgrades, including the one last Friday, “aren’t an issue for enterprise users who tend to let their IT departments manage the devices. In the IT world, upgrades are standard procedure so they simply consider it part of the process.”

Dulaney said the release of the Storm followed quickly by an update is a situation that users should start to expect for all kinds of devices.

“We are in the age of over-the-air software updates,” he said. “So products are released sometimes with bugs and a commitment to fix them. Many users value the vendor on how well they keep them up to date, rather than how many bugs are in the product to start with.”

Simon Pang, an IT manager at URS Corp., an engineering firm with an office in Boston, purchased the Storm on the first day it was on store shelves. He said last week’s firmware update had been a “huge improvement” in the Storm’s performance. “After upgrading to the .75 OS, I am loving it,” he said in an e-mail.

Prior to last week’s update, Pang rated the Storm overall a “5” out of a possible “10,” but raised his rating to a “7” after the upgrade. He said he expects possibly two more firmware updates to fix everything.

On the first day of Storm sales on Nov. 21, Pang had noticed the lag problem with the device while testing a demonstration unit at a Verizon store. He said he wouldn’t recommend the device in that condition to his colleagues, but bought one anyway to conduct further testing for his personal use and as a possible referral to his colleagues.

Asked this week if he could recommend the Storm for his company’s use, Pang said, “I would recommend … [it] to a co-worker with a lot of patience.”

The Storm is “definitely not an iPhone killer yet. The OS isn’t quite as smooth,” Pang said. His company has used BlackBerries and Verizon service for many years, so switching to the iPhone, which requires an AT&T contract, is not an option.

Among his likes and dislikes, Pang said the Storm has the best sound of any of the three previous BlackBerry devices he has used. One problem he has encountered is “when I am on the phone, my face pushes against the screen and mutes the call” a problem that could be fixed with a lock button. He likes how the GPS is unlocked for navigation, but complained that the Verizon App store needs more applications and “hasn’t changed much since the release.”

A bigger problem is that the Storm has a Micro USB port instead of a Mini USB port, Pang said. “That really bothers me,” he said. “I don’t know why they changed it. It’s kind of a pain getting new cables and a charger for the new connection. Maybe they just want to sell more accessories?”

Pang demonstrated the ingenuity of an IT manager when he said he had used the “business card trick” to fix the touch-screen keyboard on the Storm, since “for some reason or other” not all the keys will “click” when touched. He explained the trick: “You fold the business card in half and put it behind the battery. Fixed.”

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Jim Love, Chief Content Officer, IT World Canada

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