Sept. 25 (Bloomberg) -- Research In Motion Ltd. forecast third-quarter profit that missed analysts' estimates after boosting marketing to ward off Apple Inc.'s new iPhone and introduce handsets. The shares fell 21 percent in late trading.
Profit will be 89 cents to 97 cents a share on sales of as much as $3.1 billion, Research In Motion said today in a statement. Analysts predicted 99 cents in profit on average and revenue of $2.96 billion, according to a Bloomberg survey.
Research In Motion's earnings forecast missed projections for the second straight quarter as it readied four new phones. The cost of promoting new models contributed to $379.6 million in sales and marketing costs last quarter, almost double the year- earlier amount. The company also had to delay the U.S. release of its Bold product, which will challenge the iPhone 3G.
``The cost of selling and launching all these platforms is much higher than what people thought,'' Pablo Perez-Fernandez, an analyst with Global Crown Capital in San Francisco, said in an interview. He recommends buying the shares, which he doesn't own.
Second-quarter net income rose 72 percent to $495.5 million, or 86 cents a share, from $287.7 million, or 50 cents, a year earlier, the company said. Analysts predicted a profit of 87 cents on average for the period, which ended Aug. 30. Revenue climbed 88 percent to $2.58 billion, compared with a projection of $2.59 billion from analysts.
Shares Plunge
Research In Motion, based in Waterloo, Ontario, fell $20.06 to $77.47 in extended trading after closing at $97.53 on the Nasdaq Stock Market. The shares have dropped 14 percent this year.
The company is working on a touch-screen phone and an update to its Curve consumer model, in addition to the Bold and a flip- phone version of its Pearl, according to Mike Abramsky, an analyst at RBC Capital Markets in Toronto.
Some of the new phones aren't as profitable as older models, co-Chief Executive Officer Jim Balsillie said on a conference call today. The Bold, for example, has a brighter screen, making it more expensive to produce.
``It's difficult to pass on all these costs to customers,'' Balsillie said.
That will push down gross margin, the percentage of sales remaining after deducting production costs, to 47 percent in the current quarter from 50.7 percent, Vice President Edel Ebbs said on the call. That measure may drop further in the fourth quarter, she said.
Rising Costs
Sales expenses in the current quarter may climb between 10 percent and 11 percent from the previous period, Ebbs said.
Research In Motion added 2.6 million users last quarter, compared with a 2.64 million estimate from Perez-Fernandez. The company expects to add 2.9 million users this quarter, missing Perez-Fernandez's projection of 3.09 million. Research In Motion currently has about 19 million BlackBerry users.
The company, which once focused mainly on corporate users, is offering cheaper phones as it competes for consumers with Apple's $199 iPhone. About 40 percent of Research In Motion's customers are now consumers, while the rest are business customers. The U.S. accounts for more than half of the company's annual revenue.
In the past quarter, Verizon Wireless reduced the price tag on the BlackBerry Pearl to $79 from $99.
Apple, meanwhile, is going after corporate users with features such as access to office e-mail. Based in Cupertino, California, Apple introduced the iPhone 3G in July, selling a million units in the product's first three days. The original iPhone, which ran on a slower network, debuted in June 2007.
Wireless carriers are promoting so-called smart phones, devices with e-mail and Web-browsing features, as revenue from traditional land-line service declines. Research In Motion increased its share of the U.S. smart-phone market to 53.6 percent in the second quarter from 44.5 percent in the first, according to Framingham, Massachusetts-based research firm IDC.
To contact the reporter on this story: Vivek Shankar in San Francisco at vshankar3@bloomberg.net
