RIM First-Quarter Profit Drop From Last Year, Job Cuts Announced

Rim Profit Drop

First Posted: 06/16/11 06:50 PM ET Updated: 08/16/11 06:12 AM ET

THE CANADIAN PRESS — MONTREAL - Research In Motion, under pressure from Apple and Android smartphones, says it plans to cut jobs as it works to roll out a new generation of products to stay competitive.

"The reduction of our head count is an incredibly difficult decision," co-CEO Jim Balsillie told analysts Thursday after the BlackBerry maker said its quarterly profit dropped to US$695 million.

But Balsillie said Research In Motion (TSX:RIM) won't make cuts in areas that it considers crucial to growth. He didn't say how many jobs would be cut or where.

"We believe the efficiencies that will come of this exercise will allow us to grow profitably as we continue through the current platform transition and move forward with the streamlined structure we need to renew earnings growth later this year," Balsillie said.

Balsillie said RIM sold fewer phones in the United States due to its aging product line. RIM expects to deliver smartphones with upgraded operating systems in late August and September. More powerful BlackBerrys with the same operating system as the PlayBook tablet will be out in early 2012.

"The challenges in the United States, in particular, are making near-term earnings growth difficult."

American smartphone consumers have been turning to iPhones and Android smartphones instead of BlackBerrys.

Analyst Anil Doradla said the jobs cuts are a result of "poor execution" at the top.

"It is a mis-execution of strategy and it is a misreading of the market trends," said Doradla of Chicago-based William Blair and Co.

"The pace at which the market is unfolding is catching them by surprise," he said.

Doradla noted that RIM is still working on its new products while the market keeps changing.

"At the end of the day, they don't have a product. Show me a product."

In its financial results, Waterloo, Ont.,-based RIM said it earned US$695 million or $1.33 per diluted share for the quarter ended May 28 on $4.91 billion in revenue. It had lowered its financial guidance for the quarter in April.

That compared with a profit of $769 million or $1.38 per diluted share a year ago on $4.24 billion in revenue.

The average analyst revenue estimate had been for a profit of $1.33 per share, according to data compiled by Thomson Reuters.

Shares in RIM, which reported its results after the close of markets, were down nine cents at $34.37 on the Toronto Stock Exchange on Thursday. The stock was down 15 per cent in after-hours trading.

In an unusual move, co-CEO Mike Lazaridis spoke on the call, trying to assure analysts that RIM is on track with its new products.

"I truly believe we are approaching the final phase of this transition. Why we do the things the way we do may not be obvious from the outside."

It is taking longer than expected for wireless carriers around the world to test and certify the new BlackBerrys, he told analysts.

Balsillie said he expects that RIM will see strong profit growth later in the year.

"The slowdown we saw in the first quarter is continuing into Q2, and delays in new product introductions into the very late part of August is leading to a lower than expected outlook in the second quarter," Balsillie said.

During the quarter, RIM said it shipped approximately 13.2 million BlackBerry devices and approximately 500,000 PlayBook tablets.

Analysts had estimated that RIM would ship between 12.6 million and 13.6 million BlackBerrys and about 500,000 PlayBooks tablets in the quarter.

Investors have called for a change to RIM's management structure, saying there should be only one chief executive and an independent chairman of the board. Balsillie and co-chief executive Lazaridis also serve as co-chairmen of the company.

However, Balsillie said Thursday the company's management structure is working.

"Neither of us could have taken the company this far alone," he said.

"Completing the transition and taking the company to the next level of success and growth is also something neither of us can do alone. It would be something that would be incredibly challenging for someone from outside the company to manage successfully at this critical time in RIM's development."

Lazaridis said he also agrees with the company's current management structure.

"I absolutely believe that the complementary skill sets and good working relationship between Jim and I have led to the success of RIM over the past two decades," he said. "We understand that weathering this transition has been difficult for our shareholders and also for employees."

However, Doradla doesn't believe Balsillie and Lazaridis should be co-chief executives, saying there should just be one "captain" making all of the decisions.

In its outlook for its second quarter, RIM said it expected revenue of between $4.2 billion and $4.8 billion, while earnings per share for the second quarter are expected to be between 75 cents and $1.05 per diluted share, excluding any one-time charges.

Earnings per share for the company's full 2012 financial year are expected at between $5.25 and $6 per diluted share, excluding any one-time charges or share repurchases.

By LuAnn LaSalle, The Canadian Press

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