RIM under scrutiny from investors and analysts

MONTREAL — Research In Motion (TSX:RIM) was punished by investors Thursday as they reacted to disappointing financial results and concerns over the BlackBerry maker’s competitive position in North America.

MONTREAL — Research In Motion (TSX:RIM) was punished by investors Thursday as they reacted to disappointing financial results and concerns over the BlackBerry maker’s competitive position in North America.

RIM’s shares lost $6.20 to close at $69.05, dropping eight per cent on the Toronto Stock Exchange.

“The market is sending a message,” said analyst Nick Agostino of Mackie Research Capital Corp.

“It remains to be seen whether RIM hears the call and responds to it,” he said from Toronto.

The Waterloo, Ont.,-based company is starting to face growing scrutiny over its quarterly earnings results and about how competitive it will remain.

Agostino noted that some analysts had high expectations for earnings per share and revenue that RIM didn’t meet in its fourth-quarter results that were released Wednesday.

Analysts have also questioned whether RIM will be able to keep its top spot in North America and continue to grow as competitors like Apple’s iPhone and smartphones like Motorola’s Droid with Google’s operating system win an increasing market share.

Broadpoint AmTech analyst Mark McKechnie said how RIM does in the future will depend on its new BlackBerry product rollouts later this year.

While McKechnie said he’s impressed with RIM’s international growth, it has to continue to do well against the iPhone in the United States.

“At the end of the day, they’re going to have to go head-to-head with Apple in the developed markets and win for them to have a commanding role here in the smartphone space,” he said from New York.

Agostino said the market wants a sign that RIM can “compete in the new smartphone market, not the one that you entered into 10 years ago.”

The BlackBerry maker is expected to overhaul its signature device in the coming months with a new browser to make Internet surfing easier.

After the closing bell on Wednesday, RIM reported that revenue in its fourth quarter ended Feb. 27 was US$4.08 billion, missing analyst expectations of $4.31 billion but still ahead of the US$3.46 billion it earned a year earlier.

RIM posted net earnings of US$710.1 million for the quarter, compared with a profit of $518.3 million a year earlier. The earnings were worth $1.27 per share, below analyst predictions of $1.28 per share, according to Thomson Reuters.

Agostino noted that there were fewer BlackBerry shipments due to a carrier inventory adjustment and that the average selling price of BlackBerrys was $311 was lower than expected. There also didn’t seem to be upward momentum in the growth of North American subscribers, he added.

Plenty has changed about the smartphone market since RIM first launched its products using the hook of delivering secure email directly into the device.

Web browsing has become commonplace and software applications are building momentum with users, while RIM’s email function now is a staple of most other smartphones, too.

RBC Capital Markets analyst Mike Abramsky suggested that investors tend to scrutinize company’s numbers and business model for signs of future pressure.

“The mixed Q4 result is similarly expected to sustain near-term uncertainty over RIM’s prospects, keeping RIM a show me story for now,” Abramsky wrote in a note released Thursday.

But Abramsky was still bullish on RIM.

“We believe RIM has a unique and compelling business model and see RIM as a leader in the smartphone sector, poised to become a top five handset vendor…,” he wrote.

RIM co-CEO Jim Balsillie told analysts in a conference call Wednesday that the company faces a “hotly contested” smartphone market in North America but is still No. 1.

U.S.-based Morgan Stanley analyst Ehud Gelblum said although business in North America was stronger than expected, he wasn’t looking there for high growth.

“We continue to believe international markets provide the next leg of growth for the RIM story,” Gelblum wrote in a note.

Agostino said RIM’s financial results have always been under scrutiny. “It’s one of the reasons the stock is as volatile as it is,” he said.