RIM takes over half-billion dollar hit on PlayBook, service outage

Research In Motion Ltd. will take a hit of more than half a billion dollar from discounting its PlayBook tablet and its recent massive email outage, the BlackBerry maker said Friday.

Research In Motion Ltd. will take a hit of more than half a billion dollar from discounting its PlayBook tablet and its recent massive email outage, the BlackBerry maker said Friday.

RIM warned investors it will book a US$485-million charge before tax on the cost of discounting the price of PlayBooks by more than half to boost sales in the marketplace.

As well, the Waterloo, Ont. company expects about US$50 million in lost revenues from the October outage that affected millions of BlackBerry email and text users around the world.

The charges will impact RIM’s financial projections for the current fiscal year and squeeze the company’s profits and revenues.

Research in Motion acknowledged that discounting the PlayBook seems to be the best way to sell it after promoting the tablet as its most significant development since the launch of the BlackBerry smartphone in 1999.

“Early results from recent PlayBook promotions indicate a significant increase in demand across most channels,” co-CEO Mike Lazaridis said in a news release.

“RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy,” Lazaridis said.

The impact of poor PlayBook sales will cause RIM to miss its full-year forecast of earnings per share between US$5.25 and US$6, RIM said, as costs rise.

Third-quarter adjusted earnings per share are expected to come in “at the low to mid point” of US$1.20 to US$1.40.

RIM shares closed down $1.73, or more than nine per cent, to $17.08 in trading on the Toronto Stock Exchange.

Sales of the PlayBook haven’t been able to make a dent in the competition from Apple’s iPad or Android-based tablets.

Research In Motion (TSX:RIM) has shipped about 850,000 PlayBook tablets since its launch last April, below what analysts had expected.

Best Buy, Future Shop, Sears, The Source and Walmart were among Canadian retailers selling the tablets at $300 off, making the cheapest 16-gigabyte model about $200. RIM also offered discounting on the PlayBook earlier this fall.

Wunderlich Securities analyst Matthew Robison said RIM’s PlayBook doesn’t have any significance in the market.

“Nobody cares about the PlayBook since the quarter before last,” Robison said from San Francisco.

Robison said the recent service outage has done more damage to BlackBerry maker in its business markets.

“The outage has expedited efforts to accommodate iPads and iPhones by IT personnel,” he said.

RIM’s downward fall is simply continuing, Robison said.

“RIM’s like a plane at 30,000 feet and the engines have stopped running.”

National Bank Financial analyst Kris Thompson summarized RIM’s predicament as: “BlackBerry stumbling — recovery unlikely.”

Thompson also seemed to have written off the PlayBook.

“RIM is not surprisingly taking a massive inventory charge in Q3 to write down unwanted PlayBook inventory,” Thompson said in a research note.

Thompson also sounded the alarm for RIM’s BlackBerry customers.

“Our thesis remains that BB channel inventory remains at risk of becoming stale next year, much like the failed PlayBook.”

Thompson has reduced RIM’s fiscal 2013 earnings per share to US$2.81 and has lowered the stock’s target price to around US$16. RIM’s 2013 fiscal year begins in March.

BMO Capital Markets analyst Tim Long, one of the few analysts still bullish about RIM, said the company is being impacted by competition more than expected.

“Management credibility takes yet another hit as full-year guidance is lowered again,” Long wrote in a note.

“The new products did not have the positive impact on the model that we had expected, and the international strength is not enough either.”

RIM said its adjusted revenue in its third quarter, excluding the $50 million related to the service outage, is expected to come in at between US$5.3 billion and US$5.6 billion, RIM said.

Meanwhile, RIM also said it sold 14.1 million BlackBerrys in the latest quarter, which ended Nov. 26, slightly better than analysts expected.

RIM reports fiscal third-quarter earnings on Dec. 15.