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RIM: Profits soar in second quarter
But will higher BlackBerry build costs take their toll in next quarter?

By Tom Krazit

Published: Friday 26 September 2008

RIM reported its second-quarter results Thursday, posting an 88 per cent jump in revenue and a 72 per cent jump in net income compared to last year. The numbers, $2.58bn in revenue and $495.5m in net income, were roughly in line with the company's own expectations but slightly below those of financial analysts.

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But RIM revealed its gross margins will be lower than usual for the next several quarters as it introduces new products that are slightly more expensive to build than its current models. In addition, the US launches of the BlackBerry Bold and the BlackBerry Pearl Flip will come a little bit later in the company's third quarter than it had expected earlier in the year, meaning they'll contribute a little less to this quarter than RIM had anticipated.

That news sent RIM's stock down around 20 per cent in after-hours trading as investors digested the news. RIM's gross margins are pretty solid, at around 50 per cent but they are heading down into the mid-40s as the company starts building the more expensive handsets in large volumes.

Still, RIM co-CEO Jim Balsille wasn't worried about his company's prospects heading into the rest of the year, on a conference call following the release of RIM's numbers. Balsille compared the current market for smart phones as a bit of a "land grab" - the same term he used last quarter - and said RIM would regret missing out on the opportunity to take advantage of demand for smarter mobile phones if it wasn't willing to take a bit of a cost hit through more sophisticated hardware and increased marketing expenses.

During the upcoming quarter the BlackBerry will be the centrepiece of several so-called "hero" campaigns launched by partners, presumably carriers and software developers, Balsille said. He said: "Everyone has a hero campaign where we are a featured or the featured device for the holiday season."

RIM has been trying to expand its footprint beyond the enterprise to consumers, the target for devices like Apple's iPhone. Right now, consumers make up 42 per cent of RIM's subscriber base, but more than half of all new subscribers in the second quarter were consumers, Balsille said.

BlackBerry sales were roughly in line with Wall Street analyst expectations, at 6.1 million units shipped, but below some of the more optimistic estimates.