In the latest in a drumbeat of dismal news, Research in Motion warned on Friday it would fall short of its financial targets after taking a huge charge to write down inventories on its languishing PlayBook tablet, and its shares tumbled more than 8 percent.
Aiming to drive up anemic sales of the PlayBook, the BlackBerry-maker last month began to offer the tablet computer at sharp markdowns, prompting it to book a $360 million after-tax inventory writedown.
RIM was late to the game with its PlayBook, introducing the tablet last April, long after Apple's iPad had established an overwhelming dominance of the new segment.
But consumers have remained wary. RIM said it sold about 150,000 tablets in the third quarter, which ended November 26, down from 200,000 in the second quarter. That's a tiny fraction of the 11 million iPads that Apple sold in its latest quarter.
RIM is continuing to suffer from its Playbook endeavors, said CCS Insight analyst Geoff Blaber. It hurt RIM initially by diverting focus, but muted demand is now becoming clearly visible in the financials.
It is the latest of a series of setbacks for the company that virtually invented the smartphone. In recent quarters, Apple's iPhone and Google Android devices have gobbled up RIM's once mighty market share. It has been plagued by product missteps, profit warnings and an embarrassing global outage for its BlackBerry network last month.
On Friday, RIM shares fell 8.7 percent to $16.98 soon after the New York market opened. A stock that was not too long ago an investor darling, is down more than 70 percent this year.
RIM's Canadian-listed shares fell 8.2 percent to C$17.26.
FULL YEAR EARNINGS
Waterloo, Ontario-based RIM said it now no longer expects to meet its forecast for full-year adjusted earnings of $5.25 to $6.00 a share, due to the PlayBook writedown and a charge related to a damaging global service outage in October, when customers were without email and the popular BlackBerry messaging system for several days.
The severe outage in October did little for consumer confidence and undoubtedly dented sales during that time, said Blaber.
RIM had previously forecast full-year earnings of $7.50 a share. It was forced to back away from that forecast in mid-June, due to product delays and lackluster sales.
Bernstein Research analyst Pierre Ferragu said the latest cuts come as no surprise.
What is more worrying, of course, is the profound denial the tone of the release reflects. Although it appears obvious to us that RIM's current strategy is bound to fail rapidly, the company continues to support it vehemently, said Ferragu.
We can only hope that this increasing dissonance will accelerate necessary changes at the top of the company.
Excluding the $360 million PlayBook provision and a $50 million charge for the outage, RIM now expects adjusted earnings in the third-quarter to be at the low to mid-point of its previously forecast $1.20 to $1.40 per share range.
Revenue, excluding the outage charge, is expected to be slightly lower than the previously forecast range of $5.3 billion to $5.6 billion, in part because of the PlayBook discounting, which it plans to expand.
RIM, which is still finalizing its quarterly results, said it shipped about 14.1 million BlackBerry phones in the third quarter, in line with its earlier forecast of between 13.5 and 14.5 million.
The company, which will report its quarterly results on December 15, said it was confident the PlayBook promotion will help boost sales and reduce its inventories.
RIM is committed to the BlackBerry PlayBook, Co-Chief Executive Mike Lazaridis said in a statement. Early results from recent PlayBook promotions indicate a significant increase in demand across most channels.
(Reporting By Euan Rocha and Alastair Sharp in Toronto and Tarmo Virki in Helsinki; Editing by Frank McGurty and Janet Guttsman)