RIM, Palm Shares Tumble on Revenue Worries
Shares of Research In Motion and Palm dropped Tuesday after an analyst cast doubts on RIM's sales outlook and Palm said it expects revenue for its fiscal second quarter to come in below Wall Street expectations.
RIM shares tumbled to their lowest level in more than two years Tuesday, falling more than 6 percent to close at $37.32 Tuesday.
Shares of Treo smartphone maker Palm were down more than 12 percent to near $1.60 but turned to the positive side before the end of trading.
RIM's slide came after J.P. Morgan analyst Paul Coster wrote in a note to clients that he was reducing his estimates for the BlackBerry smartphone maker's fourth quarter and beyond, "reflecting our view that consumer and enterprise sales will be slower than originally forecast, owing to a global economic downturn."
However, Coster said that even with the outlook changes, he still sees RIM shares as undervalued. The stock has plunged from the year high of C$150.30 it set in June as the world economy stumbles and analysts and investors worry about the company's ability to hold its own in a downturn.
First, there are concerns that large corporate clients will delay BlackBerry upgrades or spending on new handsets in order to cut costs.
As well, Waterloo, Ontario-based RIM has pushed aggressively into the broader consumer market to diversify its customer base beyond the executives, politicians and other professionals who have been its mainstay.
This means it could also be hurt as rank-and-file consumers trim back spending over employment and economic concerns, opting instead for cheaper and less feature-rich smartphones than RIM's BlackBerry.
But even as he cut his estimates on the company into 2011, Coster wrote that investors have beaten down the stock too severely.
"We believe RIM deserves to trade at a premium multiple owing to its leadership position in an open-ended growth market," he wrote. "For this reason we expect the stock to outperform the mean of our coverage universe near term."
Coster's comments follow a number of other recent analyst warnings about either the broader mobile phone market or about RIM in particular as the global economy slumps.
Last month, RIM co-CEO Jim Balsillie said the current market environment was rife with difficulties and is "a more intense time than I've ever known."
RIM is expected to report third-quarter results later this month.
Palm Sees Sales Declilne of at Least 44%
Palm on Tuesday forecast revenue of $190 million to $195 million, compared with analyst estimates of $330.8 million.
That would mean a revenue decline of at least 46 percent from first-quarter revenue of $366.90 million and about a 44 percent decline from the same period a year ago when revenue came in at $349.63.
"We are seeing unprecedented dynamics in the global markets as economic uncertainty hampers demand for consumer products," Ed Colligan, Palm's chief executive, said in a statement.
Palm, once a leading maker of hand-held computers, has seen its smart phones struggle amid intense competition from Research in Motion Ltd.'s BlackBerry and more recently Apple Inc.'s iPhone.
The company said it will look to cut $20 million from its quarterly operating expenses by its fiscal fourth quarter by reducing U.S. staff, consolidating European operations and shifting Asia Pacific sales, marketing and administrative positions to U.S. locations.
Palm announced it would reduce its head count several weeks ago. Company spokeswoman Lynn Fox said Monday the company has not released how many jobs will be lost or where.
The company said charges associated with the restructuring will total between $7 million and $9 million for the second quarter.
- AP and Reuters contributed to this report.