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RIM shares off 20% on service-fee issue

BlackBerry 10 launch called crucial

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TORONTO -- Shares in Research In Motion plunged more than 20 per cent Friday as analysts raised concerns about less revenue from the lucrative service fees charged by the company to use its secure network.

BMO Capital Markets analyst Tim Long said changes to the company's service revenue model outlined Thursday add more risk for RIM, which is preparing to launch its next generation of smartphones and operating system next month.

"We have long viewed the recurring service revenues as the key value-driver for the stock," Long wrote in a note to clients. "With subscribers declining, and the potential for a faster drop in average revenue per user, service revenues could fall even faster. That said, the stock will be most dependent on the launch of new BB10 devices, and we believe it is too early to make a call on success or failure."

The stock closed down $3.09 or 22 per cent at $10.86 Friday on the Toronto Stock Exchange on very heavy volume of more than 15.5 million shares, making it the most active issue on the TSX.

The stock drop came despite better-than-expected financial results by the company in its report after the close of markets Thursday.

However, it was the plan for the service fees that attracted the most attention. RIM wants to launch an la carte menu of services under which both enterprise customers and casual smartphone users can pick their packages.

RIM reported Thursday a third-quarter profit of $9 million, or two cents per share on $2.73 billion in revenue, compared with a profit of $265 million or 51 cents per share on $5.17 billion in revenue a year ago.

On an adjusted basis for the quarter, RIM said it lost $114 million or 22 cents per diluted share, coming in notably better than analyst expectations of a quarterly loss of 32 cents per adjusted share on revenue of $2.6 billion.

However, despite the concerns about the service revenue, CIBC analyst Todd Coupland recommended investors continue to buy RIM shares ahead of the launch of BlackBerry 10 on Jan. 30.

"RIM is prepped, cashed up and ready for its Jan. 30 launch with over 150 carriers testing BB10 for final certification," he said.

"We restate our thesis that it remains unclear whether BB10 will help RIM win back material share from Android and iOS. Regardless of market share upside, it is our view RIM is now in a good position to successfully stabilize its base."

During the quarter, the company shipped 6.9 million BlackBerry smartphones and 255,000 BlackBerry PlayBook tablets, but the company's subscriber base slipped by one million to 79 million from the previous quarter.

In its outlook, RIM said it expected continued pressure on operating results in its fourth quarter and warned the timing of the BlackBerry 10 release could hurt sales of its current models as customers wait for the new devices.

RIM also said it expected to significantly increase its marketing spending in the fourth quarter and report an operating loss.

The results came as Nokia Corp. said Friday it has signed a new licence agreement with RIM that will end all existing patent litigation between the two struggling companies.

Terms of the deal were confidential, but Nokia said the agreement includes a "one-time payment and ongoing payments, all from RIM to Nokia."

The Finnish company sued the Blackberry maker last month for breach of contract in Britain, the United States and Canada over cellular patents they agreed on in 2003.

-- The Canadian Press

Republished from the Winnipeg Free Press print edition December 22, 2012 B12

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