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BlackBerry's Retreat Leaves A Sour Taste For RIM

Research In Motion delivered a quarter that showed buckling market share and disappointing sales as the smart phone marker feels the heat from Apple and Google.

Investors didn't take the news well, with shares of Research In Motion ( RIMM - news - people ) tumbling 9.5%, or $5.59, to $52.97, in afternoon trading on Friday.

"RIM is losing market share," says Andy Hargreaves, analyst at Pacific Crest Securities. "Their devices lack an effective browser, especially compared to what Apple ( AAPL - news - people ) and Google ( GOOG - news - people ) have, and they lack an attractive app environment, and that's what people want now. Email is still a valuable piece, but it's only one piece and if you don't have the whole pie you won't be able to capture any of that high-end share."

For its fiscal first quarter the BlackBerry maker reported a 3.8% increase in sales to $4.2 billion, from $4.1 billion. Earnings meanwhile grew 8.3% to $768.9 million, or $1.38 per share, from $710.1 million, or $1.27 per share. Wall Street had anticipated sales of $4.4 billion, while the company had forecast a range between $4.25 billion and $4.45 billion.

The company said 79% of its sales came from devices, 16% from service, 2% from software and 3% from other revenue. During the quarter, RIM shipped approximately 11.2 million devices. The company also reported approximately 4.9 million new net subscribers accounts, and at the end of the quarter, the total BlackBerry subscriber account base was about 46 million.

"With respect to RIM, Google's Android is just as much a competitor as the Apple's iPhone, and when you combine the two it's dangerous," Hargreaves says. He notes that while RIM has the support of corporate IT departments, Apple has done a decent job of getting themselves qualified at a lot of companies, and believes Google has been doing the same thing.

Jim Balsillie, co-chief executive of RIM, says the company is working to accelerate its growth in the second half of the year.

"RIM is viewed by a lot of people as entrenched in the business world, which gives then some protection but consumer customers over the last three years have been driving growth," Hargreaves says,"and if those new customers go away RIM will be in trouble because it will shrink their unit sales, along with the pool of those likely to buy new phones a year or two down the line--if the consumer goes away they're going to miss those numbers and miss them badly."

Looking forward, RIM expects its second quarter sales to range between $4.4 billion and $4.6 billion, with earnings between $1.33 per share and $1.40 per share. Wall Street expects sales of $4.5 billion, with sales of $1.31 per share. Net subscriber account additions are also expected to range between 4.9 million and 5.2 million.

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