RIM Outlook Strong

Buoyed by rave reviews of its new BlackBerry Pearl device, BlackBerry is expected to produce strong results tomorrow when it reports earnings for the second quarter of 2006, which ended on Sept. 1.

Having weathered the hangover of its long-running patent dispute with NTP Software Inc. , which was settled in March, and a flurry of competitive device releases from rivals including Nokia Corp. (NYSE: NOK), Motorola Inc. (NYSE: MOT), and Palm Inc. , RIM should report earnings close to $650 million and subscriber growth of around 800,000 for the quarter, according to analyst estimates.

"The company seemed to suffer little long-term impact from the launch of the Motorola Q," despite heavy marketing for the slim new smartphone, wrote Daryl Armstrong, wireless telecom equipment analyst for Citigroup Investment Research, in a note to clients previewing the earnings report yesterday. What's more, Armstrong says, "evidence is building that their core enterprise franchise is quite solid and seems to see little impact so far from new entrants in the smartphone or handheld market."

In the consumer market, where RIM had previously put little energy or marketing clout, the new Pearl has been gaining fans since it was released earlier this month and showcased at the CTIA Wireless IT and Entertainment show in Los Angeles. The sleek, black design is a departure from the familiar BlackBerry silhouette, and new features such as a trackball and multimedia functionality seem to be winning users beyond the typical executives and professionals who have come to depend on BlackBerry's mobile email service. (See RIM Polishes Its Pearl and Going Pro(-sumer).)

"Feedback from T-Mobile retail stores suggests that the Pearl is selling very well at the outset," wrote Research Capital analyst Nick Agostino last week. "with most stores indicating the device is one of their top sellers, in some cases their best seller."

Early sales results for the Pearl will be among the most anticipated news in tomorrow's report. Meanwhile, photos of the upcoming BlackBerry 8800 have begun to leak onto the Web, and the company's plan to cease sales of its current BlackBerry Enterprise Server in March 2007 could drive enterprise sales in coming months.

While shares of its key rival Palm have been flat-to-declining over the last few months, Armstrong notes that RIM's stock has appreciated 35 percent since Aug. 1.

— Richard Martin, Senior Editor, Unstrung

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