Smartphone sales suffering; RIM, Palm feel the pain

Canadian handset manufacturer Research In Motion (RIM) issued a surprise profit warning this week as device shipments continue to slow worldwide.

The BlackBerry maker said third quarter revenues are now expected to be in the region of $2.75bn to $2.78bn, compared to the previously forecasted revenue range of $2.95bn to $3.10bn.

The reasons given are the strength of the dollar, lower than estimated unit shipments of existing products, and shifts in product launch dates within the quarter. As a result, earnings will also be down.

Subscriptions are drying up as well, with RIM now forecasting only 2.6 million net adds during the third quarter, compared to previous estimations of 2.9 million. Nevertheless, the company claims sales of the BlackBerry Storm are good and set to continue at a fair pace into the fourth quarter.

Earlier in the week, US vendor Palm warned that its revenues for the July to September period are expected to decline on a year on year basis to between $190m and $195m.

The company cited reduced demand for maturing smartphone products, and said while it expected these factors to pressure revenue in its November 2008 and February 2009 quarters, the difficult economic environment has greatly intensified the negative impact on product sales. As a result Palm is to set about reducing its US workforce, consolidating its European operations, and shifting responsibility for Asia Pacific sales, marketing and administrative support to its US offices. The company expects to reduce quarterly operating expenses by approximately $20m as a result of these actions.

In keeping with this news, industry analyst Gartner said Thursday that during the third quarter, the global smartphone market reached its weakest year on year growth since the firm began tracking the industry.

During the three month period, worldwide smartphone sales to end users totalled 36.5 million units, an 11.5 per cent increase from the same period in 2007.

“The current economic climate is negatively impacting sales of higher end devices,” said Roberta Cozza, principal analyst at Gartner. “Going forward, we should expect the smartphone device market to continue to grow but at a slower pace. Although leading mobile operators are subsidising more smartphones, to reach lower prices they tie the device to two year contracts with monthly data plan rates which remain too expensive for the mainstream user.”