This summary is based on the third quarter fiscal 2009 earnings call conducted by Research In Motion Ltd. (RIMM) on December 18, 2008.
Management:
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Co-Chief Executive Officer, Director: James L. Balsillie
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Chief Accounting Officer: Brian Bidulka
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Vice President, Investor Relations: Edel Ebbs
Key Investors Issues
- Net income was $396 million or 69 cents per share diluted, up 7% from $370.5 million, or $0.65 per share diluted in 2007.
- Revenue was $2.78 billion, up 66% from $1.67 billion in the prior year.
Year to Date Highlights:
- Revenue was up 84% to $7.6 billion from $4.1 billion in 2007.
- Net income came in at $1.4 billion or $2.43 a share, up 56%.
Third Quarter Highlights
Revenue was $2.78 billion, up 66% from $1.67 billion in the prior year as hand-held devices represented $2.25 billion or 81% of RIM''s revenue.
- Total devices shipped of approximately 6.7 million were up from 6.1 million in the prior quarter.
- Approximately 5.2 million new devices were activated in the period, either for new customers or for replacements and upgrades, not including phone only sales.
- Device ASPs were approximately $337, lower than originally estimated due primarily to the impact of the strong U.S. dollar on device ASPs outside the United States.
- Service revenue was $361 million or 13% of revenue for the quarter, up $28 million from the prior period, while monthly ARPU declined slightly from the prior quarter.
Software revenue was $62 million or 2% of revenue and other revenue, including non-warranty repairs and accessories, was $107 million or 4% of revenue.
- Gross margin was 45.6%, lower than originally estimated due to unfavorable foreign exchange impact on device ASPs, and the mix of handsets shipped, with new generation handsets making up significantly more of the total shipments than expected.
- Operating expenses increased by 4% despite a positive foreign exchange impact and lower marketing spend due to delays in product launches.
- R&D spending was $193 million or 7% of revenue, and selling, marketing, and administrative expenses increased slightly to $383 million or 14% of revenue.
- Net income was $396 million or 69 cents per share diluted, up 7% from $370.5 million, or $0.65 per share diluted in 2007 due to revenue growth.
RIM generated approximately $566 million in cash from operating activities which was offset in part by capital asset additions of $196 million.
- Intangible asset additions of $135 million result in an increase in cash and investments of $249 million.
- The total of cash, cash equivalents, short-term and long-term investments was $2.49 billion as compared to $2.24 billion at the end of the previous quarter.
- DSOs were higher from the prior quarter at 59 days due to sales that were weighted towards the latter part of the quarter, as well as longer payment terms for nonNorth American customers.
- Inventory on hand was $599 million versus $513 million in the prior quarter and continue to be primarily raw materials and semi-finished goods to support demand for BlackBerry products.
Operational Highlights:
- RIM shipped approximately 6.7 million units, with new products launched in the quarter accounting for a higher than expected percentage of the total.
- The rate of adoption of the new products was faster than anticipated, and this is expected to continue in the fourth quarter.
- As a result of the strong demand for these feature-rich products, particularly Storm, the volume of shipments expected in the fourth quarter is higher than the third quarter, between 7.5 and 8 million units.
- The rapid shift in product mix from earlier products to these newer products over a short period of time is causing gross margin to decline faster than expected.
The firm is working closely with its suppliers, manufacturing partners and design teams to reduce costs in the new product platforms.
- RIM added approximately 2.6 million net new subscriber accounts, and the total BlackBerry subscriber account base grew approximately 14%.
- The growth of net subscriber account additions was tempered by a number of factors such as customers delaying purchases in anticipation of the new devices and the actual timing of launches later in the quarter.
- The firm also saw a high proportion of Bold sales in the United States go to existing customers rather than to net new subscriber accounts, which contributes to the higher-than normal replacement rate.
- Approximately 60% of net additions were non-enterprise and these customers now account for 45% of the subscriber account base.
The nonenterprise segment grew well across all geographies and growth in international markets accelerated following the launch of new products into these regions.
- The company continues to add carrier and distribution partners around the world, and now has approximately 425 carrier and distribution partners offering the BlackBerry solution in over 150 countries.
- The response to the BlackBerry Storm launch with Verizon and Vodafone has been exceptional and demand for the devices is even stronger than anticipated.
- Verizon stores sold out initial shipments on the first day and while it has been replenishing supply regularly, and have not been able to meet demand for the product in North America.
- Based on subscriber data so far, Storm is attracting new subscribers and expanding the addressable market for BlackBerry products, with 75% of the sell through going to new customers in the US and an even higher percentage going to new customers in Europe.
Both Verizon and Vodafone ran intense marketing campaigns which drove strong demand for the product leading to some challenges in ramping production fast enough to keep up in the early weeks of the launch.
