Research in Motion Limited (RIMM)
Q1 2010 Earnings Call Transcript
June 18, 2009 5:00 p.m. ET

Executives

Edel Ebbs - Vice President, Investor Relations.
James L. Balsillie - Co-Chief Executive Officer, Director
Brian Bidulka - Chief Accounting Officer

Analysts

Keith Bachman - BMO Capital Markets
Jeffery Kvaal - Barclays Capital
Mike Abramsky - RBC Capital Markets
Jim Suva - Citigroup
Simona Jankowski - Goldman Sachs
Ittai Kidron - Oppenheimer

Presentation

Operator

Good afternoon ladies and gentlemen. Thank you for standing by. Welcome to the Research in Motion first quarter fiscal 2010 results conference call. At this time all participants in a listen-only mode. Following the presentation we’ll conduct a question-and-answer session. Instructions will be provided at that time if you care for questions. If anyone has any difficulties during the conference press * followed by 0 for operator assistance at any time. I’d like to remind everyone that this conference call is being recorded today, Thursday June 18 2009 at 5:00 p.m. Eastern Time. I’ll now turn the conference over to Edel Ebbs Vice President Investor Relations. Please go ahead.

Edel Ebbs – Vice President Investor relations

Thank you. Welcome to RIM''s fiscal 2010 first quarter results conference call. With me on the call today is Jim Balsillie, RIM''s Co-CEO, and Brian Bidulka, RIM''s Chief Accounting Officer. After I read the required forward-looking statements disclaimer, Jim will provide a business and strategic update. Brian will then the review first quarter results and I will discuss our outlook for the second quarter of fiscal 2010. We will then open the call up for questions. I would like to note that this call is available to the general public by a call-in number and webcast. A replay of the webcast will also be available on the rim.com website. We plan to wrap up the call before 6:00 p.m. Eastern Time this evening.

Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These include statements about our expectations and estimates with respect to revenue, gross margin, operating expenses, CapEx, depreciation and amortization, investment income, earnings, channel inventory, seasonality, ASPs, and foreign exchange related matters for Q2 and beyond; our expectations regarding RIM''s near and long-term tax rates, as well as the effect of changes to Canadian tax laws; our estimates of the number of net subscriber account additions and other non-financial estimates; our efforts to manage operating expenses and reduce costs; our product development initiatives and timing; developments relating to our carrier partners; and other statements regarding our plans and objectives. We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue, and similar expressions.

All forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and assumptions we have made. Many factors could cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements, including risks relating to the uncertainty of general economic conditions, risks relating to our intellectual property rights, our ability to enhance our current products and develop new products and services, our reliance on carrier partners and third-party manufacturers, third-party network developers and suppliers; the efficient and uninterrupted operation of RIM''s network operations centers; risks associated with our international operations; foreign exchange risks; risks relating to competition and other factors set forth in the risk factors and MD&A sections in RIM''s filings with the SEC and Canadian Securities Regulators. We base our forward-looking statements on information currently available to us and we do not assume any obligation to update them except as required by law.

I will now turn the call over to Jim.

James L. Balsillie – Co-Chief Executive Officer

Thank you, Edel. We are pleased with the strong results for the first quarter of fiscal 2010, with revenue of $3.4 billion, up 53% over the prior year and adjusted earnings per share of $0.98, slightly higher than we forecasted on the last conference call. Throughout the quarter we saw strong, ongoing support for our approximately 475 carrier and distribution partners around the world. We announced a number of new products, including BES 5.0, and BlackBerry Tour. We hosted the eighth annual Wireless Enterprise Symposium and made dramatic progress in the penetration of new market segments.

Approximately 3.8 million BlackBerry net subscriber accounts were added during the quarter, up 65% from the same quarter last year and in line with expectations. BIS subscriber base has grown steadily over the past couple of quarters and in Q1 approximately 80% of net new subscriber account additions came from the non-enterprise customers. These customers now represent over half of the total BlackBerry subscriber account base. International markets, which tend to be more weighted to prosumer BIS plans, were strong in Q1 and we are encouraged by the growth we see in many regions, especially Latin America, Middle East, and parts of Asia. In addition, the first quarter can be seasonally lighter for enterprise net additions due to corporate customers starting new budget cycles in January and having made larger-than-normal purchases heading into the year-end. Similarly, the budget cycles for government purchasing peaks in the fall, which can have a positive impact on the enterprise business in the timeframe, given the large and growing presence of the BlackBerry solution in this market segment.

Inventory in carrier channels continues to be lean and in some cases, we are seeing ongoing reductions in channel inventory levels. The absolute level of inventory in the channel at the end of Q1 was similar to levels at the end of Q4 and we expect to maintain this low level into Q2. While we typically see a slowdown in the summer months due to normal seasonality, we expect to ship between 8.1 and 8.7 BlackBerry smartphones and add between 3.8 and 4.1 net new subscriber accounts in Q2, reflecting the strong demand that we see across multiple channels, new product launches that are scheduled in the quarter, and planned carrier promotions throughout the summer and into the fall.

IDC recently announced their U.S. smartphone market share figures for Q1, which showed that our market share gained 8.5 points in Q1 after gaining 6.4 points in Q4, having grown market share from roughly 40% to 55% in the past two quarters. BlackBerry now accounts for more than all the other smartphone sales in the United States combined and more than double our nearest competitor. We are also pleased to see analyst reports confirming the BlackBerry Curve as the number one selling smartphone in North America. BlackBerry global smartphone market share also increased year over year from 16% to 21%. The success of the BlackBerry platform and its growing acceptance by carriers around the world is testament to the core values of efficiency, reliability, and security that have been pillars of the BlackBerry offering for the past 10 years.

As end users demand more and more services and applications on their smartphone, network capacity and efficient and profitable delivery of these data services is an increasingly important factor in carrier decisions on which smartphones to offer, subsidize, and put marketing support behind. Many of our carrier partners are beginning to see the BlackBerry solutions as a way to reign in new and unexpected CapEx spending requirements for more network capacity, and to deliver high quality of service levels to their customers. Increasing loads being put on carrier networks and the related quality of service issues have recently been garnering significant industry and media analyst attention. The addition of services such as streaming video, which consumes 100 times the capacity of a voice call and the demands of new devices, such as wirelessly enabled netbooks, will exacerbate these issues and make BlackBerry’s efficiency and network management capabilities an even greater benefit to our carrier partners in the future.

Earlier this week, we announced the BlackBerry Tour smartphone for high-speed CDMA networks in North America with 3G UMTS HSDPA support for roaming worldwide. This newest BlackBerry smartphone combines outstanding mobile performance with state of the art multimedia capabilities, GPS, a 3.2 mega pixel camera, and a striking new design. Tour also offers the easy-to-access email, messaging, and social networking that BlackBerry smartphone users rave about. Additionally, it’s high resolution display, full QWERTY keyboard, Bluetooth, and hot swappable MicroSD slots with support for up to a 32-gigabyte card, make it perfect for work or personal multimedia enjoyment. We expect launches of the BlackBerry Tour across North American carrier channels beginning this summer. During Q1, the Curve 8900 received broad acceptance in markets in North America and around the world, has now launched with over 150 carriers globally. T-Mobile U.S.A. supported the launch of the BlackBerry 8900 with advertising campaigns including extensive TV, online, and in-store placement. AT&T also recently launched the product across the United States in both business and retail channels at an attractive $149 price point.