Research In Motion Ltd. (RIMM)
Q4 2009 Earnings Call Transcript
April 2, 2009 5:00 p.m. ET

Executives

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

Analysts

Simona Jankowski - Goldman Sachs
Mike Abramsky - RBC Capital Markets
Deepak Chopra - Genuity Capital Markets
Peter Misek - Canaccord Capital
Vivek Arya - Merrill Lynch

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the Research In Motion fiscal 2009 fourth quarter and year end results conference call. (Operator Instructions) At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions provided at that time. If anyone has any difficulty hearing the conference please press “*0” for operator assistance. I’d like to remind everyone that this call is being recorded today, Thursday April 2nd, 2009 at 5:00 PM Eastern Time. And I’d now like to turn the conference over to Edel Ebbs, Vice President of Investor Relations. Please go ahead.

Edel Ebbs – Vice President of Investor Relations

Thank you operator, 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 review third quarter results, and I will discuss our outlook for the fourth 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 via 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 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 Q1 and beyond, our expectations regarding RIM''s near and long-term tax rates, as well as the effect 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 relating to 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 in 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 intellectual property, our ability to enhance our current products and develop and bring to market new products and services in a timely manner, our reliance on carrier partners, the efficient and uninterrupted operation of RIM''s network operation centers, the occurrence or perception of a breach of RIM''s security measures, our reliance on suppliers and third-party manufacturers, risks associated with our expanding foreign operations, foreign exchange risks, our ability to effectively manage our growth, 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 to end the fourth quarter and fiscal year with revenue subscriber account additions and shipments all up more than 80% from last year. RIM launched a record number of new products during the year and the acceptance of these products outpaced our expectations and led to continued market share growth and record financial results. The number of devices shipped in the year almost doubled to 26.0 million and there are now over 25.0 million BlackBerry subscriber accounts. Demand for BlackBerry products and services reached an unprecedented level in Q4 with net subscriber account additions far exceeding our forecast. Approximately 3.9 million BlackBerry Net subscriber accounts were added in the quarter, up over 50% from Q3 and approximately 35% higher than we anticipated back in December. As we mentioned on the last call, the strength of the BlackBerry Net subscriber account additions in December was unprecedented, with many carriers hitting their highest level of Net activations ever and with channel and marketing support for BlackBerry products at an all-time high.

Greater than expected momentum following the holiday buying season, a continued positive reception of new products that were launched in Q3 and Q4, and a breadth of carrier promotions such as the Verizon Buy-One-Get-One program that began the latter part of the quarter, drove this out performance. Both North America and international results outpaced our forecast and about one-third of BlackBerry subscriber account base continues to be outside of North America. We saw double-digit subscriber growth in the enterprise market this quarter and the non-enterprise market drove exceptional results given the typical holiday seasonality and the nature of carrier promotions in the quarter. Approximately 70% of net new subscriber accounts came from non-enterprise and these customers now represent approximately half of the total BlackBerry subscriber account base.

As we mentioned on the last call, we saw a number of opportunities to reduce costs in our smartphone portfolio in order to improve gross margin. We are pleased that RIM’s R&D, supply chain, and manufacturing teams have been effective in reducing costs and improving yields and we expect these efficiencies to begin to be reflected in Q1. These cost reductions, together with a favorable shift in product mix, have the effect of increasing both hardware and blended corporate gross margins. Based on these improvements, we expect overall gross margin in the first quarter to increase to 43% or 44%. Some of the factors that will affect gross margins throughout fiscal 2010 are the success of ongoing efforts to reduce build and materials costs, product mix shifts, potential impacts from new product launches, particularly in the second half of the fiscal year, ASP changes, and foreign exchange. Based on our current view and a potential for variation due to these factors, we continue to expect gross margin percentage for the year 2010 to be in the low 40%s. We anticipate ASP for the first quarter to be lower than Q4 at approximately $350. This is primarily related to the shift and the mix of devices that we expect to ship in the quarter rather than actual ASP declines on individual products.

Given the uncertain economic environment and the desire to drive increased profitability in our business model in fiscal 2010, we are increasing our focus on managing operating expenses and driving efficiency across all parts of the organization. RIM is faring well in the current environment and we continue to believe we can grow market share, although we believe it is prudent to turn our attention to making sure that the operations are as streamlined as possible in case of further deterioration in the broader economy. Carrier inventory in the channel is at the lowest levels we have seen for some time and sell through for both new customers and replacement sales is strong. Carriers are not replenishing inventory to the same levels they previously held and in some cases are continuing to reduce levels. Therefore the volume of shipments required for channel maintenance is lower than it would normally be and is similar to volumes we shipped in Q4, despite the strong sell through we saw in Q4 and expect to continue in Q1.

We believe that the majority of inventory adjustments has occurred in Q4 and is beginning to moderate in Q1 and that these lower inventory levels are a response to the weaker macro environment and do not reflect anything specific to BlackBerry. Storm continues to do well with Verizon and Vodafone and the ongoing promotion of the product resulted in record levels of net subscriber account additions at these carriers. The product continues to be a strong driver of new customers for BlackBerry and has clearly opened up a new market segment.

In Canada both Bell and Telus successfully launched Storm in the quarter with numerous promotions and advertising campaigns which led to these carriers significantly growing their BlackBerry subscriber base. Storm is now launching in a number of emerging markets, including TIM Brazil, Vodafone India, and multiple carriers in Hong Kong. We are also pleased this quarter that the BlackBerry Storm was awarded the GSM Association’s Best Mobile Technology Breakthrough Award at the Mobile World Congress in February. During the quarter we launched the Curve 8900 at a number of carriers, including T-Mobile in the U.S., Rogers in Canada, Vodafone Orange and BT in Europe, Vodafone in India, Intel PCS and TIM Brazil in Latin America.

Prior to the launch of the Curve 8900 T-Mobile had a large number of pre-registrations for the device and it’s been well received by customers. Reviews of the Curve 8900 have been excellent with reviewers ranking it one of the best smartphones on the market and describing it as a gorgeous and powerful device. This product is just beginning to ramp and we look forward to growing the number of carriers offering it in the coming months. The Pearl Flip continues to gain traction and during the quarter T-Mobile reduced the price of the product to $49 and launched an aggressive marketing campaign to support the new pricing. Rogers in Canada continued to promote the product at $49 with an attractive $25 unlimited text, e-mail, and instant messaging plan. The Pearl Flip for CDMA was also launched in Q4 with Bell Mobility offering the product for $29 in Canada.