Research in Motion Ltd. (RIMM)
Q4 2010 Earnings Call Transcript
March 31, 2010 5:00 p.m. ET

Executives

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

Analysts

Tavis McCourt – Morgan Keegan
Mike Abramsky - RBC Capital Markets
Jim Suva - Citigroup
Peter Misek – Canaccord Adams
Ittai Kidron – Oppenheimer
Vivek Arya – Bank of America/Merrill Lynch
Chris Umiastowski - TD Newcrest
Maynard Um - UBS
Jeffery Kvaal - Barclays Capital

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the Research in Motion fourth quarter and year end fiscal 2010 conference call. (Operator Instructions) At this time all participants are in a listen-only mode. Following the presentation there will be a question-and-answer session with instructions provided. If anyone has any difficulty hearing the conference please press the * followed by 0 for operator assistance at any time. I would like to remind everyone that this conference is being recorded today, Wednesday, March 31st, 2010 at 5:00 pm Eastern Time.

And I will now turn the conference over to Edel Ebbs, Vice President of Investor Relations. Please go ahead.

Edel Ebbs – Vice President of Investor Relations

Thank you. Welcome to RIM''s fiscal 2010 fourth quarter results and year-end conference call. With me on the call today are Jim Balsillie, CEO and Brian Bidulka, CFO. After I read the required forward-looking statements disclaimer, Jim will provide a business and strategic update. Brian will then review the fourth quarter results and I will discuss our outlook for first quarter of fiscal 2011. 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 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 product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings and ASP’s for Q1 fiscal 2011 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 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 our intellectual property rights, our ability to enhance our current products and develop new products and services, risks relating to competition, our reliance on carrier partners, third-party manufacturers, third-party network developers and suppliers; risks relating to network disruptions and other business interruptions, our ability to manage our production facility, security risks, risks associated with our international operations, our ability to manage growth 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 Balsillie – Chief Executive Officer

Thank you, Edel. We are pleased to be reporting record results for the fourth quarter and full fiscal year 2010. Year-over-year shipments of BlackBerry smartphones increased over 40% to 37 million units. The BlackBerry subscriber base grew 65% to over 41 million with approximately 17 net new subscriber accounts added during the year. Revenue grew 35% and net earnings increased 30% over the prior year. During fiscal Q4 we made great strides in penetrating international markets and growing market share while maintaining our leadership position in the hotly contested U.S. smartphone market. We are pleased that BlackBerry continues to be the number one selling smartphone brand in the United States and accounted for five of the top ten individual smartphone models shipped in calendar Q4 According to an industry analyst recent survey of the top ten converged devices in North America.

Demand for BlackBerry smartphones in the fourth quarter was strong with record net new subscriber account additions of 4.9 million which is above the high end of the range we forecasted in December, up over 10% quarter-over-quarter and almost double the number added in the same quarter last year. Units shipped in the fourth quarter were slightly below the range we forecasted back in December and ASP was approximately $311. Lower than expected unit shipments were primarily due to a customer change in inventory policy which led to a reduction of inventory levels of certain products in this quarter.

This inventory adjustment when coupled with the success of the BlackBerry 8520 at the lower ASP caused revenues to land slightly below the range we expected at the time of our last earnings call. Gross margin was higher than anticipated due to a product mix that includes a higher than expected percentage of Bold 9700 and Curve 8520’s. EPS were in the forecasted range.

As we head into the first quarter of fiscal 2011 we expect BlackBerry smartphone shipments of between 11.2 million and 11.8 million to drive strong revenue and earnings performance and we expect to add between 4.9 million to 5.2 million net new BlackBerry subscriber accounts. Global demand for BlackBerry smartphones is robust and leading to some tightness in our supply chain with respect to certain components, particularly the Curve 8520. However, these risks are already reflected in the shipment guidance for the first quarter and the supply chain and product teams are working hard to alleviate any tightness going forward. ASP continues to be primarily mix driven and in Q4 the BlackBerry Curve 8520 was particularly successful in markets around the world. We expect this success to continue in the first quarter and therefore expect ASP in a range of $305 to $310 for the first quarter. As we have mentioned on prior conference calls there is not a direct relationship between ASP and gross margin percentage. In fact they can often go in opposite directions as we saw in the fourth quarter.