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Executives

James Balsillie - Co-Chairman, Co-Chief Executive Officer and Member of Strategic Planning Committee

Brian Bidulka - Chief Financial Officer

Edel Ebbs - Vice President Investor Relations

Michael Lazaridis - Co-Founder, Co-Chairman, Co-Chief Executive Officer, President and Member of Strategic Planning Committee

Analysts

Gus Papageorgiou - Scotia Capital Inc.

Matthew Thornton - Avian Securities, LLC

Jim Suva - Citigroup Inc

Rod Hall - JP Morgan Chase & Co

Amitabh Passi - UBS Investment Bank

Jeffrey Kvaal - Barclays Capital

Kulbinder Garcha - Crédit Suisse AG

Research In Motion Limited (RIMM) Q1 2012 Earnings Call June 16, 2011 5:00 PM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Research in Motion First Quarter Fiscal 2012 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, Thursday, June 16, 2011, at 5:00 p.m. Eastern Time. And I would now like to turn the conference over to Edel Ebbs, Vice President, Investor Relations. Please go ahead.

Edel Ebbs

Thank you. Welcome to RIM's Fiscal 2012 First Quarter Results Conference Call. With me on the call today are Jim Balsillie and Mike Lazaridis, Co-CEOs, and Brian Bidulka, CFO. After I read the required cautionary note regarding forward-looking statements, Jim and Mike will provide a business and strategic update. Brian will then review the first quarter results, and I will discuss our outlook for the second quarter of fiscal 2012. We'll 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 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 product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings, channel inventory and seasonality for Q2 and beyond; our expectations regarding RIM's near- and long-term tax rates; our product development and marketing initiatives and timing, including our expectations relating to the BlackBerry PlayBook and the QNX operating system; our expectations regarding our cost optimization and share repurchase programs; 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 related to delays of new product launches; risks related to RIM's ability to implement and to realize the anticipated benefits of its cost optimization program; risks related 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 processes; risks associated with our international operations; security risks and risks related to encryption technology; our ability to manage growth; difficulties in forecasting financial results, particularly over longer periods, given the rapid technological changes; evolving industry standards, intense competition and short product life cycles that characterize our industry; risks associated with the share repurchase program; 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 based 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

Thank you, Edel. RIM shipped approximately 13.2 million smartphones in the first quarter, and revenue was approximately $4.9 billion. As discussed in the conference call on April 28, we experienced a shift in the mix of products towards lower-ASP handsets and had lower-than-expected sell-through in the United States and Latin America that affected smartphone shipments in Q1. The shortfall in the United States is primarily related to the age of the BlackBerry product portfolio and the delays in new product introductions that we discussed on the last call.

The LatAm impact was as a result of lower sell-through related to a variety of factors, a change in the subsidy environment in Mexico that had a greater-than-expected impact and a specific import license issue in Argentina. We continue to believe that there is a substantial growth opportunity for BlackBerry smartphones in these markets.

The challenges of the first quarter are continuing into the August quarter. The existing portfolio of BlackBerry products has been in market for close to a year, and delivering new products has proven more challenging than anticipated. Delays in the new product introduction timelines by a couple of weeks have excluded us from some of the back-to-school programs we had expected to be part of, which has led to lower-than-anticipated shipments, revenue and earnings in the second quarter. Our partner, Mike Lazaridis, will discuss these delays and the outlook for the new products later in the call.

We continue to be very strong internationally, with market share growth in many regions. While demand for BlackBerry products and services remain strong in many markets of the world, especially Western Europe and Southeast Asia, the challenges in the United States in particular are making near-term earnings growth difficult. As we move through this business transition, there is an opportunity to realign costs to better reflect the competitive environment and global growth business we participate in.

Some of the organizational structures that were crucial to our success over the past several years no longer make sense, given the evolution of the industry, and we need the flexibility to hire new talent and invest in areas that reflect the opportunities and strategic objectives of the company. A more efficient cost structure will allow us to be nimble in responding to new market opportunities and changes in the competitive environment.

As a result, we have made the decision to begin a cost management process that will include headcount reductions across the company and the reallocation of resources to areas that offer the highest long-term growth opportunities. I want to be clear that this streamlining of operations will make us more effective and responsive to demand in the marketplace, and we do not intend to make significant cuts to areas or development projects that are crucial to RIM's future direction and growth.

The reduction of our headcount is an incredibly difficult decision, and Mike and I appreciate the impact of this on our employees, their families and the community. We believe that the efficiencies that will come of this exercise will allow us to grow profitably as we continue through the current platform transition and move forward with the streamlined structure we need to renew earnings growth later this year.

RIM launched the PlayBook in Q1 in consumer electronics channels throughout the U.S., including Best Buy, Staples, Office Depot and many others, and we were pleased to ship approximately 500,000 units in the first quarter. PlayBook delivers on its promise of power, affordability and uncompromised web, and user experience continues to improve as we add more and more applications and content services to the platform.

While the PlayBook launch did not go as smoothly as we had planned, the potential of the product and the powerful underlying OS was recognized and acknowledged by partners, channel reviewers and end users. We have already rolled out updates of the product to deliver compelling features, such as video chat and a native Facebook application, and we look forward to adding content partnership and growing the available applications over the coming months. The recent availability of Adobe Creative Suite tools for PlayBook provides a superior publishing framework for content creators and is expected to capitalize availability of content for PlayBook.

The PlayBook is a significant product launch for RIM not only because of the growth opportunity it provides, but because it is the first BlackBerry tablet and the first BlackBerry device to feature the powerful QNX-based OS that will also become the core of future BlackBerry super-phones. Over the past several days, the PlayBook has launched in 11 additional markets around the world with another 5 to follow in the coming weeks, and we believe this opportunity is at least as large as the North American opportunity.

PlayBook was launched in the U.K. today with over 730 points of presence with our retail partners, and early feedback has been excellent. PlayBook is now in the hands of over 1,500 enterprise customers in progressive stages leading to full deployment. As part of this process, customers are continuing to uncover new enterprise use cases for PlayBook, and we are working closely with global enterprise solution providers to provide powerful new solutions to take advantage of the unique capabilities of PlayBook.

Cisco, Citrix, IBM, HP and SAP are few of the platform and system integration partners that RIM has established joint product road maps with and plans for joint sales activities. The recent launch of BlackBerry Balance is also an important step in growing the penetration of BlackBerry smartphones and tablets in the enterprise market. And since launch, Balance has been a meaningful driver of BES upgrades, which is allowing customers to test and pilot the solution for broader rollout.

We are working with Verizon to target enterprise accounts with PlayBook, and RIM has hosted a number of CIO events to highlight PlayBook throughout the U.S. this quarter. RIM also recently began offering PlayBook through its retail channels, and Bell, Rogers and Telus in Canada have had good success with the product through targeted promotions and bundling packages with BlackBerry smartphones. We also continue to work with AT&T to certify BlackBerry Bridge for their subscriber base.

I'm going to turn the call over to Mike to discuss the platform transition we are going through. But before I do that, Mike and I would like to address some of the concerns that have been expressed in the media and analyst community surrounding the executive management structure at RIM and, particularly, about the joint nature of our leadership.

Mike and I have been partners in this business for almost 20 years, and over that time, RIM has grown to $20 billion in annual revenue and has successfully navigated through many challenging times. We're currently approaching the tail end of a significant transition in our business, and frankly, few companies would have been able to survive. But we have.

And I believe, and I think Mike would agree, that neither of us could have taken the company this far alone, and that completing the transition and taking the company to the next level of success and growth is also something neither of us can do alone. It's something that would be incredibly challenging for someone from outside the company to manage successfully at this critical time in RIM's development.

Michael Lazaridis

Thanks, Jim. I agree with Jim's comments, and I absolutely believe that the complementary skill sets and good working relationship between Jim and I led to the success of RIM over the past 2 decades. I also believe that this strong, consistent leadership is critical to successfully leveraging the substantial investments we've made with the making of BlackBerry 7 QNX and all of the products that are about to launch in fiscal 2012. Our commitment to RIM is stronger than ever, and we know what we have to do jointly to accomplish and take RIM to this next stage of growth and success.

Jim and I recognize each other's strengths and regularly discuss and work together to determine the best way to execute on the incredible market opportunity ahead of us. We understand that weathering this transition has been difficult for our shareholders and also for our employees. We are grateful for the support you've shown us. I truly believe we are approaching the final phase of this transition. While I can't promise that there won't be bumps in the road ahead, I can assure you that Jim and I have never been more committed to the business and that our interests remain closely aligned with those of our shareholders.

We understand that you are seeing a lot of turbulence in the marketplace, and that the timing issues we have had with delivering the new BB 7 products has been difficult to understand from the outside. We also understand that RIM has taken a unique path, and why we do things the way we do may not be obvious from the outside. I'd like to talk about some of the recent decisions we've made and why we've made them.

BlackBerry was designed to be the ultimate messaging and communications device, and it achieved that. It is the #1 product in messaging-focused markets around the world, including in Southeast Asia. The BlackBerry was the #1 smartphone in several countries in March and April, including Thailand, the Philippines, Indonesia, where BlackBerry has 50% market share. And the BlackBerry Curve 8520, Curve 9300 and Torch 9800 were respectively the top 1, 2 and 3 smartphones in the market in April.

The BlackBerry platform provides the best balance in terms of cost, battery life, performance and network efficiency, and this accounts for a good part of our success today. We saw the opportunity to upgrade the feature phone market to smartphones around the world, and we took advantage of this to grow market share globally.

We were already well down the development path for the next-generation BlackBerry handsets when we realized that in the U.S., the features and performance arms race demanded that we upgrade the chipset and port BlackBerry to a higher-performance platform. This was an engineering change that affected hardware and software timelines and pushed out entry into carrier certification labs.

There are always uncertainties in product development. However, we did not expect the extra challenges this presented to carrier lab entry with the new platform. We are now in 31 certification programs with 23 carriers in the U.S. and around the world, and we should start seeing technical acceptances beginning this summer and shipments beginning near the end of the quarter.

The end result of this platform change was worth it, and we now have a platform that is the same across all of our high-end BlackBerry 7 products. And I believe it is the highest-quality BlackBerry we have ever entered into carrier labs. Because these products are almost all on the same platform, once the first product is certified with one carrier, we can leverage this to accelerate certification of the others. This now enables the largest global launch of BlackBerry products in our history and allows us to roll out a rapid succession of launches over the next several months. I would have liked nothing more than to get these BlackBerry 7 handsets out sooner, and believe me, we did everything we could to make that happen. But when customers experience the quality, consistency and upgraded user experience we have achieved in these new products, you will understand why it was worth the wait.

The BlackBerry Bold 9900 that we announced and some of you may have had the chance to experience at BlackBerry World will be the first BlackBerry to feature the new 7 OS. The handset is super-thin, only 10.5 millimeters, with a sleek, smooth feel that combines the award-winning BlackBerry 9000 QWERTY keyboard with a highly responsive touch screen, enhanced browsing with fluid Liquid Graphics, a powerful 1.2 gigahertz processor, 8 gigabytes of onboard memory, HD video recording, NFC, a built-in compass and many other powerful features. This launch will be followed by a steady stream of new BB 7-based products including both CDMA and HSPA products around the world, both high-end and mid-tier.

Over the same time period, we've been able to develop our new QNX software platform and the remarkable PlayBook, which has set new standards for power and performance in the brand-new category, tablet computing. We are now on a steady cadence of features and applications releases using our industry-leading automatic wireless software update for PlayBook, including Facebook and videoconferencing. We're soon to release native email and BBM and our Android player later in the summer, to be followed in the fall with 4G PlayBook for WiMAX, LTE and HSPA+. The QNX software platform provides us with an immensely robust, secure and standard base platform for our future.

Many of you asked why we didn't move to QNX on BlackBerry handsets immediately. There a number of reasons why this wasn't a feasible alternative. First of all, a hard cut-over between platforms at this time would have meant abandoning our strong and loyal BlackBerry developer community. It also would have been near impossible to deliver a multi-core QNX smartphone this year, given that dual-core baseband processors are only just becoming available. It would also have been unrealistic to try to build a whole new tablet platform and to port BlackBerry to that platform at the same time. To take that path would have left RIM with a product void for most of 2012, which was unacceptable, and so we took the approach that we did.

We have a strong business. We have made major platform upgrades, and we are almost through this transition. BlackBerry has a strong international brand and a loyal customer base. We understand enterprise needs. We are the gold standard for wireless security. We understand that the user experience is everything, and we have the platform with BlackBerry 7 and QNX to deliver the products that will drive RIM's success.

I'll now turn over the call to Brian to discuss the financials.

Brian Bidulka

Thank you, Mike. During the first quarter, RIM shipped 13.2 million BlackBerry smartphones and approximately 500,000 BlackBerry PlayBook tablets. Smartphone ASPs in the quarter were lower than anticipated due to shift in mix towards lower-ASP handsets due to the lack of new products shipping in the quarter impacting sell-through. Total revenue was approximately $4.9 billion, with hardware accounting for approximately 78% of the total. Sales outside of the U.S., U.K. and Canada comprised approximately 56% of total revenue.

Sales in the U.S. represented approximately 27% of total revenue. U.K. represented approximately 10%, and Canada represented the remainder. The largest regions contributing to the 56% are Western Europe, Middle East and Africa and Asia-Pacific, primarily India and Southeast Asia. Estimated sell-through in the quarter was approximately $13.3 million, including phone-only sales, which have been increasing as BlackBerry's penetration in the prepaid market grows.

Inventory at the end of the quarter was approximately flat. Service revenue in Q1 was approximately $975 million, up 8% from the last quarter, and software revenue was approximately $80 million. ARPU was down slightly due to the continued growth in tiered bids and prepaid service plans. Gross margin in the quarter was 43.9% higher than expected due to higher-than-expected service revenue in the mix, reduction and warranty costs relating to the company's contractual obligations to carriers and distributors to provide replacement devices for returns that are covered by warranty and the impact of a reduction in royalties payable on certain BlackBerry handheld devices.

Operating expenses increased to approximately $1.3 billion, in line with our expectation. Inventory in the quarter increased $325 million to approximately $945 million. The majority of this increase is related to the global rollout of the BlackBerry PlayBook that started early in Q2.

Accounts receivable decreased from $4 billion to $3.8 billion in Q1, and DSOs increased from 65 days to 70 days. RIM's cash balance at the end of the quarter increased by $170 million to approximately $2.9 billion after capital expenditures of approximately $220 million and intangible asset purchases of approximately $560 million.

RIM's corporate tax rate was approximately 23%, slightly lower than forecast in Q4. We expect the full year fiscal 2012 rate to be approximately 24%. Fully diluted earnings per share in Q1 were $1.33.

As we announced earlier today, RIM is moving toward -- forward with plans for a cost optimization plan that we expect to streamline operations and allow us to grow profitably in the back half of the year. This will allow us to refocus resources on high-growth areas of opportunity. We believe that with this streamlining of operations, we can achieve benefits beginning in the third quarter. In addition to the OpEx and headcount reductions, we also plan to reevaluate our capital expenditure program and target investments strategically to support projects that have a direct impact in executing on RIM's growth potential.

We expect that as we implement this program beginning in Q2, there will be a onetime charge associated with activities in the second quarter. We have not yet determined the amount, but we'll break this out when we report our second quarter results in September.

RIM's Board of Directors today also approved a share repurchase program to purchase for cancellation to the facilities of the NASDAQ Stock Market by way of a private agreement of up to 5% of RIM's outstanding common shares. The share repurchase program may commence after July 10, 2011 and remain in place for up to 12 months or until the purchases are completed or the program is terminated by RIM.

With respect to our outlook for the second quarter, which Edel will discuss shortly, there are no significant benefits from this realignment included, as we expect them to be minimal in Q2. However, based on the weaker-than-anticipated outlook for the second quarter and missing of some of the back-to-school promotional programs we were anticipating being part of, we believe we will no longer be able to meet our previous full year outlook of $7.50 per share.

We believe the likely range is now between $5.25 to $6, which reflects an uplift in total unit shipments in Q3 and Q4, which we expect to be driven by new product introductions of BlackBerry 7 products around the world. This guidance does not reflect any one-time charges associated with our cost optimization program or any share buyback.

I'll now turn the call over to Edel to discuss our outlook for Q2.

Edel Ebbs

Thanks, Brian. Before I discuss the outlook for Q2, I'd like to remind everyone that these forward-looking statements reflect management's best current estimates and should be taken in the context of the risk factors listed at the beginning of the call and disclosed in our public filings.

We expect total revenues for Q2, including PlayBook, to be in the range of $4.2 billion to $4.8 billion, which includes BlackBerry smartphone shipments of between 11 and 12.5 million units. We expect the mix of handsets to be heavily skewed towards existing in-life products, particularly at the low end of the range. These products have a much lower ASP and contribution margin than the new BlackBerry 7 products that aren't expected to ship until late in the quarter.

As we discussed on last quarter's conference call, we expect overall corporate gross margin percentage for the second quarter to be just below 40%, at approximately 39%. This is being driven by a higher volume of late-life-cycle products in the mix as well as the lower overall level of handset shipments relative to PlayBook shipments.

Total operating expenses are expected to decrease in Q2 by approximately 8% to 13% from Q1 levels. In the second quarter, we expect depreciation and amortization to be approximately $140 million, and we expect CapEx to be approximately $300 million. We expect the tax rate to be between 24% and 25% in Q2 and to be similar throughout fiscal 2012.

We expect Q2 EPS to be in the range of $0.75 to $1.05 per share diluted, and this does not reflect any share buybacks. At the low end, this range reflects a further slip in new product introduction timelines and, therefore, a small amount of BlackBerry 7 handsets shipping during the quarter.

I'll now turn the call back to Jim.

James Balsillie

Thank you, Edel. We're most of the way through the transitioning of our platform, and we believe we are taking the right steps to position RIM for the future. We look forward to the global launch of our new products beginning later this summer and believe that the streamlining and refocusing of our operations will lead us to increase profitability and growth for the company over the longer term.

Would the Operator please come on to handle questions?

Edel Ebbs

Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question today comes from the line of Jeff Kvaal of Barclays.

Jeffrey Kvaal - Barclays Capital

Could you please help us on the confidence level that you have in the new product launches? And I say that in a couple different metrics. I think, one, clearly, is OS 7. How far through the certification are you? And how confident are you that you'll get where you need to be for that? But there's also a broader question. To what extent should we be now worried about the timeline for QNX phones? Does the delay in OS 7 mean that the QNX phones will be pushed into, say, middle of 2012, what have you? And similarly with the new PlayBook. Should we worry about a delay associated with that?

Michael Lazaridis

Yes, thanks for the question. I mean, we can never be absolutely certain about getting through certification without any hiccups, but we feel very confident with the level of quality, the code -- this is the best quality code that we've ever entered into lab. What's really exciting is that it's based on the same platform, which means that as we certify one that we can then leverage that certification across the board with the other carriers. So this is part of our plan to accelerate and catch up. So I'm feeling very good about our prospects for the certification of products we have in labs. To answer your other question, I think that the BlackBerry 7 products are amazing: the quality, the feel, the industrial design, the user experience, everything has been upgraded, perfected, and I'm very, very excited with BlackBerry 7 products. What's really exciting is this is also our largest launch globally for BlackBerry handsets across the largest number of carriers through the certification cycle. So this is really an exciting time for us right now. We haven't delayed the work that we're doing to build the QNX-based super-phone and converge on QNX as our future platform. That's something that we've talked about and something we're working very hard to accomplish here. So what's really exciting is that there's a steady cadence now of BlackBerry PlayBook updates, and then you're going to start seeing the 4G PlayBooks coming out in the fall, which are going to be very exciting, very powerful products. So again, I'm very confident with the plans now that we're sort of basically through the worst of the transition.

Jeffrey Kvaal - Barclays Capital

Have the delays affected any of your year-end holiday promotional response [ph] the way they have back-to-school?

Michael Lazaridis

I don't believe so, no.

Operator

Your next question comes from the line of Matt Thornton of Avian Securities.

Matthew Thornton - Avian Securities, LLC

Yes, thanks for taking my question. Mike, I think I may have missed this, but the comments on QNX timing, I think the previous guidance was early calendar 2012. Was that unchanged?

Michael Lazaridis

That's unchanged.

Matthew Thornton - Avian Securities, LLC

Okay. Perfect. And then just commenting on guidance for the back half of the year, I think Edel commented that buybacks were not included in the guidance. How about the impact on the cost realignment? Is that already embedded in the revised guidance?

Edel Ebbs

Yes, Matt. Yes, so I did say that the full year guidance doesn't include any buyback impact. In terms of what -- in terms of realignment, we're still working through exactly what that realignment is going to look like. So it's kind of why there's a range there. There's aspects of a better in there, and there's a lot of different variables that go into those scenarios. So it's really hard to kind of say exactly how much will be in there at this point. So I can't give you any more color on that.

Matthew Thornton - Avian Securities, LLC

Okay. Fair enough. And just a couple of quick ones, if I could. Any sense as to PlayBook sell-through in the quarter? I mean, obviously, you guys have very good visibility on sell-through on the handset side. Any sense as to how sell-through is trending on the PlayBook side?

James Balsillie

We don't have specific numbers on PlayBook sell-through, but we're very pleased with the sell-through, and we're very pleased with the seeding in the corporations. The issues that if there's any gap in features -- and we talked a little bit about an email app or an Android media player or a corporate VPN and a Citrix client, those are well under -- well under way to -- and those are preconditions, we believe, for large corporate rollouts and also key things that consumers are looking for. So we feel good about the launches. I don't have specific numbers on sell-through, but we feel it is absolutely a platform that we can run, really, for a decade and plus for corporate transformation and also for high-performance personal communications and media and socializing and mobile computing. So the sell-through is good, but I don't have a specific number for you.

Michael Lazaridis

Yes, and the POSIX-certified QNX environment allows us to really accelerate porting of new software to the product and new applications to the product. So it's just going to keep getting better and better.

Matthew Thornton - Avian Securities, LLC

Perfect. And just one last housekeeping question, if I could. Could you remind us, I mean, obviously, gross margin on the legacy smartphone business as it's aging here is coming down. As we transition to the OS 7, the BB 7 products, I mean, should we expect another material step-down in gross margin? How will that transition as you hit the smartphone gross margin, if I could?

Edel Ebbs

Yes, I mean, we haven't really disclosed it. We talked a little bit about that last quarter. So just given the mix and everything, we do expect gross margin to come down. Contribution margin from those new products will be a lot higher given the ASP, and really, that's more of what we focus on.

Matthew Thornton - Avian Securities, LLC

Okay. Fair enough. I'll cede the floor.

Operator

Your next question comes from the line of Amitabh Passi of UBS.

Amitabh Passi - UBS Investment Bank

I just wanted to clarify the cost restructuring program that you're putting in place. Just to confirm, will most of the savings be in the OpEx line? Do you also anticipate any incremental benefit in the gross margin line? And again, just looking at the back-half guidance, it looks like EPS would have to be somewhere around $1.70, $1.75 per quarter. Again, just looking to see if there's any incremental guidance you'll give us on how we should expect the cost savings to flow through the back half of the year.

Edel Ebbs

Amitabh, we haven't really worked through all the details on this. I mean, certainly, a lot of it will be OpEx. I mean, we talked about headcount reduction; obviously, OpEx. We talked about reevaluating some of the CapEx we're doing, and that will have some benefits as well. And there's obviously a lot of stuff we're doing on the supply chain and trying to manage the bomb [ph] costs and see what efficiencies we can get there as well.

Brian Bidulka

Yes, it's too premature to say whether it's going to be -- there will certainly be some on the gross margin side, but it's too early to actually quantify that or even comment on the specifics there.

Amitabh Passi - UBS Investment Bank

Okay. And then maybe you can just help me understand, given that your products 7.0 will come out, say, sometime late in August, early September, and you're still looking at QNX in 1Q '12. Does it make sense to maybe push out QNX? I'm just trying to -- I'm still a little perplexed about the timing here, because essentially, you're talking about QNX coming literally a quarter after your 7.0 products coming out. And what's the incentive for operators to continue to push 7.0?

Michael Lazaridis

Well, first of all, the BlackBerry 7 products are designed for very much a messaging communications market. In many cases, they're smaller, they're lower-cost. They fit into market segments where cost is premium, and those products are selling very well, and we expect the 7 [7.0] products to do very well as well. The first BlackBerry QNX-based super-phone is very much built on the PlayBook platform and will offer a very high degree of performance, really high feature set and really will be part of our top of the line.

Amitabh Passi - UBS Investment Bank

Got it. And just my final question, Jim, Mike, any just thoughts in terms of what you could have done better with respect to the PlayBook launch, anything you would have done differently? Just curious to get sort of your perspective looking back now.

James Balsillie

I think looking back, the most important thing for us is to get the platform going and get it gestated. If you wait, it doesn't get established. I mean, we're in 1,500 corporations now, and the evaluation is under way. Next week, we get the Creative Suite for Adobe. So the issue is when you have a fast-moving market, do you wait and get all fit and finish done? Or do you get it going when it's a good entry point and then you have an OTA utility to tighten it over time? And I will tell you, when I meet with very, very senior industry analysts who advise CIOs and major CIOs, they say, "This is the biggest mismatch in their career between what's being commented and what's under the covers." And so do you wait and not get your story out? Do you walk headlong into competitiveness of earn media where maybe there's a very high bar on fit and finish? It's a dilemma, and it's inherent. We could have waited, but would that be best for the company? And would that have started the hardening process, or would it be too late? But we have a platform you can run with for a decade, and it's very, very powerful. And actually get a thoughtful CIO and get an objective assessment and they'll say, " You look at the security of the BlackBerry, the security of the PlayBook, it's seriously there. And it's, quite frankly, just going to gain momentum. And we think it's got an engine to surpass." So I mean, I'm happy to take comments and criticism other than could we have asked people to get more things done sooner. They were all working as hard as they could and as fast as they could. So the question for me is do you delay and miss the fact that we have 0.5 million units out there. We have 1,500 corporations evaluating. We have a development kit, which absolutely makes this a premium publishing and media product. Or do you sit there and say, "Well, I mean, given all that stuff, maybe we should wait till September to get overtaken by events." So would I do it materially different? Given the facts at hand, I don't think so. Would I have -- would we have wanted certain other elements ready at that time? Absolutely. Could we have prepped media and channels with more information? Of course. But I think you look at the commentary, people would say, "Strong engine, got amazing potential." For a certain class of people, it does something, but there's elements of capability gaps that they want filled. And as a step one, I'll take it. Because if the option is no step one and delay it, I'd rather take a step one and close off any challenges. And I don't want this to be interpreted in anything other than as candid as an assessment as I can. I mean, Mike is here with us. He will speak for himself on this one.

Michael Lazaridis

We focus very much on making sure that we provided an uncompromised experience on the browser, for instance. We had a very unique, very powerful browser, PC-class browser on the PlayBook that included Flash. We had Adobe PDF viewers built right in, very powerful, very useful. Full suite of docs to go for both Word, Excel and PowerPoint. There's a whole bunch of great stuff. I don't think that there was any hesitation in our mind with regard to how great the product was, what it could do for people. It really elevated the performance in terms of the quality of the screen, the fidelity of its rendering and the quality of its full HD outlet and HD cameras. I mean, those are all great things, but we realized and we made sure that we had that over-the-air full upgrade capability, seamless upgrade capability, built into it from the start. And that way, that allowed us to not only get new applications onto the product through App World for our customer base, but also add new features and upgrade the platform on a continued cadence to just keep making the product better and better. This is like it's a great investment for our customers to get in there early, start playing with it, getting the benefits from it, understanding the product, seeing how it's going to work within their enterprise and the kind of business transformation the PlayBook is possible to provide and at the same time, provided a platform for both future growth and applications.

Operator

Your next question comes from the line of Gus Papageorgiou of Scotia Capital.

Gus Papageorgiou - Scotia Capital Inc.

The question just in terms of restructuring that you're announcing here. I mean, given that you have all these products that you're hoping to launch in the next few months, plus QNX, plus PlayBook, I mean, is doing a restructuring right now to save costs the right thing to do? I mean, is it not going to impact your ability to execute on launching of the new products?

James Balsillie

Well, I mean, I would not call it a restructuring, and I just think that that's just radically mischaracterizing it. There's no -- I mean, we have grown so much over the past few years, and we've done, I don't know, 14 or 15 acquisitions in the last year and a bit. And so this is just a streamlining exercise. But when you talk about restructuring, I mean, you're talking about an industry in a different kind of situation and -- where you're deciding to do certain things and not do certain things. And we just view this as a streamlining. But the core aspects of investment, the core aspects of focusing on our execution priorities absolutely will be upheld. Anything that we believe is part of our future, anything that is part of the opportunity we're investing in, I mean, this really opens up our ability to streamline and focus and have those resources in those places we got to grow. So I wouldn't call it -- it's not going to -- we're not going to allow any compromising of our NPI, of our key strategic initiatives. And I would definitely call this seeking efficiencies and streamlining, which is an appropriate thing to do and is timely. But I would in no way shape or form or characterize this as a restructuring.

Gus Papageorgiou - Scotia Capital Inc.

Would it be fair to characterize it as reorganizing the organization and the org structure?

Michael Lazaridis

No, there's not a big -- there's not a reorg. No, there's no reorg. I mean, I don't have a specific number, but the headcount and the growth of sales we've had over the past few years has been -- and there's lots of triple-digit growth rates all over the place.

James Balsillie

Yes, we've been growing very quickly to meet our product growth, our sales growth, our globalization of the industry. And we've just been so busy growing and selling product, developing product that I think this is the right time for us to go back, to step back and just make the system more efficient.

Michael Lazaridis

Yes, it's just leaning out to reinvest, and any organization of this size growing that quickly is going to...

James Balsillie

You have to remember, I mean, gosh knows, I mean, what we have grown per year and in headcount and percentages over the last 5 years? It's been...

Edel Ebbs

[indiscernible].

Michael Lazaridis

Yes, so this is really a streamline. Plus, we want to make sure that we invest and we get the most productivity and that we have the right cost structure for the industry so that we can focus in on those areas. We don't want to be -- we don't want to just be able to do everything just because we can. So I would not call this a reorg. There's no reorg-ing of duties and there's no -- I wouldn't call this restructuring, because when you look at restructuring, it means that you're fundamentally lopping things off. That's not this at all. But do we expect people to reexamine what they're spending on in a 0-based way? Absolutely. Because we want to make sure we deliver profitability within our business model, and we also want to make sure that we have the resources and capability to invest in those things we want to grow. We really do believe we're still at very early beginnings in this whole smartphone revolution and in this corporate computing transformation. And we have a whole bunch of products coming out with NFC in it, and the opportunity and credentials and so on. It's just a huge future. So if we don't have an efficient organization and a flexible organization, one that will make investments at a business model that works, that's not helping anybody.

Operator

Your next question comes from the line of Rod Hall of JPMorgan.

Rod Hall - JP Morgan Chase & Co

Yes, thanks for taking my question, guys. I've just got a quick one and then maybe a clarification on something you said earlier. On corporate governance -- first of all, thanks for the comments on the leadership and the fact that you guys are getting along well. We appreciate that. The one thing I would ask, though, is we've seen other companies, like Google, moving away from these triumvirate, multi-headed structures and citing the fact that the industry is moving so quickly they really need to get to just one person making decisions. Do you guys feel like the co-CEO structure is the right one in this situation? Would it make sense to go to, I don't know, a single CEO and then somebody focusing on technology and come back to a co-CEO structure later? Or can you just give us some color on what you think about that, given the circumstances you're in? And then a clarification was, just real quickly, it looks like you guys are pretty significantly cutting your EPS expectations for the second half of the year. I don't know if I'm interpreting that right, but it feels like in that period, you're going to have the 9900 shipping and maybe some other products. So I'm just wondering why a little bit less optimism on the back half of the year, given that those products would be shipping by then.

Edel Ebbs

Well, I can take the second one first. I mean, the main difference in Q2, the further slip-out and missing some of these back-to-school windows, it's not like back-to-school comes back again in January. So once you miss it, you kind of miss it. So you don't get that opportunity again. So when you build all that into the model, that's where we come out with our new range. So it's just really hard to try to make up that extra bit in Q3 and Q4 when Q2 is still really feeling the same impact we saw in Q1.

James Balsillie

I mean, Rod, thank you for the question. And I mean, again, I guess I'll kick it off and let Mike put his view on it. I just don't think it's the issue. I think there are lots of issues and lots of things to pay attention to. I mean, we can happily talk about how we divvy duties, and then we can say how we coordinate that. The fact of the matter is I think I have expertise in what I do. I think Mike has distinctive expertise in what he does. I think there's parts that overlap, and we highly coordinate it. And I just don't know, if you sort of sit there and say, "Well, let's just change a business card,"...

Michael Lazaridis

I don't see how that changes anything.

James Balsillie

I don't think it changes anything what we got to do, and I don't think it changed -- so I mean, I'll let Mike talk for himself. We're answering on the fly. There's nothing scripted here. So I mean, I just don't know what that address -- I mean, you can look at issues we have to address, and believe me, I mean, we have an exciting task ahead of us. I've never worked harder. I've never been more committed. We've never spent more time together, Mike and I. This is a super-busy time. Let's make sure that whatever things we propose help us be more successful and not compromise what has to be done. I mean, Mike, whatever you think. I mean, I don't know.

Michael Lazaridis

Well, I just remember when you asked the question, we looked at each other and smiled. I mean, we work very closely together, and I don't know where all of these things are coming from. This is -- the thing you have to understand is, is this is fun. It's difficult as it gets. We are changing the world. We're impacting people's lives positively. We're bringing people closer together. We're making businesses more productive, more competitive. We're transforming the way we do our work. What else can we do to get this kind of opportunity in our lives? I mean, gosh, it's a huge responsibility. At least by working together, we're able to make sure that -- so we have this saying, it's called measure twice, cut once. You want to make sure that the decision you're going to make is the right one, and I think that Jim and I have that perfect balance to be able to make the really hard decisions.

Rod Hall - JP Morgan Chase & Co

Have you guys changed the way that you're divvying up duties at all, or it's pretty much just par for the course, just keep going as you've been going?

James Balsillie

Well, I mean, I would say the -- GR took on a different -- I travel a lot more than Mike does, I think, globally. I think it's a fair thing to say. And I think GR became something that became more important when there was all kinds of -- when BlackBerry just grew explosively. And quite frankly, last year, it was something like 500% growth of BBM or the time leading up to all of this. And so it became something that I spent a lot more time on. So I would say the divvying up, that came on my plate late last summer, and that's fine, because it fits with my travel more. I mean, Mike sees carriers, too, and he does his stuff, and I'm not trying to speak -- I'm not -- but I would say the marketing stuff, I spend a lot more time with. And that's getting more organized within our region activities, and I think that fits really, really well. I would say -- I mean, I won't speak on behalf of Mike, but I would say the application layer of the business has just become a bigger and bigger part as well as the hardware and the AirLink. So honestly, I think the challenges on Mike and the technology have grown. I mean like...

Michael Lazaridis

We did birth a tablet in one year.

James Balsillie

We birthed a tablet on a new OS. We did a monstrous upgrade with a midcourse change in processing of BB 7. We've got all these amazing things going on in credentials and enterprise...

Michael Lazaridis

Like a whole lineup of 4G PlayBooks.

James Balsillie

And development environment and the stuff you're doing, the search and stuff with Microsoft, the Adobe stuff. And Mike is navigating all of that. So at this platform, as what you expect from these things virgin -- you look at what you expect from these things now and tomorrow versus a year ago, quite frankly, it's exponential. So I think the load on getting this stuff out has become bigger. So I would say the birthing aspect and the navigating of the technology and platform is a bigger job than it was, honestly, 2 years ago.

Michael Lazaridis

Yes, but I feel we're in a far better position.

James Balsillie

We're absolutely in a far better -- but he asked the question how do we divvy up duties. I think that takes relatively more. I mean, you speak for yourself. I mean, I don't want to put -- I mean, I don't want to be presumptuous, but I do more marketing GR than I did.

Michael Lazaridis

And I'm writing a lot more application, work with the teams to write a lot more application [indiscernible], so yes. A lot more UI work.

James Balsillie

And you basically divvy up the jobs that need to be done [indiscernible] all day.

Michael Lazaridis

[indiscernible] the companies that we've acquired and try and manage all those teams.

James Balsillie

And you look at the acquisition. I mean, Mike, the TAT acquisition, you've got to manage that. The QNX stuff, manage that, with the OS, the guys at Documents To Go, the DataViz guys have done a great job.

Michael Lazaridis

Torch, and...

James Balsillie

Torch and the browser, like, those are all...

Michael Lazaridis

Cirticom, SlipStream...

James Balsillie

Cirticom...no, but those -- some go -- but honestly, I mean, I help make sure the deal...

Michael Lazaridis

Because they're all great guys. All these companies. When we met with them, they really wanted to come on board and be part of this.

James Balsillie

Yes, but Mike has got -- Mike, you have to spend a lot more time with these acquisitions and integration.

Michael Lazaridis

Absolutely.

James Balsillie

But that's part of -- if you were to define where the space was going 2, 3 years ago, we all knew it was growing. But I don't think -- I mean, let's be honest. The tablet space is barely a year old. But guess what, it's a wonderfully explosive space.

Michael Lazaridis

And smartphones are doing a lot more than you would have thought back then.

Rod Hall - JP Morgan Chase & Co

Great. I appreciate that.

Operator

Your next question comes from Kulbinder Garcha of Crédit Suisse.

Kulbinder Garcha - Crédit Suisse AG

I just want to ask a couple of questions with respect to both transitions. I guess one, on the guidance, there is this very strong ramp in earnings. And what I really want to get to is not so much what the earnings numbers are in either the third or fourth quarter. It's more of the visibility you have around carrier promotions for your new products. Are they all more or less agreed through the balance of this calendar year? And the reason why I'm asking is that -- and do you have a guaranteed kind of hero status at U.S. carriers or even global carriers that will ensure you have this very strong uptick in earnings? Or what stage are you at in those discussions? That's my first question. The second one is for Mike. You talk about this transition. You said that, I think, a few times that QNX could get room there for the next decade, or it could be the platform of choice. The one question I have is, as you start launching QNX phone or super-phone next year and then start bringing it down-market over time, what confidence do you have that you won't face a similar transition with respect to the demand for BlackBerry devices then and carrier subsidies won't shift, leading maybe a significant decline in the BlackBerry OS ecosystem and demand for volume as we go through 2012? So would that not present another risk? Or how is that going to be managed, I guess, is my question?

Michael Lazaridis

Which one first? I'll answer the question about QNX and super-phones. I mean, that's a very good question, and we have a plan to make sure that we both continue to perfect the BlackBerry experience and make sure that, that BlackBerry experience becomes available on our super-phones. And we're trying to very carefully navigate that transition. I think we've done probably the best job we could in the sense that we now have 2 very powerful platforms that are very perfectly evolved with the kind of markets they're going after and the kind of experience they're trying to provide. And plus, at the same time, we have an opportunity to really get into the high-end, high-performance platform that will allow us to have a, really, a common single platform in the future that encompasses smartphones as well as tablets.

James Balsillie

Yes, and I would say the carrier launches, I mean, the heat I get from carriers is like, "Hurry up and get it done, I want to give you orders. I want to give you -- I want to buy stuff from you, but get it done." I mean...

Michael Lazaridis

Well, they love the products. They've been playing with them.

James Balsillie

Yes, like, "Let's go, let's get it certified, let's get it done." I mean, their big issue is let's make sure we stay on schedule, because they line up programs. And so if the schedule will shift, it leaves them, and so -- and Mike can speak how hard guys are working to get these products out and get them on schedule, because...

Michael Lazaridis

That's a global organization now. We've got offices around the world. We literally are running 24/7.

Edel Ebbs

In terms of visibility, Kulbinder, I mean, we obviously have a plan. We have a carrier rollout plan for all our different products and when they're going to launch and what types of programs they're going to be in. But as Jim said, you can have all those plans in place, but if there is a delay of some sort, you can still miss a window. But we've taken a bunch of different scenarios when we come out with the guidance range that we put out there. So I mean, there's absolutely room for that. But I mean, it's not like everybody's locked in 12 months out. But there's a lot of puts and takes that can happen in there. And so the key thing is to get the products out so we can make it into the programs that people have committed to.

Kulbinder Garcha - Crédit Suisse AG

Well, I guess that's what I'm getting at, though. Let's say for Q4, the calendar Q4 of this year, the key selling season of the year. Do you have most of those agreements for the new products? I normally -- I was under the impression that normally as we head into June and July, that the second half of the year starts to get firmed up for most vendors. Is that the case? Are you given these [ph] product delays or not, I guess, is my question.

Edel Ebbs

Do we have commitments for the holiday programs, is that what you're asking?

Kulbinder Garcha - Crédit Suisse AG

Yes, yes, for the new products, yes.

Michael Lazaridis

Yes, we have all kinds of programs locked in.

James Balsillie

And we've got ongoing discussions as well.

Michael Lazaridis

For sure.

Edel Ebbs

And the question of getting the products out, soon as you get them out, then you get in the program.

Michael Lazaridis

Well, no, you got to finish certification.

Edel Ebbs

Yes, okay. Certification.

Operator

Your final question comes from the line of Jim Suva of Citi.

Jim Suva - Citigroup Inc

Since a lot of the questions have been asked already about the restructuring and that, I thought maybe I'd focus on a different item, and that is on the carrier relationships. Has there been pressure on your monthly carrier ARPU pressure or, importantly, the carrier certification changes about getting things technically through to carriers? It just seems like other handset vendors are pumping through products left and right and getting them certified. Or is just BlackBerry 7.0 just that much more complex? And why can we not expect that to happen again with QNX? What's going on with the carrier relationships?

Michael Lazaridis

Well, to answer that question -- I thought I answered that, but let me try and describe it. So the thing that happened was we went to a new platform, an upgraded platform that provided far more powerful performance and graphics capability and high-resolution screen and HD video and a whole bunch of other things. And that was a new platform. And so we had to -- when we got into certification, we discovered new problems that weren't there in our previous platform. And that's really one of the things that delayed us. What's interesting, though, is that because of this -- because we've standardized on this platform and we're using it across our high-end products and much of our mid-tier products, what's that done for us is allowed us to create the largest certification program in our history. So we literally were able to get all these products into certification across 23 carriers around the world and the U.S. So I mean, that's the thing that is really the big achievement for us. I mean, we've grown as an organization. We've become experts at producing these kinds of products and get through certification. And so we've been able to bring all that experience and talent and process to bear on this, and I think it's been very, very successful now that we've gotten into certification and we've gotten through those last-minute unexpected issues we had with the new platform.

Operator

Ladies and gentlemen, this does conclude the question-and-answer session. Ms. Ebbs, please continue.

Edel Ebbs

Thank you. Thanks for joining us today. There will be a replay of the call available on our website at rim.com/investors. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation, and you may now disconnect your lines.

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