Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Adele Ebbs - VP of Investor Relations

Jim Balsillie - Co-Chief Executive Officer, Chairman

Brian Bidulka - Chief Accounting Officer

Analysts

Gus Papageorgiou - Scotia Capital

Mike Abramsky - RBC Capital Markets

Paul Coster - J.P. Morgan

Brant Thompson - Goldman Sachs

Jeff Kvaal - Lehman Brothers

Michael Ounjian - CSFB

Ron Sanderson - American Technology Research

Andrew Neff - Bear Stearns

Maynard Um - UBS

TRANSCRIPT SPONSOR

Research In Motion Limited (RIMM) F1Q08 Earnings Call June 28, 2007 5:00 PM ET

Operator

Good evening ladies and gentlemen and thank you for standing by. Welcome to the Research In Motion First Quarter Fiscal 2008 Results Conference Call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session, instructions will be provided at that time for you to queue for question. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on Thursday, June 28, 2007, at 5:00 p.m. Eastern Time.

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

Adele Ebbs

Thank you, and welcome to RIM's fiscal 2008 first quarter result conference call. I am Adele Ebbs, RIM's Vice President of Investor Relations. 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 the business and strategic update. Brian will then review first quarter results and I will discuss our outlook for the second quarter of fiscal 2008. 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 by 6:00 PM Eastern Time this evening.

Some of the statements that we'll 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 expectation and estimates with respect to revenue, gross margin, operating expenses, regular stock option expense, CapEx, depreciation and amortization, investment income, earnings, earnings per share, and ASPs for Q2 and beyond.

Our expectations regarding RIM's near and long-term tax rates, our estimates of the number of BlackBerry subscriber accounts, subscriber account additions, replacement device sales, and other non-financial estimates. Our product development initiatives and timing, developments relating to our carrier partners, new and expanding markets for our products and other statements regarding our plans and objectives.

We will indicate forward-looking statements by using words such as expect, anticipate, estimate, may, will, should, forecast, intend, believe, 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 intellectual property, our ability to enhance the current products and develop and, bring to market new products. Risks relating to our internal review of our stock option granting practices, the restatement of our previously filed financial statements after results [the review], and regulatory investigations or litigation regarding those matters.

Our reliance on carrier partners to grow our BlackBerry subscriber account base and to accurately report subscriber account activations and deactivations to RIM on a timely basis; risks relating to competition, risks relating to possible product defects and product liability, our reliance on suppliers, our ability to effectively manage our growth, risks related to our dependence on a limited number of significant customers, risks associated with our expanding foreign operations, general economic conditions, foreign exchange risks and other factors set forth in the forward-looking statements section of today’s news release and the risk factors in MD&A sections and 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.

I will now turn the call over to Jim.

TRANSCRIPT SPONSOR

Tech-Stock Prospector seeks out promising small- and large-cap technology stocks offering a combination of growth and value. The research service is made up of Daily Online Updates at TechStockProspector.com, Action Alert e-mails and a 12-page monthly newsletter.

Editor Robert DeFrancesco, formerly senior writer at Louis Rukeyser's Wall Street, has covered the tech market for 15 years. He uses both fundamental and technical analysis to put together two long-term model portfolios. Tech-Stock Prospector also offers Trading Ideas and maintains a Watch List of potential additions to the portfolios.

To sponsor a Seeking Alpha transcript click here.

Jim Balsillie

Thank you, Adele. Fiscal 2008 has gotten off to a great start with revenues subscriber account additions and earnings all exceeding the range as we discussed on the last call.

The strong performance was driven by new product launches such as the 8830 World Edition, BlackBerry Curve and BlackBerry 8800,channel expansion, and strong growth in both the North American and international markets.

Today, we also announced a 3-for-1 stock split in the form of a stock dividend. We believe, we will continue to grow significantly over the next several years, and this stock split will make the share price more accessible to investors.

We added approximately 1.2 million BlackBerry net subscriber accounts, during the quarter, which was higher than our April forecast of 1.125 to 1.15 million and was 18% higher than the 1,020,000 subscriber accounts added in Q4.

We shipped a record number of devices and we expect to ship our 20 millionth BlackBerry device this summer.

The revenue up performance in strong net subscriber account additions was driven by stronger than forecast device shipments, new product launches and continued Pearl and 8800 success.

In Q1, the BlackBerry 8800 was in market with multiple carriers with a first full quarter, since launch. This product is driving very strong upgrades, we are also seeing success in terms of new subscribers adopting the device, both for business and personal use.

Pearl continues to be heavily weighted to new subscribers and the recently launched Worldphone is generating a high proportion of new subscribers.

While it is early days for the Curve, we are seeing a good mix on both upgrades and net new subscriber account additions with this product.

Verizon launched the 8830 Worldphone this past quarter, in all B2B and retail channels at a very attractive $199 price point. They've been experiencing strong growth since launch, and we expect this to continue, as they begin an extensive advertising and promotional campaign to support the product this quarter.

In the first month after launch, Verizon saw almost a doubling in enterprise subscriber accounts and an even larger increase in BIS subscriber account additions.

The 8830 was also announced this week at Sprint and Bell Canada.

Earlier this month, Sprint also made AOL instant messenger for BlackBerry available to its customers. This downloadable Java application provides a true AOL instant messaging experience on BlackBerry handsets from Sprint, with fast message delivery and presence notification.

The BlackBerry Curve was launched near the end of the quarter and has just begun to ramp in Q2. The device weighs only 3.9 ounces, offers innovative features and enhanced multimedia capabilities, while maintaining exceptional battery life.

The BlackBerry Curve is the first BlackBerry handset to offer a 2 megapixel camera and spell checker for email, and the addition of the Roxio multimedia player provides an enhanced multimedia user experience.

The Roxio media manager software allows users to easily search for media files on their computer, view and organize them. Create MP3 music files from CDs, add audio tags, create playlists and automatically copy or convert pictures, music and videos for optimal playback on the device.

AT&T was the first carrier to launch the BlackBerry Curve in North America bringing it to market across all sales channels at initial price point of 199. RIM and AT&T hosted a launch event in Beverly Hills to promote the product and received broad coverage on entertainment shows such as Entertainment Tonight, Access Hollywood and Extra. Numerous print and online publications also covered the event.

Promotion of the BlackBerry Curve will also be achieved through BlackBerry sponsorship of the John Mayer Summer Tour and the Curve will be the exclusive device featured on site during the tour. The tour began on June 1 and will run through August as part of the sponsorship. All concert goers will have the opportunity to experience the features of the BlackBerry Curve on the AT&T network at one of the many onsite experience centers set up at the concerts. In addition to this and other BlackBerry Curve T.V., print, and online campaign ad promotions will continue in July and August.

Reviews of the Curve have been exceptional. As Mike Elgan at Computerworld aptly put it "RIM has taken the best feature from every phone it's ever sold and built them into a single device." And the phone of year will earn its position at the top of the old fashion way, not because it is the most revolutionary gadget, but because it will probably be the best phone." "The BlackBerry Curve has the mark of destiny upon it."

T3 Magazine said, "Slim, sexy and oozing business class smartphone skills, BlackBerry's new Curve is a dream to hold. It's obviously smaller than its e-mailing ancestors and attracts envious eyes every time it's whipped out in public."

Ed Baig at USA TODAY, certainly got it right when he said, "One thing is clear BlackBerry is no longer all work and no play, 3-1/2 stars out of 4."

In Canada, Rogers launched the 8800 during Q1, subsequently also launched the Curve. Both products are performing very well and have exceeded expectations in terms of the subscriber account growth they are generating. In addition, beginning at the end of May, Rogers launched a promotional campaign for the red Pearl that will run through the summer, and is expected to drive meaningful growth at this carrier.

International markets are continuing to be significant contributors, and the percentage of our base from these markets is now over 30%.

In Europe, we're seeing excellent performance throughout, but in particular, in Italy and the UK. 8800 and the Pearl are widely available at carriers in mid region. And we are anticipating a number of Curve launches in the coming months. European carriers continue to be the most aggressive in terms of innovative service pricing and introductory pricing plans. And this is reflected in the strong growth we see in this market.

Latin America remained an important growth market for BlackBerry, there are now several carriers offering all three color variance of Pearl, and supporting the products with aggressive promotional and advertising campaigns. This is translating into excellent subscriber growth, particularly in the bid segment where approximately 10% of overall new bid subscriber accounts came from this region.

India was a strong growth engine this past one quarter, with excellent Pearl performance and the launch of the BlackBerry 8800 with GPSK facility, whose further stimulating sales in the corporate and professional segments. And BlackBerry Curve was also just launched a few weeks ago in India, and has been very well received by reviewers and customers. The adoption of BlackBerry data applications and solutions beyond email is driving perfect growth in the Indian market. And our carrier partners in the region have continued to offer BlackBerry with aggressive price plans and both hardware and service designed to drive penetration within the prosumer and SOHO segments.

RIM continues to strengthen the China mobile relationship, and BlackBerry awareness in China.

In Q1, RIM obtained BlackBerry Device Certification or finalizing delivery availability in the Mainland. We are excited to move forward for the BlackBerry to corporate customers in key cities such as Beijing, Shanghai and Hangzhou where there is strong interest in the BlackBerry solution.

In Japan, RIM announced plans to offer Japanese Text Support with NTT DoCoMo and we expect this to further increase BlackBlerry appeal to the market.

Since last quarter, we've added over 20 new carrier partners in markets around the world, bringing the total of networks offering BlackBerry to almost 300.

New carriers this quarter include, Maroc Telecom in Morocco, Global in Bulgaria, Milcom in a number of Latin American properties, CloseCall in the US and Antel in Uruguay.

We are experiencing very strong growth in our BIS customer base across all regions and in the quarter BIS activations and this quarter BIS activations were close to half of all application activations globally.

BIS users now represent 29% of the total subscriber account base. This growth is being driven by more consumer friendly devices such as Pearl and the Curve, as well as our ongoing channel expansion initiatives, and support by our care partner through promotional programs, advertising campaigns, to broader market segments, aggressive BIS pricing plans a very high consumer adoption rates in Latin America.

Our reach in indirect channel continues to expand, in the past quarter we had BlackBerry availability in over 200 Sam's Club kiosks throughout US. We are also working with large distributors around the world to bring BlackBerry to an even broader audience.

We are pleased to have recently announced that we entered into an arrangement with Carphone Warehouse for the distribution of BlackBerry in Europe.

The Carphone Warehouse is the largest independent mobile phone retailer in Europe with approximately 2,100 stores in 10 countries, including 790 in the UK.

Other countries which Carphone warehouse has a presence includes Belgium, France, Germany, Ireland, Netherlands, Portugal, Spain, Sweden and Switzerland. We are optimistic this relationship will further drive the penetration of BlackBerry into the broader consumer and prosumer markets in these regions.

This past quarter, RIM hosted the Sixth Annual Wireless Enterprise Symposium in Orlando. The event was a tremendous success, with 128 sponsors and more than 3,700 participants for the three-day event. This year, we hosted our first global, our first carrier summit at the WES and response is overwhelming, with over 750 global carriers represented in attendance.

The BlackBerry Alliance Program continues to expand and we now have over 650 members that build, sell and deploy applications and services on BlackBerry.

Many new and exciting enterprise in lifestyle applications were introduced over the quarter including those from Chalk Software, Flowfinity, Impatica, Infinity Software, Javatek, SHAPE Service, Soluteo, Sybase 365, True context and Voice on the Go

Our annual Alliance Summit was held this year at the WES and there were 400 partners in attendance and 87 exhibitors in our solution showcase.

During Q1, we shipped record volumes of the Ascendent PBX integration software solutions. Sales occurred through multiple distribution channels for installation and organizations ranging from large enterprise to local government. Additionally, we've engaged in discussions with multiple new wireless and wireline carriers regarding boarder distribution of our voice capabilities.

Receptions from carriers and customers of our voice mobility solution has been encouraging and we just recently announced PBX mobile extension with Verizon, which uses the Ascendent Voice Mobility Suite to allow Verizon Enterprise customers to turn any phone or mobile device into a mobile extension of their desk phone regardless of the private branch exchange or their PBX infrastructure.

Q1 saw the announcement of our plans to expand support for Windows Mobile-based devices with a new software application suite that will enable devices from third-party manufactures to benefit from BlackBerry software applications and services. RIM plans to begin offering the new software application suite later this year for select devices based on Windows Mobile 6.0. Once installed, the software will provide users with a virtual BlackBerry experience, including support for BlackBerry email phone, calendar, address book, tasks, memos, browser, instant messaging and other applications developed for the BlackBerry platform.

Devices running the BlackBerry application suite will be able to connect to BlackBerry services, by a BlackBerry Enterprise server as well as the BlackBerry internet service.

During Q1 five new carriers adopted BlackBerry Connect and 13 new devices launched including three devices launched by Dopod, two new devices from Nokia, and a new device from Sony Ericsson. BlackBerry Connect also successfully launched from the Motorola Q with Nokia at the end of this quarter. This represents RIM's first CDMA launch of a BlackBerry Connect application.

In terms of business outlook for 2006 Adele will give detailed guidance for Q2 call later on the call. I would like to comment generally about our expectations for the remainder of fiscal 2008. The momentum we are seeing in terms of product launches, carrier support of BlackBerry and subscriber additions is exceptional, and we believe that it will continue into the second half of the fiscal year.

We are continuing to focus on the opportunities to drive top line growth and operating leverage in our business model and we believe this is realizable as we move forward in the second half of 2008. I will now turn the call over to Brian to review the financial results for the first quarter.

Brian Bidulka

Thank you, Jim. Revenue for the first quarter ended June 2, was $1.08 billion, up 16% from $930 million in the previous quarter. Handheld devices represented $824 million, or 76% of RIM's revenue during the quarter, up from the 73% of total revenue in the previous quarter. Total devices shipped in the quarter were approximately 2.4 million, and were up from 2 million in the prior quarter. Approximately 2.2 million new devices were activated in the Q1, either for new customers or for replacements and upgrades.

This does not include devices that were sold through with our BlackBerry service plan, which we estimate, can be as high as 25% to 35% of carriers who sell Pearl and Curve [this one] only. Ratio of devices activated and net subscriber account additions increased slightly from Q1 as replacement and upgrade sales continue to increase. We expect this high level of upgrade sales to continue as their subscriber account base grows.

Based on our sell-through forecast, four weeks of inventory were down slightly quarter over quarter. We expect this trend to continue into Q2. As expected, average device ASPs were in line with our expectations at approximately $341. We expect ASPs in Q2 to be flat with Q1.

Service revenue was $174 million or 16% revenue for the quarter, up $2 million from Q4. Software revenue was $54 million, or5% of revenue, consisted of BES and CAL fees as well as TSupport contracts. Other revenues such as repairs and accessories was $30 million or 3% of revenue.

Gross margin for the first quarter was 52%, which is at the lower end of the range we got it in April. The primary factor influencing this was a larger percentage of revenue coming from hardware.

As we've discussed in the past our expectation is that increase in hardware revenue will have a downward impact on gross margin.

Operating expenses increased by slightly less than we had forecasted last quarter.

R&D spending was $75 million or 7% of revenue for the quarter and selling, marketing administrative expense increased by 6% to $177 million or 16% revenue.

Given the recent run-ups in the Canadian dollar, I would like to take a minute to address the impact of foreign exchange fluctuations on our operating expenses. Our largest operating expense exposure to the Canadian dollars are payroll, however we do have some offset in Canadian dollar revenue as well as the program in place to hedge a portion of the exposure. This does not insulate us to 100% and while we continue to hedge our exposure this may result in us entering into forward contract of more or less stable rates overtime.

In the short-term however, the expected impact of Canadian dollar fluctuations on operating expenses is minimal.

The tax rate for the quarter was approximately 26%. This is lower than our forecast 30% due to the impact of the depreciation of the US dollar versus the Canadian dollar and certain US dollar denominated net assets and the fact that the majority of our tax were payable in Canada.

GAAP net income for Q1 was $223 million or $1.17 per share diluted, excluding regular stock-option expense of $5 million. Adjusted net income was $228 or $1.20 per share diluted. This is higher than we forecasted on the last call, due to the stronger than expected revenue, slightly lower OpEx, and the favorable foreign exchange impact on our tax rate.

As we mentioned on the conference call last quarter, going forward, we will only report GAAP net income and GAAP earnings per share.

Weighted average diluted shares, used in the preliminary in the GAAP EPS calculation for the quarter were 190.4 million. Actual shares outstanding at June 2nd were 186 million.

Total options outstanding at June 2nd, were 6.3 million.

RIM's balance sheet continues to be strong with substantial cash reserves and appropriate working capital balances. At the end of the first quarter, RIM had approximately $1.6 billion in cash, cash equivalents and investments. This was up $150 million from the prior quarter.

During the quarter, RIM generated approximately 225 million in cash from operations. The primary use of cash in the quarter was capital expenditures approximately $67 million.

From a working capital perspective, trade receivables were up from the prior quarter, and DSOs increased to 50 days in the prior quarter. As discussed last quarter, this increase is in line with our expectations due to payment terms trending longer in the industry particularly in international markets.

Inventory on hand was approximately flat at $259 million versus $256 million in the prior quarter. Inventories continue to be primarily raw materials and semi-finished goods to support demand for current and upcoming product launches.

I will now turn the call over to Adele to discuss our outlook for Q2.

Adele Ebbs

Thanks, Brian. Before I discuss our 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 a context of the risk factors listed at the beginning of the call, and outlined in our public filings. I'd also like to remind you that we will be only providing earnings guidance on a GAAP basis going forward. Beginning with the second quarter guidance I will give today.

We are forecasting revenue for the second quarter of fiscal 2008 to be significantly higher than Q1, in the range of 1.3 billion to 1.365 billion. We expect hardware shipments to be over 3 million units, and to be a larger percentage of sales in the second quarter. The expected increase in volume of shipments in Q2 is due to continued strong demand for recently launched products such as Curve and 8830, the ongoing success of Pearl and 8800, as well as, preparing carrier should be substantial [add-on] marketing programs being scheduled. We expect software revenue to increase modestly in Q2.

We are targeting net subscriber account additions for Q2 to be in the range of 1.325 million to 1.375 million. We are typically expected to see seasonality in our fiscal second quarter relating to holidays in the summer months, particularly in Europe. August is the month with the largest expected impact from this. There are number of factors that lead us to believe that it's reasonable to expect a lower level of seasonality this year.

The launch of the 8830 and Curve that has just started to ramp in Q2, the higher proportion of subscriber account additions that now comes from consumer and prosumer segments and the aggressive promotion and pricing programs our carrier partners have planned throughout the summer months. Based on this and the average run rate of over 100,000 subscriber account additions per week that we've seen thus far in June, we believe this is a reasonable range to expect the net subscriber account additions.

We expect gross margin for Q2 to be approximately 51%, this is slightly lower than Q1 due to the expectation of a higher percentage of hardware revenue in the mix. We expect the total operating expense increase for Q2 of approximately 11% to 12% from Q1 level we expect R&D to increase by approximately 11% and continue to be approximately 6% of revenue.

We expect sales and marketing and administration expense to increase in Q2 by approximately 11% to 12% and decline as a percentage of revenue to about 15%. We continue to believe that we will be able to drive further operating leverage throughout fiscal 2008.

We estimate regular stock option expense to be approximately $7.5 million in Q2, this is slightly higher than in prior quarters due to an increase in compensation expense related to the movement of two of RIM's directors to Director Emeritus status and is discussed in RIM's management information circular.

We expect regular stock options expense to return to more normal levels in Q3 and beyond.

Our GAAP financial statements will have stock option expense allocated to the appropriate cost of sales and operating expense accounts and our OpEx guidance includes stock option expense allocated to the appropriate line items.

We expect depreciation and amortization to be approximately $26.5 million to $27.5 million in Q2, higher than Q1 due to ongoing CapEx. We expect CapEx to be approximately $120 million in both Q2 and Q3.

Investment income is expected to be in the range of $19 million to $19.5 million in Q2. We expect the tax rate to return to a more normal level of approximately 30% in Q2 and to remain at this level for the remainder of the year. Beyond fiscal 2008 we would expect the tax rate to decrease slightly.

We expect Q2 GAAP EPS to be in the range of $1.37 to $1.49 on a pre-split basis and $0.45 to $0.49 per share, reflecting the three for one stock split that was announced today.

I will now turn call back to Jim.

Jim Balsillie

Thank you Adele, and thank you Brian. We are pleased with the market leadership and financial performance we've demonstrated in Q1. I will reiterate, we are looking forward to imminently passing the 20 million device shipment mark for BlackBerry this summer and continuing to achieve strong results for our shareholders throughout the remainder of the year.

This concludes our formal comments. Due to the large number of people on the call we ask that you please limit yourself to one question per person. We plan to end the call today by approximately 6 PM.

Would the operator please come on to handle questions?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we will now conduct a question and answer session. (Operator Instructions).

Your first question comes from Gus Papageorgiou from Scotia Capital. Please go ahead.

Gus Papageorgiou - Scotia Capital

Thanks, just question on subscriber additions that you are saying that over 30% of your subscribers currently are ex-North America. If I'm doing my math correct that's just a non-quarterly subscriber addition basis of roughly 43% of the subs added this quarter, came from outside North America, is that roughly correct?

Adele Ebbs

It sounds a little high Gus, we'll just take a little loss, we don’t break it out in that kind of detail, but we'll just take a little look and get back to you.

Gus Papageorgiou - Scotia Capital

Okay, thanks.

Operator

Your next question comes from Mike Abramsky of RBC Capital Markets. Please go ahead.

Mike Abramsky - RBC Capital Markets

Yeah, thanks and congrats on the great guidance and momentum. Lot's have been made of the iPhone effect, clearly a lot of focus on that, yet Adele hinted in her comments and I think, Jim you as well did actually to maybe some real positive momentum that comes out of that, one is Adele's comments on the carrier partners, planning some initiatives in coming months and I was wondering if you could comment on the potential positive impacts given the traffic that certainly Singular is going to see coming into its doors as well as potentially what some of the carriers maybe doing with BlackBerry starting this Friday given the iPhone.

Jim Balsillie

Well, I think I've said before, I think they did a great favor, because they drove attention to the converged appliance space and particularly that you should expect media as a software app on your converged smarthphone which we've built, clear market leadership and so I think the awareness and interaction they built there is really key. iPhone is launching, to the best of my knowledge in one carrier and one country and we're in about a 100 countries and 300 carriers, so to the extent there is interest there. There is another 109 countries that are interested in these kinds of things, for purposes of rest of the market.

I think, we all know, the other dynamic is obviously with one carrier and the US has multiple carriers that creates a bit of response dynamic, I would think. And it's very, very important to understand that device by AT&T is being launched, is a very narrow subset of their channels, which is the AT&T only stores and some Apple stores and the interactive, the overwhelming majority, I don’t have quite the numbers, but I think its well in excess of two-thirds, three quarters, anyway of their storefront, who are really looking for activations in this space. So, there is lot of competitive response, there is global reach, there is channel, support and then obviously you go to just peer product features and price point and reliability and general execution etcetera like that.

So, I think we welcome, we've always had open competition in our space. This is not different, consumers benefit from it, and we welcome it and we think that the attention to it is, and it's impact on the dynamic has quite frankly been overwhelmingly positive to our business.

Mike Abramsky - RBC Capital Markets

Thanks, Jim.

Operator

Your next question comes from Paul Coster of J.P. Morgan. Please go ahead.

Paul Coster - J.P. Morgan

Yes. Thanks very much. The products and service line-up that you have today is that the line-up that we should be expecting going into the fall and holiday season or are we going to see new products and services coming, thick and fast in the manner that we've experienced over last six months? Thanks a lot.

Jim Balsillie

Well, we view the summer as a time to go double speed when everybody is relaxing. So, I think you are going to see some very, very positive and compelling and in some respects very unexpected extensions to what we are doing this autumn.

Paul Coster - J.P. Morgan

And can you give us any color around would that be the consumer enterprise space or should we just stay posted?

Jim Balsillie

Paul, we've given some enterprise guidance on the BIS because that just comes from natural roadmap. But I think you are going to see a lot of stuff on media and consumer and devices. I think really stay tuned, I think you are going to see, our whole model is make the career platform, OEM or stuff through the career. And careers that have a true convergence play, we don't want to be disintermediate it by third parties have generally engaged strategically with us and there is two or three incredibly what we think are incredibly powerful launches perhaps this summer. So, this autumn, in addition to what we launched recently. So, I can't really tip by hat to it but a couple of dozen people don't see coming.

Paul Coster - J.P. Morgan

Okay, thanks very much, Jim.

Operator

The next question comes from Brant Thompson of Goldman Sachs, please go ahead.

Brant Thompson - Goldman Sachs

Hi, I was wondering if you can give us some more color on the average revenue that you are getting per user on the services business, on a monthly basis and how should we expect this to trend? Its been quite stable for going on four quarters now? And just wanted to get an idea of what level of decline we should be modeling given the mix of subscribers coming in from the consumer market. Particularly, given that over the last four quarters, we just had a tremendous amount of stability in this number? Thank you.

Adele Ebbs

Thanks Brant, its Adele. Yeah, I think that the ARPU number you are right that, the more consumer bills customers that we add, it does bring the average down. I mean, I think that it has been fairly steady and as we said at the Analysts Day, we think it is going to continue to come down somewhat. But primarily related to adding on bills customers, there are other non-enterprise customers. The overall enterprise rate has started to stabilize a fair bit. And I think that for your modeling purposes, I would have a decline in somewhat overtime, but not at a very steep rate. Does that help? In this quarter, we don't give the actual ARPU number, but I think if you run the calculation, we had last quarter, if you remember we had the service revenue, but with a pick-up in that line. So, if you back that number out we had a fairly flat ARPU last quarter, I think it is down slightly from there.

Brant Thompson - Goldman Sachs

So, should we be thinking about the decline rate that's low single digits?

Adele Ebbs

You're saying low single digit percent decline in ARPU? Yeah, I think that's fairly reasonable.

Jim Balsillie

Well, and there is some little bit of changes that go on with volume, but we don't see anything dramatic shifting, right now. And there might be some product mix strategies that could pick it up.

But then also, when we go to variable BIS which are sort of with those high growth, it can just sort of be at a lower thing, but then just pop-up a couple of months later with the overwhelming majority, really popping the flat rate plan. So, there is a lot of dynamics at hand, and I think Adele's safe in what she's sort of over arching modeling. But there is a lot of different dynamics at play. The good thing is this one, it's not changing dramatically, and there is really high adoption of what we do, you know the model really stays consistent.

Brant Thompson - Goldman Sachs

Okay, thank you very much.

Operator

Your next question comes from Jeff Kvaal of Lehman Brothers. Please go ahead.

Jeff Kvaal - Lehman Brothers

Yes thanks very much. I was hoping to build on the product line announcement discussion a little bit. So, I think our Q4 a bit of an upgrade in the UMTS arena, I am wondering if that is some of that is on the radar screen, and if so should we be thinking about any change to the device margin structure as a result, if that becomes a larger piece of the mix.

Jim Balsillie

I mean UMTS, we definitely support all the different air links that are out there, and definitely UMTS is one of the things that one could expect to see more of -- I me we have 8707, and its not dramatically different in any sense of margin structure. HSDPA, HSPA something that one needs to support imminent, and there are different spectral situations in parts of North America and parts of Asia there that are different from Europe. So, that's an important development stuff but that's -- that's the kind of thing that could be among [hot sweet of] positive product developments that one could see, that might be more winters in autumnish depends on certain things that would also be a fairly predictable extension, I don't think that would shock anybody. So, but that's one of the areas that one could expect some substance of development.

Jeff Kvaal - Lehman Brothers

Okay. And the margins would we notice that or would it just be the blending?

Jim Balsillie

I think it would stay, would be higher ASP kind of thing, because they are more expensive to make generally. I don't think there would be any material difference in the margin structure.

Jeff Kvaal - Lehman Brothers

Thanks Jim. And if I could ask, when might we see some local language devices in the China market as you alluded?

Jim Balsillie

I think we have that now. We have lot of local language stuff there now. And we've put all -- a bunch of different inputs and I get it wrong when I say it, but the stroke type stuff. But I think real product architecture is a biggie to think of in China, because they are not use to sort quality in some parts of the market, some of them are. So how we use BlackBerry Connect and how we support TD-SCDMA. Our point of considerations there and we have a couple, incredibly good partnerships there. But there is also a real strong quality demand and quality input on partnership there so. Yeah we have localized stuff for China for sure.

Jeff Kvaal - Lehman Brothers

Okay. Thanks very much.

Jim Balsillie

Okay.

Operator

Your next question comes from Michael Ounjian of CSFB. Please go ahead.

Michael Ounjian - CSFB

Great. Thank you. Jim could you just talk a little bit about where you are on the enterprise side in terms of, just your penetration of the subscriber base for applications beyond email. And then just looking more broadly, obviously there is a huge amount of momentum outside of the North America here. At what point might we start to get more detail on sort of the mix between Latin America, Europe and Asia given, again how broad now the carrier relationship…

Given help (inaudible) now they carry a relationships, are there in the size of the base.

Michael Ounjian - CSFB

Are you talking on ops or just general growth.

Jim Balsillie

Beyond -- I am talking, when you talk international.

Michael Ounjian - CSFB

No I'm talking about odd now this is the subscriber base and growth.

Jim Balsillie

Well, the growth there. I think about 70 odd percent of the [bases] is to pass data beyond emails so, I don’t know a 110,000 odd or 120,000 odd out there so. And if you actually saw the applications you'll be blown away, like for instance there's Latin American country with grain farmers and I don’t know you'll come public with it but they have like a couple thousand and this is the only internet terminal they run their farms on the BlackBerry. And they are going to, it's planed to ramped out about 30,000 farmers and this is just sort of one co-op one region in one country and they are just thousands of these kinds of stories. So, the [MDS] stuff is really quite dramatically powerful and certainly in North America and we are seeing a lot in the B2B side, it sort of complements the B2B like things like little maps and Yahoo! Go and stuff like that. And as well we got the mobile voice server and that sort of PBX and sync with the TDM and like EPBX this is big. We just route packets and we present them. So it's an interface layer on both sides and a whole lot of security and transport management along the way and then you see it as an application but really you’re routing packets and with the development environment so, your applications are everything. And the adoption, it took two or three or four years to really get -- MDS to really get some momentum, two or three, but it's just going fantastic and I see it continuing to accelerate, both on the consumer and on the enterprise.

The growth, I mean, there is tremendous growth, and we track them by carrier, by device, by application, by day. And so, you really monitor it carefully, align with your products and your programs and we are definitely seeing really strong growth everywhere I am really pleased with regions that are starting to get stronger-and-stronger, which is sort of southern Europe, Latin American, Asia are growing real-real fast, but worldwide the Western Europe, sort of the northern part of Western Europe and North America really, I just, there is such a big base and they are moving so well, you know, there is a couple products that have just popped out lately and we are hard pressed to find the channel that's not sort of firing on all cylinders or just about all cylinders.

And normally, and what we do, we are kind of managing the portfolio, of 60% of your carriers are doing great and 20% are doing okay, and 20% got issues and net-net it’s a pretty good portfolio. I am hard pressed to articulate one carrier that isn’t really performing well or just a heartbeat from going really well. So, that normal sort of 20% lagger is almost kind of non-existent right now and you can talk a lot about Latin America, you can talk a lot about Asia, you can talk a lot about Southern Europe, which are delighting us, but the big numbers are still coming from North America and Western Europe, because there is such a big economy and such a big base. And at the core we are at early innings of the big gamers here.

Adele Ebbs

I just want to also get back to Gus on his international question I think Gussy had asked whether based on his calculation he had 42% of subscribers in the quarter coming from non-North America. I'm not going to give you the exact number but I would say that that's a bit high. But it's not way out there. And I just also want to say that Latin America is also included in that non-North American number when we give it.

Operator, we'll take the next question.

Operator

Next question comes from Ron Sanderson of American Technology Research, please go ahead.

Ron Sanderson - American Technology Research

Hi, thanks and congratulations on shipping a $20 million device here pretty soon. So, I guess with that, I get a lot of questions about really what's the real opportunity here and where we are on the penetration sort of Yardstick, so your uncertain question that you get, asked a lot as well. How would you encourage investors to really think about this and specifically how do we and where we need to think about how to quantify sort of where we are going and then as to where we are at?

Jim Balsillie

Well, I mean, that's a really good question and that's sort of the real sort of technology future as a little bit. I mean, I sort of look at it this way. The cell phone went from 0 to 2 billion in 20 years, which is I think by a long shot the most fast adopted product in history they all have been essentially nobody every ditched the product. So, it's the stickiest product ever too.

And to what extent does some one want that appliance to have fossil data constructs to it. And that's really and I think here on the B2B, we are really getting some good adoption there, but Adele mentioned that, you know, about half of our sales just were unbill.

So, that we'll see adjacency is just starting in this very high end, in the media aspects are just being known and so, I think sizing it sure you can have a lot of fun with it. The way I look at it, it's an awful lot for us, and each year it's more than it was the previous year that we have to address. And when you are in our position, you are looking for addressable opportunities, and there is more than we can eat right now. So, and it seems to be like that for a while to come, and beyond that its speculation but its hard not to sort of characterize this is very meaningful market with a lot of trends supporting it.

Operator

Your next question comes from Andrew Neff of Bear Stearns. Please go ahead.

Andrew Neff - Bear Stearns

Sure, I guess three quick things: one is, just when you look at -- you talked sort of about the eyes on the floor. Can you talk about your thinking about the touch-screen capabilities that's something is important at some point?

Two, just to understand the pricing strategy, its over the 8800 pricing versus the current pricing?

And last, I guess the seasonal nature obviously there is new products which account for this year. As we look out beyond this year, we would presume and as here we -- seasonally what I guess, should we presume that is that backend or is there more coming on of course we have a good buck this seasonality?

Brian Bidulka

I think clearly (inaudible).

Adele Ebbs

Yeah, just let me make sure I understand what you are asking because we are not expecting to see a whole lot of seasonality in this Q2. Is that something that we would expect to see next Q2, is that what you are asking?

Andrew Neff - Bear Stearns

I guess just the idea of thinking of when there is something, other than change in nature of the business accelerate that could lead to, I mean is that year or two there has been a seasonal pattern, now its sort of moving of that purposely should we assume to now it sort of Q3 and beyond.

Adele Ebbs

Yeah, I think that seasonality has certainly changed for us as we've moved more beyond the enterprise market. Even when we would talk about the real summer slowdown, we were getting a huge percentage of our business from enterprise at that point and the IT managers go on holiday then they are not buying anything and that was sort of all we had. Now, we are getting close to 50% of our subs from non-enterprise. I think that does change the dynamic a bit both in the summer and into things like holiday, back-to-school those types of things. I think its still early days for us because this has been growing for so fast but I think it will be reasonable to expect different types of seasonality.

Jim Balsillie

Yeah on the iPhone touch, I mean I don't know, we do a lot of focused groups in what we do, there's a lot of market research in what we do, we had a lot of market research from our customers in the markets on what the market expects from a solution. However, there has been some debate previous on graffiti and different touch and tactility things and [mechanical] vulnerability costs and battery kind of things and tactility things. I think the best thing will be that for these things to just get in to market and get going, and its just there's just so many dimensions in our space happen sometimes people over define the category like its all about for so at last its all about the keyboard or its all about some input mechanism or its all about music play or something.

And I think it's a bit of multi-dimensional, it is a lot of multi-dimensional conversion space that we play in and it tends to be iterative and evolutionary. My experience is one person may be make a baby in nine months, nine people can't make a baby in one month. But who knows may be some natural constructs can be shifted and we'll have to revive those views and they can shorten these realities. But I think the best thing, the good thing is this, there is a lot of attention to this space, its growing the space, its validating extensions to the space. On a leadership positions, we see the growth current -- and really keep it up and meant some go in the future. And that's really what I focus on. I am not really want to play a gamesmanship, my input mechanisms funkier than your input mechanism.

We're really focused on compelling user experience the highly aligned relationships with the carriers and a tremendous amount of channel support and service support and care, and application extension, because our experience is there is a lot of heavy lifting there. And beyond that I can't say as I really pay that much attention to all these little dynamics because it doesn't help me, help my customers and help and channels more and so let it be what it will be.

In terms of pricing of (inaudible) Curve sometimes they do special promos for new products, sometime they are slightly lower cost structure for us to make them. A lot of good carriers special programs and positioning, they excited and see an opportunity and sometime cause things for us and you also can see it kind of service plan they bundle to it and that kind of ads they allow to it. So, and different piece of hardware priced differently in different markets for us so, but the 8800 is a little more expensive in the Curve but its delightful to see the carriers pricing the Curve so aggressively because, my experience is when they do this it should actually takes two or three months for the momentum to really sort of kick in the gear.

So if you start doing stuff like that in May, you generally start to really, the channel as we get bigger are kind of slow train are coming but comes sort of midish August, they really start gathering speed and then you can ride that through the back to school and the sort of Christmas kind of phase so, that's we are pleased to see it and I don’t know if the 8800 that'll shift that way maybe, maybe not, there's just so many different programs and so many strategies. Its hard for me to sort of generalize it all.

Operator

Your last question comes from Maynard Um of UBS. Please go ahead.

Maynard Um - UBS

Hi, thanks, quick clarification on the question. Just on the quarter ending subscriber base, if you add the 1.2 million subs from last quarter, that's about 9.3. Is that the right quarter-end subscriber base? And then I have a question.

Adele Ebbs

The numbers have gotten so big, that we are really just sort of rounding to the nearest million.

Maynard Um - UBS

Okay.

Adele Ebbs

On our base.

Maynard Um - UBS

Okay. And then question on hardware. You talked about the increasing replacements maybe partially driven by some of the marketing programs, that's given you that hardware visibility to the August quarter. As we start to look beyond August, do you think that heightened replacement will continue particularly with new hardware launches you alluded to or will it be continued marketing programs from the operators that you are aware of or how should we start thinking about those replacement demand into the back half and beyond? Thanks.

Adele Ebbs

I think that we don’t see any reason to expect that replacement rate to slowdown a whole lot. I mean I think that its being driven by, the age of the base is part of it and the size of the base and then new product launches and all those things are built into our expectations, but I think for your modeling purposes, I would not model a slowdown in the replacement cycle.

Maynard Um - UBS

Great. And if I could just, on the subscribers if I could tackle that different way. Were there any carrier to the activations in the quarter without a significant number?

Adele Ebbs

We always have those every quarter, in terms of, what we use to refer to as cleanups, I mean, but I don’t think there was anything particularly unusual beyond what we would normally see.

Maynard Um - UBS

Great. Thanks.

Adele Ebbs

I think that was our last question. In closing, I would just like to remind everyone that the post use service available at 416-640-1917, the pass code is 21221686# or you can listen to the call which has been recorded and is available on the Investor Events section of our website at rim.com/investors. Thank you very much.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your line.

TRANSCRIPT SPONSOR

Tech-Stock Prospector seeks out promising small- and large-cap technology stocks offering a combination of growth and value. The research service is made up of Daily Online Updates at TechStockProspector.com, Action Alert e-mails and a 12-page monthly newsletter.

Editor Robert DeFrancesco, formerly senior writer at Louis Rukeyser's Wall Street, has covered the tech market for 15 years. He uses both fundamental and technical analysis to put together two long-term model portfolios. Tech-Stock Prospector also offers Trading Ideas and maintains a Watch List of potential additions to the portfolios.

To sponsor a Seeking Alpha transcript click here.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Research In Motion F1Q08 (Qtr End 6/02/07) Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts