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Executives

Paul Carpino -

Thorsten Gerhard Heins - Chief Executive Officer, President and Director

Brian Bidulka - Chief Financial Officer

Analysts

Kulbinder Garcha - Crédit Suisse AG, Research Division

Jeffrey T. Kvaal - Barclays Capital, Research Division

Richard Kramer - Arete Research Services LLP

Gus Papageorgiou - Scotiabank Global Banking and Market, Research Division

Simona Jankowski - Goldman Sachs Group Inc., Research Division

Amitabh Passi - UBS Investment Bank, Research Division

Tim Long - BMO Capital Markets U.S.

Jim Suva - Citigroup Inc, Research Division

Research In Motion Limited (RIMM) Q4 2012 Earnings Call March 29, 2012 5:00 PM ET

Operator

Good evening, ladies and gentlemen, and thank you for standing by. Welcome to the Research In Motion Fourth Quarter Fiscal 2012 Results and Year End Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded today, Thursday, March 29, 2012, at 5 p.m. Eastern time. I would now turn the conference over to Mr. Paul Carpino, Vice President, Investor Relations. Please go ahead, sir.

Paul Carpino

Thank you. Welcome to RIM's Fiscal 2012 Fourth Quarter and Year End Results Conference Call. With me on the call today are Thorsten Heins, CEO; and Brian Bidulka, CFO.

After I read our cautionary note regarding forward-looking statements, Thorsten will provide the business and strategic update. Brian will then review the fourth quarter results and our outlook. We will then open up the call for questions. This call is available to the general public via call-in number and via webcast on the Investor Relations section at rim.com. A replay of the webcast will also be available on the rim.com website. We plan to wrap up the call around 6:00 p.m. Eastern this evening. [Operator Instructions]

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 plans, strategies and objectives and the anticipated opportunities and challenges in the coming quarters; our expectations with respect to product shipments, revenue, gross margin, operating expenses, earnings, net subscribers and cash position in fiscal 2013; our product development and marketing initiative and timing including our expectations relating to our BlackBerry 10 smartphones; our plans and expectations relating to our organizational and technology transition; our plans and initiatives to improve the performance of the business, including our marketing and pricing initiatives; our guidance practices in the future; and other statements regarding our plans, objectives and expectations.

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 our ability to enhance our current products and develop new products and services; risks related to further delays in new product introductions; risks related to intense competition both in North America and internationally; our reliance on carrier partners and distributors; security risks and risks related to the collection, storage, transmission use and disclosure of personal information; risks relating to network disruptions and other business interruptions; our ability to manage inventory and asset risks; our ability to implement and realize the benefits of our of our Be Bold Excellence program; our ability to maintain or increase our cash balance; potential additional impairment charges; our ability to retain and attract key personnel; our ability to maintain and enhance the BlackBerry brand; risks associated with our international operations; intellectual property risks; difficulties in forecasting financial results given the rapid technological changes evolving industry standards, intense competition and short product life cycles that characterize our industry and other factors set forth in the risk factors and MD&A sections in RIM's filings with the SEC and Canadian securities regulators. We base our forward-looking statements on information currently available to us, and we do not assume any obligation to update them, except as required by the law.

I will now turn the call over to Thorsten.

Thorsten Gerhard Heins

Thank you, Paul, and thank you all for joining the call today. I've been the CEO of RIM for just over 10 weeks now, and my main focus during this time has been to meet RIM and listen to RIM's many stakeholders, including customers, partners, developers, carriers, shareholders and employees. And I undertook an extensive review of RIM's business to evaluate where we are today.

In my discussions with our carrier partners, they expressed a strong desire to continue with BlackBerry as a significant partner. However, there's still a lot of work to be done on RIM's side to satisfy all the customer needs out there.

Since I last spoke to you back in January, I undertook a comprehensive internal review to assess the state of RIM's business. I did my own reality check on where the entire company really is. I think as the benefit of going through this process from the vantage point of CEO, it is now very clear to me that substantial change is what RIM needs. I am focused on creating long-term value for this company, and I'm committed to do whatever it takes to deliver on that commitment. Let me outline a few of the more immediate things that we are doing.

We plan to refocus on the enterprise business and capitalize on our leading position in this segment. We were delayed to the bring-your-own-device movement and we saw a significant slowing down in our enterprise subscriber growth rate as a result. I am committed with my team to reclaiming lost market share in this space.

The Enterprise business, led by Robin Bienfait, RIM's CIO, is already aggressively moving to upgrade our enterprise space, the new BlackBerry 7 devices and to drive the adoption of BlackBerry Mobile Fusion.

BlackBerry Mobile Fusion, RIM's next-generation enterprise mobile device and management solution, allows organizations to efficiently manage existing BlackBerry smartphones and BlackBerry PlayBook tablets, upcoming BlackBerry 10 devices, as well as devices running Android and iOS.

Other products competing in the bring-your-own-device segment is to create a compelling consumer offering. We believe that BlackBerry cannot succeed if we try to be everybody's darling and all things to all people. Therefore, we plan to build on our strengths to go after targeted consumer segments, and we will seek strong partnerships to deliver those consumer features and content that are not central to the BlackBerry valuable position, for example, media consumption applications.

Another key area where we will be making significant change is in our services business. Here, I'm referring specifically to the consumer-oriented, value-added services business that we have attempted to build over the past 2.5 years through numerous various acquisitions.

Following my evaluation over the last 10 weeks, it became clear to me that it would be extremely difficult for RIM to develop this initiative into a profitable value-added services business at this time, and that the heavy ongoing investment required to continue this initiative does not make sense given RIM's current market position and our relative strength. As a result, we will be looking at ways to scale back these activities and refocus resources on developing an integrated services offering that leverages RIM's strength, such as BBM, security and manageability. The intent would be for these services to add value to our customers and generate service revenue for the company.

The competitive environment has become increasingly challenging. We are continuing to face pressure on our subscriber base in the United States, and the lack of an LTE product and a high-end consumer offering in this market is hurting our performance. BlackBerry 10 product and platform will address this later this year.

The majority of RIM's subscriber growth is coming from international markets. With the BlackBerry Curve 8520 and its unique value proposition, we defined the entry-level smartphone segment around the world. We have sold more than 40 million entry-level Curves into this market segment, a huge success for this company. However, this success did not go unnoticed by our competitors, and there are now a number of handset vendors targeting this segment using price as their primary competitive tool.

This competitive shift makes our growth in international markets more challenging. As a response to this, we have new BlackBerry 7 devices scheduled to come out in the next few weeks to reinvigorate our competitive positioning in this key segment and support our efforts to continue growing the subscriber base by upgrading feature phone users to smartphone customers.

The Bold 9900 is doing well in its market segment of full credit professionals as an iconic and high-productive device, and it is as well addressing consumers. However, this segment is not growing as quickly as the market for full touch-based devices. Our current full touch devices face a challenging position in the market, given all the various competitive products out there.

Areas around the world are facing higher CapEx costs, and their subsidy pools are being dominated by a few players. BBM continues to be a value driver for customers. However, we have to realize that some of BlackBerry's traditional strength in security, efficiency and push are not as highly valued by some of our customers. We are working to identify new services to continue to provide value to our customers and to maintain a healthy service business line.

We believe that ahead of the BlackBerry 10 launch and throughout the remainder of fiscal '13, it is critical that we drive BlackBerry 7 sales to sustain the subscriber base. To do this, we plan to aggressively incentivize payers of BlackBerry 7 smartphones through the implementation of programs to both drive upgrades from older BlackBerry products to BlackBerry 7 and to onboard feature phone customers to BlackBerry 7 for their first smartphone experience. This will be supported by the new BlackBerry 7 entry-level smartphones and a strong combined BlackBerry BBM proposition that I referenced earlier.

A combination of all these factors and dynamics make our ability to forecast unit shipments, incremental service revenue and financial results extremely challenging. As a result, we decided that we will not be providing specific quantitative guidance for Q1 of fiscal 2013. Brian will provide more details on our approach to guidance going forward and give some qualitative insight into our financial outlook later in the call.

I recognize that these are difficult times for our shareholders, and it's likely that the next few quarters will continue to be challenging for our business. However, RIM has a number of core strengths and value assets that we can look to for opportunities to leverage, including strong carrier relationships, the global peer-to-peer network, a large and growing subscriber base, the strong IPR portfolio and last not least, the QNX-based operating system that is the basis for BlackBerry 10 platform and products to come. We have leading industry -- we have industry-leading mobile UI capabilities and developer tools. This drive to maintain our leadership position in RF technologies and last not least, we have thousands of talented employees around the world fully committed to make RIM's business a success.

We have identified 4 strategic areas where we need to focus our efforts going forward: the successful launch of BlackBerry 10 platform and product, leveraging the BlackBerry platform and other RIM assets, efficiency and operating excellence and organizational alignment.

Let me give you an update on where we are with BlackBerry 10.

I had an extensive review with the development team leads for BlackBerry 10 this week, and I have to say I am very pleased with the progress they are making. I've seen the first working software on the actual device, and I was intrigued by the stability, by the performance and by the beauty of the UI that I was shown.

The launch of the first BlackBerry 10 smartphones remains on track for the latter part of this year, and in my meetings with carriers over the past 10 weeks, the response to the product has been extremely positive. They are especially excited by the unique value proposition offered by the device with its seamless integration between applications and an intuitive user interface, which would only get better between now and the launch time.

PlayBook 2.0 launched in February and was very well received. Over 70% of PlayBook users upgraded to the new software within the first 30 days. And there are now over 1 million PlayBook customers out there. The PlayBook 2.0 experience actually gives you a taste of what's to come with BlackBerry 10, and it allows us to grow the partner community and build a high-quality user experience prior to BlackBerry 10 actually coming to market.

With BlackBerry 10 being such an important part of RIM's future, let me give you some sense of the milestones you can look for to measure our progress towards delivery. We plan to introduce, develop our prototype BlackBerry 10 devices in May at BlackBerry World, which will allow developers to start building apps today to ensure support for a robust application ecosystem at launch. Following that, we would expect to enter carriers [ph] beginning early this summer and start achieving carrier technical acceptances and first shipments later this year. We intend to keep you updated on these milestones as we progress throughout the year.

The second area of focus I'd talk about is to evaluate ways to leverage the BlackBerry platform through partnerships, licensing opportunities and strategic business model alternatives. This will include a strategic review to identify these and other opportunities to drive stakeholder value. We believe the best way to drive value for our stakeholders is to execute on our plan to turn the company around. This is not without risks and challenges, and there's no guarantee of success.

Given the challenges we face, we believe it is prudent to explore all the company's options, including possible ways to capitalize on our infrastructure, process technology, IPR, embedded market strength, enterprise leadership and our growing subscriber base of more than 77 million customers around the world.

While there are currently a number of formulary companies in the mobile computing world delivering great experiences to their customers and profitable opportunities to their partners including RIM, there are many companies still looking at ways to just participate in the fundamental growth of the mobile community. We believe that by broadening our scope in terms of how we will proceed with BlackBerry 10 and beyond, there may be opportunities to leverage the power of BlackBerry technologies with what new partners can bring to the table.

It is difficult to say at this point in time what kind of opportunities may surface throughout this strategic review process. But we intend to keep you updated where possible as we progress through this exercise. We will continue to refrain from commenting on rumors and speculations, but we will provide formal periodic updates when we have new material to share with you.

The third major area of focus is to drive excellence and operating metrics and efficiency. We refer to this as CORE on the last earnings call. This will take a form of an efficiency push across all functions in the organization. Some of the areas we intend to focus on initially are driving efficiency in the production process and supply chain. We will also be increasing our focus on target costing and engineering and supply chain to improve competitive pricing, and we will undergo a comprehensive evaluation of RIM's global subscriber base and market presence. We plan to streamline these operations to ensure sales, marketing and product management functions are all structured to support the most profitable business opportunities. Brian will talk about this program in more detail later down the call.

The final area of focus that I will talk about today is realignment of our organization. Over the past 2 months, I've observed an incredible level of talent and commitment from all our employees throughout the organization. I want to ensure RIM is leveraging this talent, demand accountability at all levels and provide a workplace that allows them to feel good about what they do and have opportunities to grow and contribute.

In our evaluation of the organization structure, we have identified a level of complexity that is not conducive to the efficient operation of our business. There's also a lack of direct accountability in a number of functions that inhibit talented people from making decisions and being able to implement ideas and plans fast and decisively. Over the coming months, we will implement plans to enable our employees to be more effective in growing inside RIM.

We're focused on continuing to recruit and retain top talent while fostering an environment of innovation, learning and development for our top people. Today, we have also announced the 2 members of our senior executive team who have been responsible for significant contributions to RIM will be leaving the company. After more than 13 years with the company, David Yach, our CTO of Software will be retiring and Jim Rowan, RIM's Chief Operating Officer for Global Operations, has decided to leave the company after 4 years to pursue other interests. But both will stay on for a period in a consulting capacity to ensure a smooth transition. I would like to thank them both for their outstanding service to RIM, and their teams will continue to play an important role in RIM's future. I wish them well in their future pursuits.

Dan Dodge is now RIM's lead software architect and is responsible for driving both the QNX business and the BlackBerry 10 platform vision. We have identified a great team of software leaders that Dan and I have put in place to run the BlackBerry 10 platform and BlackBerry products on. I'm personally excited to see how well this team works together and how consequently and decisively they drive this project into execution.

I'm also currently in the process of hiring a new Chief Operating Officer with a sole responsibility for all operations of the company.

When I talked to you in January, I made very clear that one of the most important tasks and roles to fill within RIM is the role of the Chief Marketing Officer. The search for a Chief Marketing Officer is going well, and we have met a number of excellent candidates and hope to have an update soon. We understand the importance of this role, and continue to look for the individual who can best transition RIM's existing brands and market awareness to a proactive and cohesive strategy around the world. I expect to have some news for you pretty soon on that important role.

Tomorrow, I will be sharing the organization within my team globally. All leaders being named in the organization have been selected by me. They have my full trust and confidence to meet RIM's challenges ahead and to run the company into a successful company of the future.

Today, we also announced that RIM's former Co-CEO, Jim Balsillie, has resigned from the company's Board of Directors. I'd like to take the opportunity to thank Jim for 20 years of service and leadership in the name of RIM and wish him well in the future.

I know I've provided a lot of information for you to digest this afternoon, but the simple messages I want you to understand and take home is that we're making the necessary changes at the company, and that we're focused on: first, realigning the business to build on our strength including the Enterprise, driving BlackBerry 7 upgrades, onboarding new customers around the world to the BlackBerry platform and redefining our services model; second, an on-time and successful launch of our first BlackBerry 10 smartphone, which are on track for the latter part of calendar year 2012; third, aggressively reshaping the organization for increased accountability and efficiency; fourth, and evaluating a wide variety of options to drive stakeholder value.

RIM is going through a significant transformation, and our financial performance will continue to be challenging for the next few quarters. I believe that there are numerous short-term opportunities to drive efficiency and effectiveness in our business and adjust our approach to the market as we work through this transformation.

We are open to a variety of different avenues to driving long-term volume value in the company, and we intend to be as transparent as we can in communicating our progress with you. I look forward to providing you with an update in the near future.

I will now turn the call over to Brian to take you through the quarter and give you some additional detail on guidance. Brian?

Brian Bidulka

Thank you, Thorsten. Revenue for the fourth quarter of fiscal 2012 is $4.2 billion, a 19% decrease from the third quarter, primarily as a result of BlackBerry smartphone shipments decreasing from 14.1 million in Q3 to 11.1 million in Q4, as well as a higher proportion of lower ASP products in the mix.

BlackBerry smartphones continue to sell well into the prepaid and entry-level market, and the Bold 9900 continues to gain traction. However, certain models of the BlackBerry 7 lineup are not selling as well as anticipated.

In the fourth quarter, we recognized a pretax charge of approximately $267 million relating to those products based on our current expectation for sell-through, estimated inventory levels in the channel and excess inventory on hand. We expect this trend towards the higher mix of entry-level products to continue. The plan to launch more BB7 device into the entry-level market in the near future, as Thorsten mentioned, and our portfolio of higher ASP products will begin to age before the launch of our new BlackBerry 10 devices later this year.

Sales outside the United States, United Kingdom and Canada represented approximately 68% of total revenue compared to 61% in Q3. Some of the larger markets comprising the other segment in the quarter were Indonesia, South Africa and Venezuela.

U.S. sales declined in the fourth quarter and represented 17% of total consolidated revenue compared to 20% in the third quarter. Sales in the U.K. in the fourth quarter represented approximately 10% compared to 11% last quarter, and Canada represented the remainder. RIM shipped approximately 11.1 million smartphones in the fourth quarter.

Estimated sell-through in the quarter was strong at approximately 13.6 million units, including phone-only sales. Despite channel inventory being down on an absolute basis, it is higher on a 4-weeks basis.

In Q4, we shipped over 500,000 PlayBooks and sell-through to end customers based on RIM's internal data was higher than this. In fiscal 2012, approximately 1.3 million PlayBook tablets were shipped.

Hardware revenue was approximately $2.9 billion or 68% of sales compared to $4.1 billion or 79% of sales in the third quarter. Service revenue was approximately $1.1 billion, up 12% on an adjusted basis, reflecting the 14th week in Q4 and excluding the charges incurred in Q3 as a result of the service disruption. Software revenue was approximately $80 million, similar to Q3 levels.

ARPU in the fourth quarter was slightly lower than Q3 due to an increasing percentage of tiered BIS plans and prepaid customers from international markets in the subscriber base and a decline in the subscriber base in the United States.

Gross margin was approximately 33.4% in the quarter. Excluding the inventory provision, adjusted gross margin was approximately 39.8% higher than Q3, primarily as a result of the higher percentage of service revenue in the mix.

Operating expenses increased approximately 43% from the third quarter. Excluding the impairment of goodwill, adjusting operating expenses increased approximately 10%, in line with our expectations.

The tax rate in Q4 was approximately 9% on a GAAP basis, driven by the nondeductible write-down in goodwill. GAAP net loss for the fourth quarter of fiscal 2012 was $125 million or $0.24 per share versus net income of $265 million or $0.51 per share in Q3, reflecting the inventory provision and impairment of goodwill of approximately -- I'll get back with that number.

Excluding the impairment of goodwill and the inventory provision, adjusted net income was $480 million or $0.80 per share diluted. The earnings press release issued this afternoon contains a reconciliation of our GAAP net income and diluted EPS to adjusted net income and adjusted diluted EPS.

RIM generated approximately $1.1 billion in cash flow from operations in the quarter. Uses of cash included CapEx of approximately $190 million and intangibles of approximately $260 million as a result of prepaid license agreements and patent acquisitions. Cash, cash equivalents, short- and long-term investments increased by approximately $610 million to $2.1 billion at the end of the quarter.

Subsequent to the fourth quarter, the company performed a goodwill impairment test and concluded that the balance was impaired. Based on the results of that test, the company recorded a noncash pretax goodwill impairment charge of $355 million or $346 million after-tax. The steps required to come to this conclusion by the accounting standards involve the application of considerable complex judgments.

Before I get into our outlook, let me provide you with some additional detail on our CORE program. The CORE program is a company-wide initiative that we expect to drive significant improvements and efficiencies across all functions in the organization. The financial objectives for the CORE program are targeted to drive $1 billion in savings by the end of fiscal 2013 based on our current run rates.

Initially, we expect savings to be driven primarily by optimizing the cost position of our products and services and improve the overall resource effectiveness and organizational efficiency. Initiatives under the program will range from engineering, material sourcing, supply chain and quality to sales and marketing and business support. These initiatives have senior executive ownership and accountability.

The program is targeting multiple areas that I will discuss shortly, and with the majority of results are expected to -- and with the majority of results are expected to stem from improvements in the areas of life cycle management, supply-chain efficiency and business support.

Product life cycle management initiative is focused on processes to drive improved execution and ties closely with our efforts relating to supply chain and quality areas. We're evaluating our R&D process to ensure we maximize our return on investment, and we'll be implementing SKU actualization.

We've already begun to implement improvements in supply-chain efficiency with the global operations control center launched last quarter, and we will continue to work on integrating our supply chain to maximize efficiency. We also plan to drive better operational efficiency from our manufacturing logistics network by reducing the number of production locations.

Sourcing teams will also work with -- will work more tightly with design teams to reduce costs in the early stages of the development process. Quality is also an area where we will be implementing more processes earlier in the product development cycle to improve yields, warranty return rates and reduce manufacturing costs.

We are targeting better efficiency and use of resources in our sales and marketing initiatives to effectively leverage our marketing windows, evaluate our country portfolio to determine where it makes sense for us to focus our efforts.

Initial groundwork for cost savings in business support spend was laid at the time of our cost optimization program in July 2011. Further improvement measures will be implemented to deliver IT and other administrative services more efficiently with controlled consultancy spend.

Working capital management with better inventory turns, improvements in our cash conversion cycle and tightly managed CapEx spend is also a focus of the CORE program. As Thorsten indicated, we will also continue to review RIM's organizational structure and clearly define accountabilities for all key businesses, business processes in an attempt to eliminate fragmentation, duplication and inefficiencies.

As Thorsten mentioned, we'll be changing our guidance framework given the current business uncertainties and our desire to focus on longer-term strategy and execution. The ongoing transition to BlackBerry 10 and shifts in the competitive environment have made it particularly challenging to predict product demand and other specific quantitative guidance due to a number of factors, including ongoing weakness in our U.S. smartphone business; a more competitive pricing environment for smartphones globally; our adoption of more aggressive price initiatives in smartphones to increase the sell-through and selling of BB7 smartphones; focus on lower-tiered pricing plans to drive sell-through; higher mix of lower ASP products; and the pressure we expect to experience in monthly service fees over the next year, as Thorsten mentioned.

As a result, we will no longer be providing quantitative quarterly EPS and revenue guidance and specific quarterly smartphone unit guidance. RIM remains committed to providing a high level of disclosure and transparency going forward, and we'll continue to provide commentary that highlights the trends and uncertainties we anticipate.

As we move into the first quarter, we expect revenue will show a sequential decrease based on lower unit volumes, less favorable smartphone ASP mix and the adoption of new pricing smartphone and service initiatives in order to increase the sell-through and selling of BB7 products. We expect the downward pressure on operating earnings to continue throughout the year based on the market dynamics noted above, existing fixed costs being spread over lower volume of shipments.

The core team is looking at all opportunities to accelerate the implementation of cost savings initiatives earlier in the fiscal year, and we will provide quarterly updates as significant milestones are achieved.

Based on these trends and our more aggressive selling initiatives for BlackBerry 7 smartphones, we expect smartphone gross margins to face ongoing pressure, which we anticipate will be partially offset by a higher percentage of service revenue in our mix.

The BlackBerry subscriber base grew to over 77 million in Q4. However, we expect net subscribers in the United States to remain under pressure, and we will be looking to international markets to help maintain and grow the base. However, we do not expect to grow the subscriber base at the same rate we experienced in fiscal 2012. Growth in our international markets are generally lower-tiered BIS plans and attract lower subscriber fees.

Despite this environment, we do anticipate maintaining a strong net cash position, which ended the year at over $2 billion.

That concludes our call, and I now ask the operator to start taking questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Kulbinder Garcha from Crédit Suisse.

Kulbinder Garcha - Crédit Suisse AG, Research Division

I have just a couple of questions. First of all for Thorsten, I appreciate this early for you in your strategic review of RIM and you've got ongoing reviews happening. But could you perhaps comment on -- are you committed to making devices across a spectrum of the smartphone segment on a long-term basis as an entry-level, mid-end, high-end? Is that what you think RIM needs to do? And then next, just on the strategic side, have you at least ruled out, for example, to shut down the hardware business? I'm just trying to license the [indiscernible] -- is that kind of fixed along the agenda? Then my question for Brian is on the services fee side. I just want to kind of clarify, I understand subs growth was slowed down. But given the clear changes happening in services ARPU -- services streams and services ARPU levels going forward, could your services revenue actually decline during this transitional period as well?

Thorsten Gerhard Heins

Okay. Let me start with the answer first, so the question around entry-level segment device versus high-end. Actually, the world is not in one stage regarding the deployment of mobile technology and mobile devices and communications. There is Asia-Pac, they still have the high need for communication where entry-level smartphones have a high onboarding rate and make a lot of sense to have in the portfolio. When we go through these strategic reviews, part of that assessment will be whether we, based on BlackBerry 10, will do this ourselves or whether we partner or whether we license. To your point, it's too early to say, but it is certainly part of the review. Where I want to drive RIM devices to, to be an aspirational high-end object of desire with the best functionality for communication purposes, and for people who just need to stay ahead of the game that need productivity and that need to achieve. Whether this means we, in the future, will build the hardware ourselves or whether we kind of engage in any other kind of partnership is exactly part of the -- in our strategic analysis and review that we're going through. And I will keep you updated once that is completed. Second question, shutting down the hardware business and just maintaining the knock in infrastructure. As I said in my call, I believe in RIM being an integrated value services and solution provider, and that encompasses the network to services and the devices. But the position I take was RIM to provide an integrated user experience across these 3 domains to the customers. But again, you could think about that either one of these 3 constituting factors or elements could also be done in a partnership. Again, we need to look at this. We will leave no stone unturned. We will be really open to assess all these situations, and we will make the best decision for RIM and for RIM's stakeholders. Brian?

Brian Bidulka

Yes. And the question on the service revenue. It's dependent upon the mix and our sub base growth, and certainly the U.S. decline in subscriber base has a big impact on that. And that's -- our focus is obviously maintaining our sub base and looking at opportunities, both within the U.S., as well as internationally and growing our sub base.

Kulbinder Garcha - Crédit Suisse AG, Research Division

I guess my question is, Brian, though, I appreciate that, but your sub base only grew by 2 million in the last quarter. And it sounds like you're signaling that your services fees are going down and probably quite rapidly. So I'm trying to think, is that masking your actual service revenue, dollar revenues shrinks through a period of time?

Brian Bidulka

Well we -- again, I'd go back to looking at the mix of our net additions and where we're actually growing versus where we're seeing some churn. And I think that's where we just need to ensure that we're looking at any opportunity to drive our -- and maintain our sub base.

Thorsten Gerhard Heins

So let me give you one data point. As I said, there's really variety across the different regions. We have grown our BlackBerry subscriber base this quarter to 77 million units of subscribers, and these are BlackBerry services. They sign up for our services. Is it going to get harder and harder to grow that base? That probably could be. But with the introduction of BlackBerry 10, with the new portfolio that we're bringing to the market, with potential other strategic options that we are investigating right into, I think we will continue to innovate in the Services business. And it's our clear objective to maintain a healthy business in our Services business line.

Paul Carpino

[Operator Instructions]

Operator

Your next question comes from Jeff Kvaal from Barclays.

Jeffrey T. Kvaal - Barclays Capital, Research Division

Thorsten, I think conventional wisdom in much of the industry at the moment is that the BYOD principle is driven by the demand by consumers to bring their own enterprise into -- or device into the enterprise. That seems to be driven by availability of applications and what have you. It seems, if I'm understanding you correctly, that you're flipping this on ahead, and you want to focus on the core enterprise businesses and you're going to pull back from the consumer band. Is that -- am I understanding that right? And if so, what does conventional wisdom have wrong about that approach?

Thorsten Gerhard Heins

The enterprise business, as I look at it, constitutes itself basically of 3 elements. It's the enterprise Services business, like the BlackBerry Mobile Fusion that we're providing, its corporate liability devices where we have a core strength, where even our BlackBerry 7 portfolio security is a key administration of the device is key. And then to your point, it's the bring-your-own-device segment. So to be really in all of these 3 segments, my clear objective is to use BlackBerry 10 to provide a very, very strong play in the bring-your-own-device toward the enterprise segment. Now how I constitute the consumer part of this device expression and the device identity, that's why I exactly talk about partnerships. I will provide the strength to BYOD that we can bring to the table by refocusing on what makes a BlackBerry a BlackBerry: workflow, productivity, efficiency, security, easy to work with. And on the consumer side, exactly to what I've said in -- against the first question is, we will partner. We will have to have those consumer table specs on a BlackBerry 10. There's no doubt about it. Do I have to do this myself? Probably not. So we're seeking strong partnerships that allow us to have the completely BYOD offering, but that doesn't mean we have to do it all ourselves.

Operator

Your next question comes from Richard Kramer from Arete Research.

Richard Kramer - Arete Research Services LLP

Thorsten, I just wanted to ask you, do you have a mass market strategy for BB10? And also given that the growth is coming much more outside the U.S., do you think in future, you'd be able to give us some more breakdown of how the international business is going, perhaps breaking it into EMEA and APAC, just to understand a little bit better the growth in those markets?

Thorsten Gerhard Heins

That's market strategy. As I've said, Richard, this is part of the strategic review that I'm going through. I believe in the, what we call, this onboarding from feature phone to smartphones right now. This happens at a high rate in all of the major regions outside of the U.S., and I want to be aggressively pursuing this because that means I'm improving and I'm growing my install base that I need in order to then go into a BlackBerry 10. Going into the future, as I've said, Richard, I want to absolutely participate in this market. The question is what is the right business model for RIM to participate there? Is it our own hardware? Do we have to do everything ourselves? Do we license BlackBerry 10? And that is the business model you could think about. Do we partner? Do we ODM? That is currently under investigation, and I will report back to you in due course in what the decision is that we're going for. But if I want to be in the mass market, I want to participate, the business model has to be a value-creating business model for our shareholders, and that's what we need to figure out.

Brian Bidulka

And on the question about the regional breakdowns, that's something we can consider in future quarters.

Operator

Your next question comes from Gus Papageorgiou from Scotiabank.

Gus Papageorgiou - Scotiabank Global Banking and Market, Research Division

Thorsten, just as part of the strategic review with the sale of the company beyond the table, is that something beyond what you're looking at in terms of a strategic review?

Thorsten Gerhard Heins

So I and my team and also the board truly believe that the best path for RIM is to manage the turnaround because I look at RIM as we have to turn this company around, we have to turn it into a future -- into a successful future. That is what I am in charge for by the board, that's my challenge and that's what I'm working against. Now if there's any element that we detect during that strategic review that would lead us into this direction, we would consider it, but it is not the main direction we're pursuing right now.

Operator

Your next question comes from Simona Jankowski from Goldman Sachs.

Simona Jankowski - Goldman Sachs Group Inc., Research Division

Thorsten, another question kind of along the same lines, which is when you first spoke to us about 10 weeks ago, it seems like you had a bit of a different take on the situation, and you are open to inbound inquiries around any kind of partnership but that was not something that was going to be your primary focus. And it seems like now that you've had a few weeks to look at all the options, that is something that has in fact become the primary focus. So can you just give us a bit of a sense of what it is specifically that kind of changed your mind on that?

Thorsten Gerhard Heins

Yes, happy to do that. I mean what I did is, Simona, I went through all the business units within RIM, and I was looking for how do these business units, constitute and manifest a unique integrated value proposition to our customers. What I found is that some businesses, I looked at the services business unit specifically, that was actually kind of on its own feet trying to build a service business on its own. And we invested into this, we've tried to succeed. I concluded after having an intense review with the team that this is not the right approach at this time. So with my responsibility as CEO, I had the opportunity to look into all of the businesses, and not just the ones I was responsible for in the past. And that certainly opens your framework, right? This opens your reference, and you start looking at this from a CEO perspective saying, "What is my unique value contribution to the customers?" And then you cannot be fragmented. You cannot have fragmented value propositions that actually irritate people, right? And I think where we were frankly, I think we were on the path and some of the consequences we see of our market position right now of being fragmented. We're bringing this all together now. We will stop certain activities within this company that do not support the integrated value propositions. We will strongly invest in enterprise. We will strongly invest in industrial design, high-end aspirational devices, leading edge. We are known for being the best in RF technology, which is really important to the carriers. You heard about the Paratek acquisition that we did. Clearly, our position, to be best in RF, which is a strong heritage of RIM and leads to CapEx savings with carriers, leads to better battery life, connectivity. So to cut a long story short, yes, you're absolutely right. The impression that I had of RIM as day 2 of being a CEO is now pretty different from the impression -- not the impression, from the fact I know after being 10 weeks as CEO of RIM, and I'm still working through some stuff of it. So you're right, there's a lot of learning. There's a lot of understanding. There's for me a different look at RIM. And I'm fully convinced that with the strong BlackBerry 10 platform, and I'm not just talking product, we use the word platform in all consciousness here, that will allow us to strive in the smartphone business, in the tablet business and to really go after what we call the mobile computing business. It establishes a new platform from which we can really reach out into different market segments. And not just those smartphone businesses, I'm truly convinced we can even build other businesses on top of that, and that would be services business, value-added businesses, and we're going for that transition. And you know what, that might take a year or 2 until we're finally there. But I clearly see that vision, I see the value of it. I think we have the assets, getting ready that we can actually really engage in that domain and in that play.

Operator

Your next question comes from Amitabh Passi from UBS.

Amitabh Passi - UBS Investment Bank, Research Division

Thorsten, I just wanted to clarify a point you made. As far as your comprehensive review, you spoke about partnerships, JVs, licensing. I just want to clarify, is this sort of a post-BB10 event? Or could we see some of these partnerships and JVs even manifest themselves prior to sort of the launch of BB10?

Thorsten Gerhard Heins

I would say that with BB10, we're getting ready for not just a smartphone launch, we're getting ready for a mobile computing platform for the next decade. But I think the assumption would be correct that I'm focusing mostly around the ecosystem around BlackBerry 10 to make sure we have the right setup for the future business of RIM. I would not expect that to be -- have really influencing, for example, the BB7 portfolio right now. But again, it is to have a unique differentiated competitive, compelling value-creating proposition on BlackBerry 10, and there will be partnerships involved. And we will make sure that we have basically covered every aspect as we were discussing with the BYOD device, for example, that we have every aspect covered. But I want this company to focus on its core strength, and this company needs to learn to partner, needs to sign up with partners, needs to engage. Because we're in such a complicated world, just an application is already so complicated in itself, we can't do everything ourselves. But we can do what we're good at, and this is the platform, this is the RF, it's the industrial design, it's the technology, it's the network, it's the relay server. We are the only one who has a peer-to-peer and peer-to-market peer network out there. We need to leverage this and then aggregate this with partnerships in content, in services, probably in devices. I mean, as I said, the room is wide open right now for this strategic review, and we will plow through this, and as I said, promise an update when we know more.

Operator

Your next question comes from Tim Long from Bank of Montréal.

Tim Long - BMO Capital Markets U.S.

The one clarification and one question. Just to clarify, I'm sorry, I know this has been asked. But the comment about the introduction of new lower tier service provider price initiatives. I still don't understand this. Taking mix out, does that mean that ARPU is going to be lower? And then the question is if you look at the announcements that you made on subscriber numbers, it looks like a little over 2 million net adds this quarter, about half of what it's been the prior 5 or 6. Can you just give us a little color on how that happened? Did it mean that the U.S. was down more than the prior quarters in deactivations? Or was the international side up less? Or some combinations? So any color on that would be great.

Thorsten Gerhard Heins

Okay. Let me do the first one about the lower tier pricing. The dynamics that we see right now is lots of people are moving to smartphones. Now you don't move from a feature phone to a full-blown smartphone with all bells and whistles that you can think about. There is a learning point that we've successfully covered with 8520 Curve, and it's still selling really, really well. Now the same holds for the services. You don't go for a full-blown service package right away, then you onboard into the smartphone arena. So what we did here is we have created entry-level packages also on the services side, and we provide our customers, our channel that cares with a software called Catalyst that actually allows you to upgrade online for the next data package. So imagine you have entry-level social plan and you have BIS, texting and a bit of messaging in there, right? And you had browsing on your device, and now the device tells you, "Hey, your data plan doesn't support this." You get immediately the offer to upgrade your data plan for the next level online, it's online provision, there's no sales element involved and this is all IT-based. And we have that actually deployed with a few carriers out there. And we're positively surprised by the uptake rates those carriers have with our Catalyst software. And that gets them and us up to higher ARPU level, so you onboard. And then you basically upsell and upsell, start from the services. And then this upsell also starts from the devices, right? So it's a story of moving somebody through the experience curve to where they've been finally really want to be. That's how it works. Brian, you have a question?

Brian Bidulka

Sure. On the sub base, the number was closer to 3 million due to rounding, just on how we round the numbers on the overall number. I think in your question on the U.S. versus international, the mix was really proportional of what we've seen in the past quarter.

Operator

Your next question comes from Jim Suva from Citi.

Jim Suva - Citigroup Inc, Research Division

First, a question, I fully respect you don't want to give detailed guidance given the turnaround of the company, but there was a little bit of commentary given on the prepared remarks about as the year progresses, you expect to see continued pressure on EPS. And I want to make sure that people don't misread that or misinterpret it. One school of thought would be that as BB10 launches in the second half of your fiscal year, you should start to see sequential EPS growth. Or maybe it's just the timing of BB10 makes it so that there'll be continual pressure through the year. Can you just kind of clarify that from your prepared comments? And then my follow-up question is probably for the CFO on the balance sheet, a couple of line items like inventory, the inventory went up, I believe it was about 18% for the quarter, while units came in low and declined quarter-over-quarter, year-over-year. Was that increase in inventory also after the inventory write-down? And kind of what's going on with the inventory? It seems like a little bit of a -- to be blunt, a little bit of suboptimal management there.

Brian Bidulka

Yes. On the inventory, those numbers are net of the provisions. And certainly, as we work through our CORE program, some of the aspects that we're looking at on managing our inventory levels and our exposure there is through demand management, product life cycle and inventory optimization. So those are certainly key focuses where we've got to get better at forecasting and managing our inventory level. And in terms of your first question on the earnings trends going forward, I think it's really related to the timing of BB10, and where we're actually just seeing the product mix as well.

Thorsten Gerhard Heins

Yes. I mean to elaborate on this a little bit, BB10 is not just a product. BB10 is a platform. I mean just for you all to understand, BB10 is brand-new from top to bottom, right, from a hardware to all the software specs. So it's really -- this is a new platform, right? And the product that we will be launching later this year is the first instantiation, expression of that fantastic platform. Now then we will continue to proliferate this platform into a portfolio, and that needs some time by building the product, getting the product out there, so it's not a kind of like a digital step, right? It's not a 0-1 thing or a black-and-white thing. BB10 will proliferate into the portfolio, which will take a few months or a few quarters. That kind of changes the momentum when BlackBerry 10 comes out later this year, and then we will work with them. We just need to provide high-end aspirational devices on BlackBerry 10. And to the question that we had before, by then, we will have figured out how we then address the mid- and the entry-level tier. So it's a continuum, right? It doesn't happen just with one product being launched. It actually happens when the BB10 portfolio really gets out there and more and more substitutes the existing platform.

Paul Carpino

Thank you, everyone, for joining our call. A replay of the conference call will be available at approximately 7 p.m. Eastern by dialing (416) 640-1917 and entering passcode 4466496, and a replay of the webcast is also available on the Investor Relations portion at rim.com. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call for today. Thanks for participating. Please disconnect your lines.

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