Research In Motion F3Q10 (Qtr End 11/28/09) Earnings Call Transcript

Dec. 17, 2009 10:57 PM ETBlackBerry Limited (BB)4 Comments
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Research In Motion Limited (RIMM) F2Q10 Earnings Call December 17, 2009 5:00 PM ET


Edel Ebbs - Vice President, Investor Relations.

James L. Balsillie - Co-Chief Executive Officer, Director

Brian Bidulka - Chief Accounting Officer


Gus Papageorgiou - Scotia Capital

Jeffery Kvaal - Barclays Capital

Maynard Um - UBS

Jim Suva - Citigroup

Deepak Chopra - Sidoti

Mike Abramsky - RBC Capital Markets

Chris Uvistosky - TD Newcrest


Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Research In Motion third quarter fiscal 2010 results conference call. (Operator Instructions) I will now turn the conference over to Edel Ebbs, VP of Investor Relations. Please go ahead.

Edel Ebbs

Thank you. Welcome to RIM's fiscal 2010 third quarter results conference call. With me on the call today is Jim Balsillie and Brian Bidulka. After I read the required forward-looking statements disclaimer, Jim will provide a business and strategic update. Brian will then review the third quarter results and I will discuss our outlook for the fourth quarter of fiscal 2010. We will then open the call up for questions.

I would like to note that this call is available to the general public by a call-in number and webcast. A replay of the webcast will also be available on the website.

We plan to wrap up the call before 6:00 p.m. Eastern this evening.

Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These include statements about our expectations and estimates with respect to product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, investment income, earnings, seasonality, ASPs, and foreign exchange related matters for Q4 and beyond; our expectations regarding RIM's near and long-term tax rates, as well as the effect of changes to Canadian tax laws; our estimates of the number of net subscriber account additions and other non-financial metrics; our product development initiatives and timing; developments relating to our carrier partners; and other statements regarding our plans and objectives.

We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue, and similar expressions. All forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and assumptions we have made.

Many factors could cause our actual results, performance or achievements to be materially different from those expressed or implied by our forward-looking statements, including risks relating to our intellectual property rights, risks relating to the uncertainty of general economic conditions, our ability to enhance our current products and develop new products and services, our reliance on carrier partners, third-party manufacturers, third-party network developers and suppliers; the efficient and uninterrupted operation of RIM's network operations centers; risks associated with our international operations; foreign exchange risks; risks relating to competition and other factors set forth in the risk factors and MD&A sections in RIM's filings with the SEC and Canadian Securities Regulators.

We base our forward-looking statements on information currently available to us and we do not assume any obligation to update them except as required by law.

I will now turn the call over to Jim.

James L. Balsillie

Thank you, Edel. We are pleased with the results for the third quarter with record shipments of BlackBerry smartphones and revenue, diluted earnings per share, and net subscriber account additions that exceeded the ranges we forecasted in September.

During the quarter, RIM's manufacturing team did an exceptional job of ramping production, which allowed us to ship over 10 million BlackBerry smartphones in a single quarter for the first time ever, which brings the total number of BlackBerry devices shipped to date to over 75 million. Revenue in Q3 grew 41% over the prior year to $3.92 billion and diluted earnings grew 60% to $1.10 a share.

Approximately 4.4 million BlackBerry net subscriber accounts were added during the quarter up approximately 16% from the last quarter and up 70% from the same quarter last year. The BIS subscriber base has grown steadily over the past couple of quarters, reflecting successful execution of our plans to expand into broader market segments in over 80% of net new subscriber account additions came from non-enterprise customers again in Q3. RIM's enterprise subscriber base continued to grow in Q3 with particular strength in international markets and we are looking forward to launching new strategies to address additional enterprise and business market segments and drive increased growth in this segment in the coming months.

During the third quarter, RIM's product development teams did an excellent job of launching three new BlackBerry smartphones, including the BlackBerry Storm 2, with Verizon and Vodafone, the BlackBerry Bold 9700 with multiple carriers in North America and around the world, and the BlackBerry Curve 8530 for CDMA networks. Storm 2 was announced in October and offers a number of enhancements over the original storm, including improved tactile feedback, increased memory, the addition of WiFi, and BlackBerry 5.0 handheld software, which delivers a number of enhancements, including a faster browser and increased responsiveness.

The BlackBerry Bold 9700 was also launched in Q3 and the response to this product has been exceptional, with many reviewers calling it the best BlackBerry ever with praise for its tremendous battery life, sleek look and feel, new higher resolution screen, and many other feature enhancements. Towards the end of the quarter, we also launched our newest Curve, the Curve 8530 for CDMA networks and we expect this product to ramp throughout December and into the new year.

Previously launched BlackBerry smartphones such as the Curve 8900, Tour 9630, and Bold 9000 also continue to drive adoption of the BlackBerry platform during Q3. Focused execution in international markets led to the strongest quarter ever for growth outside of North America with 37% of revenue coming from these markets and approximately 35% of the BlackBerry subscriber base now outside of North America. With the launch of products such as the BlackBerry Curve 8520, the BlackBerry Bold 9700, and the ongoing popularity of the BlackBerry Bold 9000 and BlackBerry Curve 8900, we expect this momentum to continue into Q4 and beyond. While the Curve 8520 and the Bold 9700 have been instrumental in driving strong growth in international markets, we are also seeing a halo effect on other BlackBerry products in these markets one the new products are launched.

International growth is driving strong profitability to our business as these markets typically have gross margins that are at least as good as their North American counterparts, despite different product mix and go to market strategies.

There are now over 530 carriers and distribution partners offering BlackBerry products and services in over 170 countries around the world and there is tremendous potential to gain share in these regions by driving deeper relationships with our carrier partners and continued expansion of indirect channels.

North America also continued to be a significant driver of growth in Q3. We launched two new products with Verizon during the quarter, the BlackBerry Storm 2 in early November and the BlackBerry 8530 in late November. Verizon support continued -- continued to support BlackBerry products with the buy one, get one promotion and attractive pricing and placement in their retail stores.

Sprint had an exceptional quarter with aggressive promotion of the BlackBerry Tour at $149 and Curve 8330 at $49, which was coupled with the launch of a BOGO promotion that led to substantial growth in the Sprint BlackBerry subscriber base in the quarter.

During Q3, T-Mobile launched its first 3G BlackBerry smartphone, the Bold 9700, and supported the Curve 8520 in both direct and indirect channels with online and TV marketing.

The Bold 9700 was also launched with AT&T during the quarter and they also recently launched the BlackBerry 8520. AT&T is heavily promoting BlackBerry products for the holidays with a special 50% off promotion on BlackBerry smartphones, including the Bold 9700 and Curve 8520.

We look forward to continued success from this promotion into the new calendar year.

In Canada, Rogers launched the Bold 9700, the Bold 9000 in white, and the Curve 8520 in two colors and has been supporting these products with a holiday marketing campaign. Telus and Bell also launched the Bold 9700 on their new HSPA network and supported the launch with both holiday and enterprise focused media campaign. Telus also launched the new BlackBerry Storm 2 in time for the holidays.

Heading into Black Friday, we also saw strong performance from indirect channels in North America, such as Walmart and Best Buy. These channels continue to grow in terms of their contribution to subscriber account additions and are becoming increasingly important as more and more North American consumers choose to purchase smartphones for these channels. In the week leading up to the U.S. Thanksgiving, Walmart had tremendous success with promotions that offered $100 Walmart giftcard with the purchase of any BlackBerry smartphone. Online channels included Amazon and Let’s Talk also offered aggressive holiday promotions, which drove strong sell-through over the period.

In Europe, Car Phone Warehouse introduced several BlackBerry smartphones in multiple colors and the Curve 8520 was the most successful BlackBerry smartphone launched ever through this channel. We are seeing strong support from our carrier partners in Europe. Vodafone U.K. had a strong quarter with launches of Storm 2, Bold 9700, and Curve 8520. They also ran an extensive marketing program to support the Curve 8520 with the tagline tweet your heart out, which positioned the new Curve as the ultimate social messaging smartphone.

Also in the U.K., Orange had a strong quarter with record BlackBerry sell-through, driven by aggressive promotions of the Curve 8520, which included a service bundle that offered a free 8520 with a 20 pound post-paid plan and a 179 pound prepaid offer. We had an excellent quarter in France with all carriers in the region delivering strong growth. These carriers successfully target the 15 to 25 year old market segment with the Curve 8520 and offered cap service pricing packages which were supported by marketing and promotional campaign targeting this segment and highlighting unique features of the BlackBerry platform, such as BlackBerry Messenger.

There continues to be strong demand for BlackBerry smartphones in the Middle East. In Saudi Arabia, the Curve 8520 was launched across multiple carriers and when coupled with an expanded retail presence and the introduction of prepaid service on Saudi Telecom, the BlackBerry subscriber account base in the region grew substantially.

In the United Arab Emirates, [inaudible] saw a significant increase in sell-through with their launch of the 8520 and the introduction of a BOGO promotion on certain BlackBerry smartphones. These offers were combined with [inaudible] ongoing free BIS for three months offer that was launched last quarter.

Q3 was also an exceptional quarter in South Africa, where Vodacom promoted BlackBerry products on TV and other media, as well as the retail channel and [MTM] gave the Curve 8520 center stage in their promotional activities during the quarter.

In Latin America, the success of new product launches such as the Curve 8520 and Bold 9700 have moved BlackBerry products to the leadership position in the smartphone market in the region. This combination of appealing new handsets, tiered pricing structures, and strong brand recognition has enabled BlackBerry products to continue to aggressively grow in the market. Carriers throughout Latin America are offering attractive service packages and supporting BlackBerry smartphones with extensive promotional and marketing support.

For example, in Venezuela, Telefonica and Digitel both promoted the launch of the Curve 8520 with integrated marketing campaigns and point of sale promotions targeted at both university students and corporate customers. In Mexico, Tel-Cel aggressively launched the 8520, which was supported by a marketing effort that highlighted BlackBerry smartphones in combination with their existing lower tiered pricing packages, and promoted the capabilities of BlackBerry Messenger.

Also in the region, Nextel International launched the new Red 8350-I with attractive pricing and service plans and PC World in Latin America voted the BlackBerry Bold 9700 the best smartphone for professionals in 2009.

India continued to show strong growth in Q3, building on the momentum of the Curve 8520 launch and the expansion of our distribution relationship with Reddington. Reddington now offers several BlackBerry smartphones, including the BlackBerry Curve and BlackBerry Storm through the network of retail stores in 45 cities throughout India.

In Q3, we also launched App World in India and have a strong pipeline of applications from local developers that will be launched for both enterprise and consumer customers in the region.

Southeast Asia extended the strong momentum from Q2 with the introduction of BlackBerry Curve 8520 in markets including Indonesia, Malaysia, Philippines, Thailand, and Singapore. Many service providers in these countries introduced compelling prepaid and other plans targeted at gen Y segments with emphasis on social networking and non-email messaging.

Other developments in the region included the launch of App World with free apps along with a growing list of local applications in India and Singapore, availability of the first CDMA based BlackBerry smartphone in India, Indonesia with Smart Telecom, and the debut of the new BlackBerry Bold 9700 smartphone in the Indonesian market.

China represents a large new market opportunity for BlackBerry products and services and we are moving forward with our plans to more aggressively target this region. Last week, RIM and China Mobile announced a deepening of our strategic relationship with plans to launch BlackBerry service for individuals and joint collaboration on the development of BlackBerry smartphones that support PDS CDMA as well as PD LTE.

We also recently announced plans to work with Digital China to distribute BlackBerry smartphones in the Chinese market. Digital China is the largest IT service provider in China with regional centers in 19 major cities throughout the nation and we look forward to growing our presence through this partnership.

Today, we are also pleased to announced that RIM and China Telecom have signed an agreement and we are working closely on plans to offer BlackBerry products and services to China Telecom’s customer base in China. We will provide more details on the relationship and the launch plan in the coming months.

China is an important and strategic market for RIM and these partnerships will facilitate the broadening of our platform and help drive adoption throughout the different market segments in the region.

To further support our efforts in China, RIM is also exploring opportunities to manufacture and conduct R&D activities in the region.

As we discussed during RIM's capital market day in May, we are continuing to implement service price tiering strategies to further segment the market for BlackBerry products and services. For example, [Telecom Sao] Indonesia, in addition to its full BIS offering, also offers the lower priced version of BIS that gives the customer a more limited feature set that includes only IM and texting for the equivalent of about $7 a month.

In Canada, Telus also has a similar plan that includes unlimited email and instant messaging or texting, social networking, and IM, for $15 a month.

In the United States, T-Mobile launched the BlackBerry Curve 8520 with a prepaid voice and data option starting at $50. This is the first time a large North American carrier has offered a prepaid BlackBerry service plan and we are optimistic that more and more carriers will begin to see the benefits of offering limited use, tiered pricing plans in the United States.

We plan to continue to pursue tiered pricing opportunities, particularly in North American markets, where there has been limited application to date of these types of pricing plans.

During the third quarter, RIM launched its new integrated marketing campaign promoting the love what you do theme on TV, outdoor, newspaper, and digital media in North America, the U.K., and Germany. This new campaign is designed to help support the launch of our new products while expanding the brand footprint from a brand for business to a brand for people from all walks of life.

The love what you do campaign has driven significant increases in all of our brand perceptual metrics and through our U.S. digital marketing efforts, the brand has also been very successful in channelling perspective new BlackBerry customers to our partners’ websites. This campaign will be expanded in Q4 to address key markets in Latin America and Asia.

In early November, we held our second annual developers conference in San Francisco with more than 1500 attendees. At the conference, we unveiled a new services platform for developers that will enable them to streamline business processes and build highly responsive location aware, revenue generating applications for the BlackBerry platform.

Our goal is to deliver deep, rich integration of wireless to provide a transformative user experience. The new services platform offers a number of enhancements, including the ability to more easily offer advertising within applications, the ability to offer built-in payment capabilities, support for push content, and support for location based services. We also announced Open GL ES support, a Java GUI builder, and Theme Studio to help developers generate dynamic user experiences with the ability to rapidly develop rich content for applications.

Additionally, we announced a partnership with Adobe to deliver support for the BlackBerry platform within Adobe’s creative suite, which will allow developers to use Adobe Flash platform technology and Adobe creative suite content development and authoring tools to easily create rich content and application experiences for the BlackBerry platform.

During Q3, we also announced a new web platform and widget SDK that enables a large community of web developers and designers to create BlackBerry applications through the use of common web technologies, including Javascript, HTML, CSS and uniquely integrate them with core BlackBerry APIs and data. These APIs give developers the capability to access the native address book calendar location and network services, graphics, and more to deliver rich compelling applications. These web applications will be able to leverage the unique attributes of the BlackBerry platform and can be easily deployed through BlackBerry App World or through other downloadable methods.

These developments also allow us to help our carrier partners participate in value-added services strategies. The BlackBerry carrier concierge approach will provide our partners with the ability to strengthen their customer relationships by bringing together context, web seeds, and widgets to deliver relevant, timely content to their customers. Carriers can customize the experience to deliver rich, contextually aware applications and services on BlackBerry smartphones and potentially leverage these strategies to participate in new revenue streams.

RIM has always had a strategy of constructive alignment with our carrier partners and the pieces are now in place for us to leverage the always on, multi-threaded push, presence, location, and context capabilities of the BlackBerry platform to provide a compelling and differentiated user experience that enables rather than disintermediates the carrier.

In addition to these developments, we have also made a number of other announcements at the developer conference, including plans to deliver a web kit browser during calendar 2010, plans for delivery of an integrated carrier billing system for transacting on BlackBerry smartphones, support for themes in App World, an optimized e-bay application for BlackBerry smartphones, and many other services and applications that will drive continued enhancement of the user experience.

BlackBerry App World continues to evolve and during the quarter support for 18 new countries was added, along with multi-lingual support, including French, Italian, Spanish, German, and Brazilian Portuguese. The number of application downloads continues to accelerate and more and more BlackBerry smartphones are now shipping with App World preloaded, which we expect to drive even greater adoption.

Growth in e-commerce and transaction based applications for the BlackBerry platform is also accelerating. Over the past several months, applications that leverage the unique capabilities of BlackBerry have been launched by partners including e-bay, Amazon, MasterCard Canada, and N-Stream. The reality of using BlackBerry smartphones to do everyday transactions is emerging as the significant trend and the push-based secure environment of the BlackBerry platform is an important competitive differentiator.

Another unique element of the BlackBerry platform that is driving growth in multiple segments is BlackBerry Messenger. During Q3, we launched BlackBerry Messenger 5.0 with added new features and functionality, including an enhanced SMS interface, group functionality with shared lists and calendars, bar code identification to add new users quickly, and large file transfer capability for different types of shared multimedia.

In November, RIM's Board of Directors recently approved a share repurchase program and during the quarter, RIM repurchased 12.3 million common shares for a total value of $775 million at an average price of $63. These repurchased shares were cancelled and while the repurchase did not have an impact on EPS during the third quarter, there will be approximately a $0.03 per share positive impact on Q4 diluted EPS. The guidance outlined in the earnings press release that was issued this afternoon reflects this amount.

Before I turn the call over to Brian, I would like to take this opportunity to say that Mike and I are pleased that Brian has agreed to become RIM's Chief Financial Officer. Brian joined RIM in 2005 and became Chief Accounting Officer in 2007. In addition, we are also pleased to announce that Keith Pardy, who joined RIM in the past year, has become RIM's Chief Marketing Officer.

I will now turn the call over to Brian to review Q3 results.

Brian Bidulka

Thank you, Jim. Revenue for the third quarter ended November 28th was $3.92 billion, which was 11% higher than the $3.53 billion reported in the previous quarter and slightly higher than the guidance we provided on the September conference call.

Handheld devices represented $3.2 billion, or 82% of revenue during the quarter, slightly higher than the $2.9 billion, or 81% in the previous quarter.

Total devices shipped in the quarter were higher than Q2 at approximately 10.1 million units. This was higher than our forecast in September, primarily due to the success of Curve 8520.

Approximately 9 million new devices were activated in Q3 either for new customers or for replacements and upgrades, not including phone only sales. We estimate that four weeks of channel inventory at the end of Q3 were slightly lower than Q2, and we expect channel inventory in Q4 to be similar to Q3.

Device ASPs in the quarter were approximately $317, in line with guidance.

Service revenue was $567 million, or 14% of revenue for the quarter, up $66 million from Q2. Monthly ARPU was similar to the prior quarter.

Software revenue was approximately $67 million, or 2% of revenue.

Gross margin for the third quarter was 42.7%, in line with the guidance we provided in September.

Operating expense in the quarter was $791 million, or 7% over the -- up 7% over the comparable Q2 levels.

R&D spending was $242 million, or 6% of revenue for the quarter, in line with our forecast.

Sales, marketing, administration expense was approximately $465 million, up approximately 8% over Q2.

Operating expenses include stock-based compensation expense of approximately $16 million.

Investment income in the third quarter was approximately $6 million. Tax rate for the quarter was approximately 29.4%, in line with our forecast.

Net income for the third quarter was $628 million, or $1.10 per share diluted. There was no impact on Q3 earnings per share from the share repurchases completed in the quarter.

Weighted average diluted shares used in the EPS calculation for the quarter were 571 million. Actual shares outstanding at November 29th were 557 million. Total options outstanding at November 29th were approximately 9.5 million.

As Jim mentioned, during the quarter, RIM repurchased 12.3 million shares at an average price of $63. The share count used to calculate EPS beyond Q3 should be reduced to reflect the cancellation of the repurchased shares.

Total cash, cash equivalents, short-term and long-term investments decreased by approximately $90 million to $2.41 billion at the end of Q3, as compared to $2.5 billion at the end of the previous quarter.

During the quarter, RIM generated approximately $1.1 billion in cash from operating activities which was offset primarily by the repurchase of shares totalled $775 million, capital asset additions of approximately $196 million, intangible asset additions of approximately $143 million. Excluding the share repurchase, RIM would have generated approximately $685 million in cash during Q3.

In Q3, accounts receivable were approximately $2.7 billion and DSOs increased to 63 days from 61 days in the prior quarter, primarily due to timing and geographic mix of sales in the quarter. Inventory on hand was up slightly in Q3 to approximately $613 million versus $573 million in the prior quarter. Inventories continued to be primarily raw materials and semi-finished goods to support demand for BlackBerry products.

I will now turn the call over to Edel to discuss our outlook for Q4.

Edel Ebbs

Thanks, Brian. Before I discuss our outlook for Q4, I would like to remind everyone that these forward-looking statements reflect management’s best current estimates and should be taken in the context of the risk factors listed at the beginning of the call and disclosed in our public filings.

We expect to ship between 10.6 million and 11.2 million units in the fourth quarter of fiscal 2010 and for revenue to be in the range of $4.2 billion to $4.4 billion. This growth is being driven by ongoing strong sell-through of BlackBerry products throughout December and into the new year and continued ramping of new products, including the Bold 9700 and the Curve 8520 and Curve 8530.

ASP in Q4 is expected to be similar to Q3 at approximately $320

We are targeting net subscriber account additions for the Q4 in the range of 4.4 million to 4.7 million.

We are targeting gross margin for the fourth quarter to be approximately 43.5%. This is slightly above Q3 levels due to product mix and success of ongoing efforts to reduce bill of materials costs.

As Jim mentioned, markets outside North America typically have similar or better gross margins than those within North America. It’s also important to note that it is not necessarily a directional relationship between ASPs and gross margin percentage. In fact, in many cases, our lower ASP products have higher gross margin percentages than the higher ASP products in the portfolio.

Total operating expenses are expected to increase in Q4 by approximately 8% to 9% from Q3 levels. We expect R&D to increase by approximately 8% to 9% and sales, marketing, and administration expense to increase by approximately 9% to 10%.

In the fourth quarter, we expect depreciation and amortization to be approximately $87 million and we expect CapEx to be approximately $275 million. The primary areas of spending for CapEx continue to be expansion of network infrastructure and R&D facilities.

Investment income is expected to be approximately $6 million in Q4.

We expect the tax rate to be approximately 29% to 30% in Q4 and beyond fiscal 2010, we expect the rate to be lower than this range as budget changes in Canadian corporate tax rates are implemented.

We expect Q4 EPS to be in the range of $1.23 to $1.31 per share diluted. This reflects the reduction in shares outstanding as a result of the shares repurchased in the third quarter.

I will now turn the call back to Jim.

James L. Balsillie

Thank you, Edel. We are pleased with the strong financial performance in Q3 and the outlook for the remainder of the fiscal year. RIM's diversified product portfolio, strong brand, and software and services strategies have enabled our carrier and partner ecosystems put us in an excellent position to continue to show strong growth in the coming year.

This concludes our formal comments. We would like to open the call up for questions. Please limit yourself to one question per person. We plan to end the call today by approximately 6:00 p.m. Would the Operator please come on to handle questions?

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Gus Papageorgiou from Scotia Capital.

Gus Papageorgiou - Scotia Capital

I know you don’t usually disclose this but I’m just going to ask it anyway -- can you tell us in terms of device volume, can you tell us the mix of CDMA devices versus GSM devices? And also, can you tell us which was the most popular selling device in the quarter?

Edel Ebbs

We don’t break that out and so we are not going to start today. In terms of the top selling, again we don’t typically break them out by shipments. Clearly 8520 was a very successful product for us in the quarter but so was the Bold 9700 and Storm, as well as the existing portfolio. I’m not going to be able to break it out for you as to which one was the top seller.

Gus Papageorgiou - Scotia Capital

Okay, thanks.


Your next question comes from the line of Jeffery Kvaal of Barclays Capital.

Jeffery Kvaal - Barclays Capital

I was wondering if you folks might delve a little bit into what is underway at Verizon -- obviously a pretty heavy promotion from the November quarter away from you that seems to have come back. What types of market dynamics are you seeing there, what types of promotional support should we expect going forward and any comments on your happiness with the Storm 2 trajectory would be super.

James L. Balsillie

Thanks, Jeff. Clearly Verizon is an important strategic partner and clearly we’ve had a lot of growth with them in the past year and also clearly we’d like that to continue and extend.

I think the important macro elements that are at play really that number one, you’ve read the reports and the proportion of smartphones that are going to be of the total handheld market is really crossing 50% right now and how far -- I should echo on all the way to 100%. The only question is the time to getting there and that’s something we’ve said for a while. So the overall market is growing and Verizon shares that view for smartphones and we have a very important place to play in that.

And I think what is at play here is you have very differing capabilities, you have very differing strategies between the different players, and different carriers have different strategies [would engage in that].

We have very special and distinct strategies with Verizon. We think it creates a lot of opportunity. The space is expanding. We think the richness of what we avail is clear. We think the alignment with them is clear.

But the reality of it is there’s a lot of turbulence in the ecosystem right now. There’s a lot of turbulence in the channel and you just see this by the changes in strategies, the extensions in strategies. There’s a very, very small number of material platform players and it’s creating a lot of changes in application strategies. Some carriers are feeling quite concerned about how they maintain their relevance. We’d like to be an agent of that relevance for them and entrenching it and extending it in a value-added way. But the fact of the matter is there’s lots of shifts and you are going to continue to see that in different geographies, in different carriers, in different platforms, in different applications and strategies.

I’d like to think that we represent an element of consistency, of alignment with the carrier, of deep rich integration and all we have done is strategically extend that deep, rich integration, invest more in that alignment and provide a richer smartphone set. But at the end of the day, you can't force love and -- but we are doing a lot and we are looking to do more but you’ve got to earn it every day, Jeff, and there’s no free rides in this, so -- I don’t have a crystal ball. We have got a pretty good sense of what we are doing in the quarter because we are so well into the quarter right now, so as we get good confidence in the guidance. We invest heavily and try to earn these spots and create value and sustain valuable every day but things can change. Certain carriers can really turn up real fast and others can shift their strategies and it’s a fact of our life. You can't force love but we are consistent in our alignment, we are consistent in our commitment to their prosperity and generally they respond positively to that.

Jeffery Kvaal - Barclays Capital

Could I ask if your outlook for the fourth quarter includes a decent amount of Valentine’s Day promotions, as it has in prior years?

James L. Balsillie

You can absolutely be assured that the channel programs are very, very active and all the channel participants are very, very active. And the services strategies that go with that and the particular types of devices and new services strategies and new promotion strategies is super active. And there’s a lot of extension points we have yet to declare in all of this, so -- but you can absolutely presume that the momentum should -- what we saw last year was it carried very well, past Christmas and then through January and then Valentine’s really kept you going and -- you know, but every year is a new new because we are going into broader, deeper diffusion of the market and richer sets of services, so it seems to be pleasantly surprising us every year but we are never really quite so sure if it is going to be the same pleasant surprise the next year as it was the past year.

Jeffery Kvaal - Barclays Capital

Thank you very much, Jim.


Your next question comes from the line of Maynard Um of UBS.

Maynard Um - UBS

Can you just talk about the $3 to $5 and $7 to $10 subscriber fees you are getting for consumer and enterprise subscribers from operators? And do you think those ranges kind of widen, given competition? Or maybe even volumes as they continue to ramp? Because there’s been some concern out there that you could see some reductions to those rates and I just also wanted to clarify on your revenue guidance, if I just take the midpoint of your hardware units and the 320 ASP and grow my subscriber revenues, it seems to imply something else is actually going to see a larger up-tick. Just wondering if my math is right. Thanks.

Edel Ebbs

I think on the ARPU, let’s start there -- I mean, we said it was flat in the quarter. And it does move around, depending on mix. We’ve been talking for some time about offering different tiered pricing strategies to grow the [addressable] market. We continue to do that with a lot of our partners around the world and also in North America. Those bands that we have talked about for quite some time, I mean, they are pretty -- I mean, those are still good numbers to work with. I mean, there’s times where particularly on the non-enterprise side, it’s going to be lower than that range, particularly when you start getting into some of the trial introductory BlackBerry plans and those kinds of things. But for the most part, I think that for your modeling, those are probably good ones to use for the next little while.

In terms of the revenue guidance mid-point, it should actually work out okay. Maybe we can take it offline if you are having trouble but it should work out to the numbers we guided.

Maynard Um - UBS

Okay, thanks.


Your next question comes from the line of Jim Suva of Citigroup.

Jim Suva - Citigroup

Jim, you talked about you can’t force love and enterprise has clearly loved you guys for an extremely long time. Are you starting to see any of the competitors, such as Apple or Android, trying to date some of those enterprise people? Or how do you look at the competition on the enterprise?

James L. Balsillie

Well, the enterprise -- first of all, there are some shifts happening in the enterprise and there has been some pretty moderate amounts at the lower entry and on [this stuff], but -- how do I put this -- you are going to see some very, very powerful offerings in both the SMB and with our Alt-N acquisition and in the low end enterprise area very, very soon which we think are going to be very, very powerful.

Plus you couple it with the BES 5.0, the scalability, manageability, and you take the fact that we -- you know, our MVS is really enriched and you saw at Dev-Con we had the things like the Oracle J builder and Fusion that works with our push widgets. So now you can like just whip off apps because you’ve got such a rich framework and SAP and WebSphere are really gaming up to that too, so the richness of that. Plus the MVS and we have -- you know, that’s tracking very well. I just got the report of the new MVS installations in the chalk media stuff with the enterprise video type stuff, and that’s accelerating. And quite frankly, we have a very powerful set of extension strategies which our briefings with CIOs has just been absolutely game-changing in terms of their ability to manage costs and their whole computing architecture. Really leveraging the trusted BlackBerry mobile BPN and the fact that it could also be on WiFi.

And so I am seeing very straightforward countering on the low-end, knock-out SMB plays, but actually the thing that most gets me out of bed on the B2B is the fact that there is a transformation happening in computing architectures where they need more capability but they need to take out costs, and where the antidote on sort of a re-architected form of corporate enterprises, which is pretty easy to evolve from what’s installed -- in fact, very easy to involve.

So I would say the evolution of the B2B, the opportunity in addressable market has -- I would say rapidly expanded and strengthened is an understatement.

But a lot of it, elements are in public, some are due to be launched soon. But in our CIO exchanges, I mean, it’s hard to sort of overstate the level of enthusiasm because what it does to liberate what they need to do their business in a way that takes down costs, current costs so much and enables where they want to go, they need to go. So I actually, though I am really excited about the B2C, I love the B2B because I have just got so much history in it and these are home run strategies. So I would say our competitive position in the B2B is dramatically strengthened in its architectural stuff but we have a lot of completion of R&D and implementation of the things these guys need.

Jim Suva - Citigroup

And briefly, should we think about North America eventually getting back on the growth saddle or should we really think about the growth saddle being driven by international?

James L. Balsillie

Both -- I mean, you know -- both. In North America, the level of strategic engagement with the carriers and the developers on the deep, rich integration -- because carriers -- the carrier now concierges the presentation. So they are not just intermediated. That’s the key. And it’s contextualized. Plus they integrate the billing.

So they do the defining value-add and you just roll in, you run all these widget based apps that are pushing and multi-threaded in the background. And you just do better contextualization and they control that and they default it and they evolve it. So it’s very, very powerful. They love that in the B2C and the app guys love it too because of the rich service layers.

And then on the B2B, that’s ready to go to another level and a lot of that leads out of North America naturally. But the international markets are showing such strength. But then there’s a lot of competitive turbulence, so it all rolls up a nice big number but there’s just so much bobbing and weaving underneath. But yeah, definitely North America is going to keep growing. It’s all growing. I mean, it’s subsuming other markets and it’s creating value, so we are just happy to be at the subsuming point, right? I mean, obviously -- it’s value, the carrier has got to have a key role, and people have new ways to monetize what they do but you’ve got to have a radio with smart capability, platform capability around it or it’s hard to make it happen.

Jim Suva - Citigroup

Thank you and congratulations, Jim.


Your next question comes from the line of [Deepak Chopra] of [Sidoti Capital Markets].

Deepak Chopra - Sidoti

I was wondering, could you provide a bit of granularity on the international subscriber additions in the quarter? I was hoping you could even provide us a number in terms of what was the percentage coming from international regions. And could you extend that and talk a little bit about China -- you know, is that expected to impact numbers in the next three months or when do you think they will start becoming a meaningful part of your subscriber adds?

Edel Ebbs

We are not going to break out those numbers for you, Deepak. It’s not something that we typically do. Jim can talk about China, as he was just over there.

James L. Balsillie

China, we announced the CT deal today, so that’s actually really, really good, and they are CDMA. And there’s three carriers and two are announced that we have partnered with, China Mobile and the CT. And we are supporting the architectures they want. We are also putting infrastructure there and manufacturing and R&D and localization and supporting value-added application guys and sales and channel stuff.

But we have also -- we’ve got a job to do. We’ve got some enhancements in localizing the product. We’ve got some new air link stuff to get done and the TD and involve that. So we’ve got a lot of work to do but we are aligned with the interests of users and the carriers in the States. We are constructive long-term players. I think we have carefully invested there and got to a very good position and second half of next year, you know, and a lot of products and certification that we need and more that you may not expect and we got to get the [WAP] support for their WiFi and some other elements of localization to do, so -- yeah, I go over there lots, and I’ll keep going. I feel good about China and it’s got a role in something pretty helpful in the back half of the year next year. Yeah, the international stuff is going very, very well. Asia is kicking in big. Lat Am really kicking in big and Europe is really, really kicking in big. And North America is still going good. I mean, it’s -- you just hate zero basing this stuff, right? The problem is as you grow your capabilities as fast as you can but at the end of the day, you have to cut it off because you run out of hours in a day and so it’s that high cut-off threshold of zero-basing your capabilities, all the time trying to expand your capabilities thoughtfully and the hardest part of our job is rationing capacity to expansiveness because everyone can do more and wants more if we can support them the way they want to. That transition of the cell phone to the smartphone is happening at a power curve right now and it’s just the way it is.

Deepak Chopra - Sidoti

Jim, could you talk about how your abilities to sort of manage bandwidth to the carriers, how is that impacting sort of the pricing plans you are seeing coming out of international markets and what do you think how the market here in North America will evolve?

James L. Balsillie

Well, that’s a very good question and we’ve been sort of saying this for a couple of years and it’s one of those things where until these guys start hitting a wall, they don’t believe you. And they are having huge problems in Europe -- the problems in Europe are just like -- you have heard of problems in [QOS] in North America, right? Well, those are -- usually those are air link capacity issues and sometimes back-haul issues and back-haul is expensive. And it’s variable, so there’s a price per packet.

But also [Shannon’s] law is a [bit per hertz] and it is theoretically pretty fixed by physics. So when you up these bit rates of these apps or you up the bit consumption of the apps or you up the bit rate of the spectrum, it doesn’t mean you get a big expansion of capacity. You get little bits.

Now China, sure, the government gives China Mobile 50 meg nationwide for TD -- well, that’s pretty orderly but the rest of the world doesn’t really work that way. They get little bits here and little bits there, so we are very, very efficient with the networks and we’ve always did holistically because it managed, it made it faster if you half the packets and you double the battery life but now carriers are -- and now they are talking about thresholds of network consumption and base pricing and what is net neutrality versus this kind of stuff. And you can't repurpose spectrum like you can fiber. And so I think WiFi and side loading is going to be their friend. I think careful management of the network is coming on and I think the tricky part is the carriers are talking about it, they are upping capacity but the sort of heavy apps and the big file sharing apps are more than gobbling up capacity as it is being put on and that gap is widening, so I think it’s an unsustainable model.

And so we are pleased that we have grown even though this reckoning hasn’t fully reckoned, but for those of you that have known us, we’ve been preaching this for a while and we said you have to ration your scarce capacity thoughtfully and people said capacity can be expanded infinitely basically and there is no limit to CapEx. I think the CapEx has become really tough. I think the limits of capacity have shown themselves and if you are sort of careless in throwing capacity, people pay less for it anyway so it’s really a death spiral. And you throw in disintermediation risk, that’s a very, very tough economic to the carrier.

So I think strategic services engagement that provides thoughtful use of their network in a high value basis has to be the epi-center of a thoughtful carrier strategy and we are comfortable where we are. But there’s a reckoning going on right now but I don’t think the reality of that is fully distilled yet. I think they are still digesting its implications, because it’s a technical economic regulatory intersection which is -- we can't see a way to resolve it other than what we are trying to [advocate], so this is not just biasing to our position. I don’t have a better idea other than what China did, which is just -- this is what we are doing nationwide and everybody line up behind it but they have more forms of latitude in those kinds of planning than in the rest of the world that I have seen.

Deepak Chopra - Sidoti

Thank you, Jim.


Your next question comes from the line of Mike Abramsky of RBC Capital Markets.

Mike Abramsky - RBC Capital Markets

Jim, you earlier said that there’s a small number of material smartphone players. That would sort of suggest maybe you view a shakeout coming given the high level of competitive intensity from maybe obviously into the leaders and the laggards. How do you see that sorting out and what in your view will differentiate those leaders versus the laggards, particularly in the consumer market?

James L. Balsillie

I think what I said there’s a small number of smartphone platform players. If I didn’t, then I’ll clarify and say that’s what I meant.

We viewed that you need the consolidated consumer electronics of an efficient, high performance smartphone and you need a services platform to make this digital services reality thing. And I think that’s proven out by where there’s been traction -- and I’m not talking feature phones. I’m talking smartphones and that’s that whole high ARPU, high value place to go.

So I think it’s irrefutable it’s a very finite number of players. I don’t think -- I mean, it’s just math right now but there’s a bunch of feature phone guys but I don’t think that’s enough. Some carriers are trying to do creation of semi-platform stuff internally. I think that’s a tough game if it’s not aligned with a more rich global enhanced platform but they can try it.

And I think it’s going to come down to how capable is the offering in terms of its richness, and you can define richness in a bunch of ways. You can define it in breadth of applications, you can define it in depth of services capability, you can define it in vertical integration of applications -- it can be defined a bunch of ways and the different strategies are pretty clear.

I think one of the key elements is alignment with the elements that the application ecosystem and the content ecosystem and most importantly the carrier platform imperative is super critical and I think that’s what’s going to really shake it out. But it is a bit of a land grab right now and it’s a pretty finite number of guys and I don’t know what the future holds for sort of the feature phone, per se. We’re pretty focused on the connected services platform with the smartphone so you are getting into shades of grey of definition there.

I don’t know. You know, it’s hard to know. We just know that it’s going more to smartphones. You need connected services platform to really take advantage of what’s there. BlackBerry Messenger is becoming -- it’s just exploding and it’s actually becoming the youth thing. The youth, really, really that’s what they wanted. It’s just [defined in groups] and voice notes and all that and a lot of other stuff. And the new services platforms are -- you know, some are online, some are coming on soon, so I think you have to go deep and rich and you have to be efficient and you have to align with the carriers and the developers and the tools because you can't do it all. And so we are trying to be that enabler and we are trying to price aggressively and align well and innovate well.

We think that’s a sweet spot but I could be wrong but it seems to be working and it’s the extension point and there’s a lot of stuff we haven’t declared, which are going to pleasantly surprise people in terms of elements that we are just not ready, so I think we are thinking a few steps ahead on this -- so it’s hard to see how you will want something without that kind of definition around it because it’s just -- you know, it does a lot of stuff that really makes it nice for you and it makes it good for the carrier and it makes it extensible for the developer and the content guys aren’t threatened.

So constructive alignment’s our gig, and I hope we are right.

Mike Abramsky - RBC Capital Markets

Okay, and then just very briefly, on the same line what kind of in your view prevents the industry from becoming more commoditized if some of these perhaps less valued players turn to price as a way to try to gain market penetration?

James L. Balsillie

I mean, that’s always a risk but I also sit there and say you can also provide value like -- I mean, we talked about the web kit browser -- boy, when you can get that rendering with our transcoding and our infrastructure, you would be shocked how fast it is and how it shrinks the network consumption. You know, the contextualizers of BBM, the push at that and the -- I mean, the whole services layer is the payments APIs, the ad APIs for developers, for carriers, the concierging for the carrier platform, the BES capabilities these new sort of SMB things we are doing, the ALT-N with push BlackBerry, the geocoding stuff, the peer-to-peer APIs, the push APIs, the graphics enhancers, the tools -- I mean -- and this diversity of smartphones and special designs [inaudible] with carriers and channel programs and branding -- you know, I mean, the brand really went up a lot if you saw the brand reports and we didn’t get in any silly brand [bun] fights so -- and that really helped in sort of a good way.

So I don’t know -- you have to earn your place every day and every day is busy and there’s more to do than there’s time to do but you’re in a good spot and you have to work every day to hold it and extend -- I see lots of extension points. I guess what I’m trying to say, there’s lots of innovation points so when will the world stop having innovation points? I don’t know. I can't foresee it right now but it’s possible, but I don’t see -- people [have been talking commodity] of this stuff for five years and it’s been anything but, so -- and I see the enrichness and diversity and enabling and complexity currently mushrooming, not rationalizing and shrinking.

But it’s possible it could change that but I don’t see it.

Edel Ebbs

Operator, I think we have time for one more.


Your last question comes from the line of Chris [Uvistosky] of TD Newcrest.

Chris Uvistosky - TD Newcrest

I’d probably ask you this one for the last question -- when I talk to investors and people in the industry, the biggest question that comes up for me, and I’m not sure even how to answer it myself so I am really interested in your answers -- consumer awareness of what makes BlackBerry different. I think as analysts and investors who follow the company so closely, we all know a lot of the things that make BlackBerry special but I am wondering how are you making consumers aware of what makes BlackBerry special? And in particular, the advertising that we see -- you know, love what you do -- it’s very brand oriented as opposed to feature oriented or anything like that. And I am sure you have your reasons for doing it -- I’m interested in knowing what you really think is the customer perception out there and what makes BlackBerry different, and how that might change over time?

James L. Balsillie

Well, the BlackBerry -- first of all, the brand stuff has been going off the charts, so in terms of what it has done for brand awareness and purchase intensity, it’s been fantastic. So awareness of what it is and what it represents, that’s just been -- that campaign has been a home run. I mean, it’s been more than a home run for us, quite frankly, so -- I mean, that’s, what you want to do, I think a lot of aspects of BlackBerry is very viral, like BBM. I think the carriers have a lot to say in promoting it and hero-ing it and that’s helping a lot.

And there’s elements where there’s a couple -- you know, we will enhance -- you know, when you go to print, you can go more feature like, and we do that. And when you go web, you go more feature like, so don’t just judge in terms of what you see on traditional TV media because there’s other forms of media where you bring that out and there’s a couple of ways where we can bring that out more intensely but it’s about representing a set of promises and I can just tell you in terms of all the elements of consumer awareness, of the value of BlackBerry, that campaign has been far exceeded our expectations. And there’s strategic extension points to that that are imminent in some evolutions and you will see some of it tomorrow. And you will see there’s evolutions of that at the right time based on the strategy that you will see late winter. And we complement it with other forms of media and you are just going to see -- there’s a whole layering of the advertising, branding, ease of discovery, U.I. on the device, new form factors, new platform extensions, new service layers -- I mean, it’s pretty interesting right now and it’s pretty multi-dimensional and it’s fun. It’s got a lot of possibilities to it. I think it’s working, quite frankly -- I think the consumer side is growing real fast and the brand has gone real fast and the purchase intensity has gone up way high and it’s not like this isn’t a competitive space with big companies trying to do well, and yet we are number one. So there must be something right there and it’s not in the environment of the heaviest B2B spending ever, so one could make a pretty good case that not what are we doing for consumer awareness -- it’d be what was it that you did right for consumer awareness, because it is sort of showing up in the results, in the numbers.

But we’ve got lots more to do and there’s layers upon layers unfolding here. But it’s a fair question. We just -- we’ve got lots more to do. But I think what we are doing is designed to do that job and seems to be doing that job but it’s a work in progress, not a job done.

I just can't give a lot more detail because I don’t want to -- there’s elements that are confidential in this.

Chris Uvistosky - TD Newcrest

All right, Jim. I appreciate the answers. That’s really detailed. Thanks a lot.

Edel Ebbs

Operator, that’s all the time we have today. In closing, I’d like to remind everyone that there is a replay of this call available at 416-640-1917, pass code 4189541#, or you can listen to the call which has been recorded and is available on the investor events section of our website at Thank you.

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