Research In Motion Q1 Digest and Conference Call

Research In Motion (Nasdaq: RIMM) reported first-quarter earnings this week and hosted an investor call. Here's a Foolish digest for current or prospective RIM investors.

Quick numbers check

Sentiment change?

Data from Motley Fool CAPS. Rating out of a possible five stars.

Further RIM news and analysis:

• What's Wrong With RIM? (Fool.com)
• Research In Motion Q1 Results (RIM Investor Relations)
• Research In Motion's Q1 Profit Jumps 20% (Associated Press)

What follows is a lightly edited transcript of the conference call.

Edel Ebbs, Vice President of Investor Relations
Thank you. Welcome to RIM's fiscal 2011 first-quarter results conference call. With me on the call today is Jim Balsillie, Co-CEO, and Brian Bidulka, CFO. After I read the required cautionary note regarding forward-looking statements, Jim will provide a business and strategic update. Brian will then review the first-quarter results, and I'll discuss our outlook for the second quarter of 2011. We will then open the call up for questions. I would like to note that this call is available to the general public by a call-in number and webcast. A replay of the webcast will also be available on the RIM.com website. We plan to wrap up the call before 6:00 p.m. Eastern this evening. Some of the statements we'll be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, and applicable Canadian Securities Laws. These include statements about our expectations and estimates with respect to product shipments, revenue, growth margins, operating expenses, CapEx, depreciation and amortization, earnings, and ASP for Q2 fiscal 2011 and beyond. Our expectations regarding RIM's near long-terms tax rates, as well as the effective changes to Canadian tax laws are estimates of the number of net subscriber account additions and other non-financial estimates across 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 risk to the (inaudible) or intellectual property rights, our ability to enhance our current product and develop new products and services, risks from the competition, our reliance on carrier partners, third-party manufacturers, third-party network developers and suppliers, risks relating to network disruptions and other business interruptions, our ability to manage our production facilities, security risks, risks associated with our international operations, our ability to manage growth, and other factors set forth in the risk factors and MD&A sections in the 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 obligations, updates, except as required by law. I'll now turn the call over to Jim.

Jim Balsillie, Chairman, Co-CEO
Thank you, Edel. We are pleased to be kicking off fiscal 2011 with a strong footing with unit shipments for the first quarter of approximately $11.2 million and the shipment of RIM 100 millionth BlackBerry SmartPhone. Earnings per share in the quarter were at the high end of our expectations and grew more than 40% over adjusted earnings per share the same quarter last year. We added 4.9 million new BlackBerry subscriber accounts for the subscriber base of approximately 46 million at the end of the quarter. Unit shipments in Q1 were affected by later-than-anticipated shipment of certain new products scheduled for the latter part of the quarter. Revenue for Q1 was at the low end of the range we forecast in March, primarily due to the slightly lower-than-expected shipments and the resulting product mix that favored lower ASP products. Product mix also led to the higher-than-expected gross margin in the quarter. Channel inventories remained relatively flat in Q1, and we are not anticipating a significant increase in weeks of channel inventory in Q2. BlackBerry SmartPhones are available through over 550 carrier and distribution partners in over 175 countries, and international markets continue to be a strong driver of growth. We saw ongoing success in our efforts to increase BlackBerry penetration in enterprise, consumer, and prepaid markets around the world during the first quarter. Net subscriber account additions outside North America were particularly strong in Q1, and approximately 40% of the subscriber account base is now outside of North America. We are expecting second-quarter BlackBerry SmartPhone shipments in the range of 11.6 to 12.1 million, and to add between 4.9 and 5.2 million net new subscriber accounts. Forecasting the second quarter is challenging, given that we are planning two significant new product introductions that will likely bridge the end of Q2 and into Q3. The specific time of these launches will have an impact on how much of these products ship in Q2 versus Q3. These products also have higher ASPs, so a shift in the percentage of these products in the mix for Q2 also has a meaningful impact on our revenue and earnings forecast. We have an exciting lineup of products, services and promotions expected to be introduced between now and the end of the fiscal year, and we believe that these, together with the introduction of new tiered service pricing in the U.S. and around the world, are setting the stage for an acceleration of growth in Q3 and beyond. We believe that this will lead to a meaningful increase in run rate of shipments and sell through in the second half of the fiscal year versus what we have seen in recent quarters.

In the first quarter, we launched two new SmartPhones, the BlackBerry Pearl 3G and the BlackBerry Bold 9650 for CDMA. The 9650 is the newest addition to the award-winning Bold family and is the first Bold world phone to operate on CDMA networks in North America and roam internationally on GSM networks. The 9650 also offers premium features including WiFi, GPS, an optical track pad, and a fast 528 megahertz processing speed. We are pleased with the initial sell-through at both Sprint and Verizon, where the Bold 9650 has been in market for a few weeks now. Reviews of the Bold 9650 have been outstanding, with strong [inaudible] the device's features, design, and build quality. BlackBerry Pearl 3G is the smallest and lightest BlackBerry SmartPhone ever, weighing just 3.3 ounces in an elegant candy bar form factor. This SmartPhone is targeted at the large percentage of the global phone market that is accustomed to messaging from a traditional alpha-numeric keypad and options of very attractive on-RIM for those users, as well as providing an upgrade opportunity for the large base of existing BlackBerry customers who favor the sure-type keyboard and Pearl design. The premium 3G Pearl experience allows users to benefit from the high-speed 3G UMTS HSDPA network while they also benefit from a WiFi, BG, and end support one of the highest pixel density screens on the BlackBerry SmartPhone, support for up to 32 gigabyte micro SD card, and many more of the features that users expect from the fully loaded SmartPhone.

In April we hosted the 9th annual wireless enterprise symposium in Orlando, with over 5,000 attendees, over a hundred breakout sessions, and very positive feedback from customers and partners who attended. And once this year, we also previewed BlackBerry 6, the next generation of the BlackBerry user experience featuring crypt graphics, seamless animations, and deep customization capabilities with redesigned core applications and new enhanced multi-media experience, this new UI will change and enhance the way BlackBerry users interact with their SmartPhone. BlackBerry 6 will also incorporate the new BlackBerry webkit browser with best in class deficiency fidelity and use of navigation. We expect BlackBerry 6 to be available before the end of September.

During Q2, Verizon (NYSE: VZ) continued to promote BlackBerry SmartPhones through a mobile promotion with attractive pricing on Storm, Curve, and Tour devices. The new CMA Bold 650 was also recently launched at Verizon, and starting in July, Verizon will be running a campaign to support the launch, which includes a tour of major U.S. cities, where subscribers who are eligible for upgrades will be invited to participate in special discounts and will be offered promotional credits and discounts from application partners such as Skype and [inaudible]. Verizon also targeted the enterprise segment of the BlackBerry solution through a new initiative that allowed the purchase of [inaudible] software license on their MyBiz and Verizon enterprise center web portals, and featuring these offerings in the quarterly software promotions.

Sprint (NYSE: S) continued to increase their BlackBerry subscriber base in Q1 through initiatives such as the mobile program on Curve 8530 and the launch of new Bold 9650 across all channels. Sprint also introduced BlackBerry service through its Virgin prepaid brand in addition to the existing availability of BlackBerry on its Boost prepaid platform.

At T-Mobile, the Bold 9700 continues to do well, supported by a mix of print and online media campaigns that compliment the advertising and marketing programs we recently launched promoting BlackBerry Messenger. BlackBerry mobile voice system also continue to be a part of the T-mobile offering and is being supported by with various training initiatives throughout the different sales channels to push awareness of the new MDS capabilities that were launched at web in April.

An exciting development in North America this quarter was the industry-related data pricing move by AT&T (NYSE: T), with the replacement of all-you-can-eat data plans with new usage-based plans that better reflect the true cost of network usage and reward customers for using the network more efficiently. The BlackBerry platform has been proven to be more efficient in terms of network usage than most other platforms, and we expect this move to be positive for BlackBerry SmartPhone adoption. The majority of BlackBerry SmartPhone users will be able to subscribe to the lower priced $15 per month plan, while many customers on competing platforms may need to subscribe to the higher priced $25 plan. In the U.K., O2 also launched a similar plan where they have eliminated unlimited data options and replaced those plans with usage-based pricing tiers.

The enterprise market continues to be an important segment, and at the end of the quarter, the BlackBerry solution was deployed in over 90% of the Fortune 500 with approximately 80% having an installed base of 500 or more devices. The BlackBerry platform continues to be the platform of choice for corporate deployment, and this position has been reiterated recently by a number of corporate customers across multiple industries that have evaluated and undertaken trials of alternative solutions but abandoned these and reaffirmed their commitment to BlackBerry. In addition, there's a new opportunity evolving in the corporate market where enterprises are choosing to support user purchased personal devices for access to corporate data. As the adoption of these personal liable devices accelerates in the enterprise and the SMB, we continue to build on the flexible BlackBerry platform to fit the growing needs of the workplace. Later this year, we expect to introduce the solution to allow enterprises and users to manage BlackBerry SmartPhones more effectively as corporate access. This extended functionality for the BlackBerry platform will allow organizations running a BES or BES Express to secure and control the enterprise portion of the BlackBerry SmartPhone and simultaneously allow the end user to have independent control of the rest of the device when used for personal reasons. This solution would extend to many of the core BES capabilities such as remote enterprise wipe, corporate data access controls, access to third-party applications and features, such as blocking, of copy and paste from the corporate side of the device to the personal side.

Demand in the U.K. remains strong this quarter with multiple carriers choosing BlackBerry SmartPhones as their [inaudible] device for both pre- and post-data offerings. These and other efforts during the quarter culminated in BlackBerry achieving the largest share of SmartPhones sold in the U.K. during calendar Q1, with the Curve 8520 being the most popular prepaid device, and the second-most popular post-paid. This success was largely attributable to the strong support of our carrier partners, including O2, who targeted customers with numerous promotions on BlackBerry SmartPhones, BES Express, BBM, and the prominent position of BlackBerry in the O2 Buyers Guide.

E-mobile U.K. also dedicated a large marketing budget to BlackBerry, with prominent in-store displays, a dedicated BlackBerry shown on their website, and hero status in May across major channels.

ANIA continued to perform well in Q1 with the Netherlands, the UAE, and South Africa showing particularly strong growth. In the Netherlands, we continue to increase our market share, with the Bold 9700 achieving the highest volume post-paid handset in the nation, thanks in part to promotions from all three carriers in the region.

In UAE, the BlackBerry continued to lead the market with [inaudible] introducing an aggressively priced social networking plan and launching BlackBerry SmartPhones into the pre-paid plan channels. This success was mirrored in Kuwait following the introduction of the Curve 8520 during the quarter.

In South Africa, the Curve 8520 was strong with both MTN and Vodocom setting new records for BlackBerry subscriber growth through creative marketing programs such as Do-You-Speak-BlackBerry campaign targeted to South African students. In Latin America, the BlackBerry Bold 9700 was launched during the quarter, further solidifying the BlackBerry platform's leading position in the region and complimenting the already-successful Curve 8520. Many carriers in the region featured BlackBerry SmartPhones in Mother's Day campaigns with special bundle devices and rate plans. Telcel in Mexico ran the hero campaign around the Bold 9700 and featured different colors of the Curve 8520 in the Mother's Day promotion.

RIM's BlackBerry Messenger Brandy campaigns have been well-received in many of these markets, and carriers in Brazil, Columbia, Mexico and other countries are leveraging this campaign with window displays and other promotional activities. We are pleased with the continued strong growth we are seeing in Asia-Pacific, especially Southeast Asia, where BlackBerry devices are the SmartPhone choice in many markets. This is being driven by strong carrier adoption of tiered and prepaid pricing plans that the prominence and [inaudible] of BBM and the wide portfolio of BlackBerry SmartPhones available in the region.

We are also expanding our channel reach and retail focus in India in partnership with BrightPoint in order to expand the number of retail points and presence throughout the country, and are also working closely with them in neighboring markets such as Malaysia, Thailand, and the Philippines. Over the past few months, we launched several new products and partners in India, including the Pearl 3G, the white Bold 9700, Storm 9520, and Curve 8530. Additionally, we launched BES Express and work with Vodafone on a try-and-buy offer to further incent voice-only customers to upgrade to a data plan. We believe there are tremendous opportunities in the Indian market and are beginning to see strong adoption of BlackBerry Messenger among certain market segments which we plan to capitalize on to further drive growth in this region.

In China, we recently made our first step into retail markets with the introduction of the BlackBerry Curve 8910 through digital China's nationwide retail network with over 300 points of presence. The Curve 8910 will be optimized to enable access to popular services like (inaudible), QQ, and Fetium. In addition to multi-media and messaging capabilities. In May, we also introduced our first device offering on China Telecom's EVDO 3G network and starting BlackBerry Storm to Chinese enterprise channels. The BlackBerry solution would be marketing through China Telecom Chan Yi-I 3G service and will initially be launched in 16 provinces. Additionally, with standard R-mobile applications initiative in the region by announcing RIM's participation in $100 million affiliate BlackBerry Partners Fund in China, which is a joint effort between BlackBerry Partners Fund China, China Broadband Capital Partners, and North America BlackBerry Partners Fund. We continue to drive penetration of the BlackBerry platform in the prepaid segment.

In Asia-Pacific and ANIA, prepaid growth remains strong as we have seen for the last few quarters, but we are seeing increased penetration of prepaid in many other markets, including North America. BlackBerry is now available through both of Sprint's prepaid channels and in Canada, TeleFlot's BlackBerry SmartPhones and the Kudo prepaid channel with an attractive $10 and $15 per month rate plans, and Bell launched new BlackBerry grab-and-go bundle to their customers that allowed their customers to buy a sealed package and activate the device on their own.

Social networking usage continues to grow on BlackBerry SmartPhones, and BlackBerry subscribers are among the most active with popular social networking sites. We recently released the native Twitter for BlackBerry into Beta, and within a few months, it's become the most prevalent platform for tweeting in any SmartPhone brand. The application allows for seamless migration between other native BlackBerry applications and Twitter to offer real-time messaging and notifications as well as the ability to "tweet," utilize Friend Picker, post tweets, forward, and retweet, as well as many other features. The Facebook app also continues to grow on BlackBerry with millions of users added each quarter and over half of our carrier partners preloading the application on BlackBerry SmartPhones. In the upcoming months, we expect to further integrate social networking applications into the BlackBerry platform to bring an even better user experience.

BlackBerry Messenger continues to be a unique and valuable application for attracting new users to the BlackBerry platform. The leverage to success we recently launched a new BlackBerry Messenger advertising campaign in North America, the U.K., and major markets in LatAm and are experiencing a dramatic uplift in our BBM penetration in these markets as measured by incremental usage as well as activation by new users. In Q2 we plan to continue our focus on driving awareness and adoption of BBM in all of our major markets, and are planning a significant advertising media campaign in our top 12 markets in North America.

April is the first anniversary of the launch of the BlackBerry App World which is now available in over 60 countries in six languages around the world and has been downloaded by over 20 million subscribers with approximately a million in apps downloaded every day. We expect this success to accelerate with the upcoming launch of App World 2.0, which is expected to incorporate key features to support, including support for carrier and credit card billing, bar code scanning, a top new application view, and many other features. In addition to improvements in the App, App World 2.0 users will also enjoy more functionality in the App World website, enabling them to create an App World account, purchase content from the store, and sync content with their BlackBerry SmartPhone by a side-loaded connection. The concept of BlackBerry super-apps continues to drive excitement in the BlackBerry developer community. We have been working closely with the developer community to help them understand how they can take advantage of the unique BlackBerry APIs and services and to challenge them to creative innovative, addictive, and highly engaging apps that can become an important [part] of the users' lives. One way we're doing this is through the super-app's developer challenge that was launched this quarter to reward developers that demonstrate true innovation to apps that are designed to change the way people work and play. Developers are being rewarded through prices valued at over $1.5 million that include funding for go-to-market services and application promotion. The first round of recognition will happen at the BlackBerry Developer Conference in September.

We're pleased that RIM has been recently ranked 9th in the annual Gardner AMR Top 25 Supply Chain Award Rankings which recognized supply chain management excellence. We worked diligently over the past few years to improve our value chain, and this award is validation of our strategy and our ability to scale on par some of the best companies in the world. In the quarter, we also completed the remaining portion of the 1.2 billion common share repurchase plan authorized by RIM's Board of Directors last November. The total number of shares we purchased since November was 18.2 million, with an aggregate cost of approximately $1.2 billion. Today, RIM's Board of Directors approved a new repurchase program authorizing the company to buy back approximately 31 million shares over the next 12 months. We are pleased with the ongoing strength of BlackBerry adoption around the world. We're heading into an exciting new product cycle beginning in late Q2, which we expect to leverage through focused execution and ongoing constructive alignment with our partners to drive an acceleration of growth in the second half of the fiscal year.

I will now turn the call over to Brian to review Q1 results.

Brian Bidulka, CFO
Thank you, Jim. Revenue for the first quarter ended May 29th was $4.24 billion, which was slightly higher than the $4.08 billion reported in the previous quarter, and in line with the guidance we provided on the April conference call. As Jim mentioned, shipments in the quarter were affected by the slightly later-than-expected shipment of the new Bold 9650 and Pearl 3G as well as the lower-than-expected ASP of $300. The product mix included less of these new higher-ASP products. Hand-held devices represented $3.35 billion and 79% of revenue during the quarter as compared to $3.3 billion or 80% in the previous quarter. Mobile devices shipped in the quarter were higher than Q1 by approximately 11.2 million units. Approximately 10.5 million new devices were activated in Q1 either from new customers or for replacements and upgrades, not including phone-only sales. We estimate that both foreign [inaudible] and the absolute level of channel inventory at the end of Q1 were similar to Q4. We expect channel inventory in Q2 to remain similar to Q1 both on our foreign [inaudible] and absolute basis.

(?) ASPs in the quarter were approximately $300, which was slightly lower than expected due to product mix, reflecting delays in shipment of certain new higher ASP products. Service revenue was $693 million or 16% of revenue for the quarter, up $53 million from Q4. [inaudible] was down from the prior quarter due to growth in the adoption of bids and the success of certain lower-price service plans. Software revenue and other revenue accounts for the remaining 5% of sales in the quarter. Gross margins for the first quarter was 45.4%, higher than the guidance we provided in March due to the mix of handsets shift in the quarter leading to higher hardware gross margins as well as service revenue being slightly higher as a percentage of sales. Operating expenses in the first quarter were $865 million, up slightly over the comparable Q4 levels. R&D spending was $288 million, or 6.8% of revenue for the quarter, in line with our forecast. Sales, marketing and administration expenses were approximately $483 million, down slightly over Q4. Operating expenses include stock base compensation expenses of approximately $16 million. Tax rate for the quarter was approximately 28%, in line with our forecast. Net income for the fourth quarter was $769 million, or $1.38 per share diluted. The impact of shares we purchased in the quarter were approximately $0.01 per share. [inaudible] average diluted shares using the EPS calculation for the quarter were 558 million. Actual shares of outstanding at May 29th was 552 million. Total options of outstanding on May 29th were approximately 8 million. During the quarter, RIM repurchased 5.9 million shares. Total of cash, cash equivalent short-term and long-term investments increased by approximately $400 million to $3.27 billion at the end of Q1 as compared to $2.87 billion in the end of the previous quarter. RIM quarter end generated approximately $1.12 billion in cash from operating activities, which is offset by capital acquisitions of approximately $226 million and the repurchase of common shares of approximately $410 million. In Q1, accounts receivable were approximately $2.6 billion, and DSO's decreased to 57 days from 58 days in the prior quarter, primarily due to timing of sales in the quarter. Inventory on hand in Q1 was approximately $555 million versus $660 million in the prior quarter. Inventories continue to be primarily raw materials and finished goods to support demand for the BlackBerry product. RIM reports in U.S. dollars but has a portion of its expenses and revenue in currency other than the U.S. dollar. Volatility in foreign exchange markets can have an impact in both revenues and operating expenses. To mitigate this risk, we have a hedging program in place to hedge a portion of the foreign exchange exposure. As a result of our hedging program in Q1, we did not see a significant impact on revenues or expenses from foreign exchange fluctuations. Given the current forecast next for Q2, we do not expect a significant impact on revenue or net income from foreign exchange with a plus or minus 10% move in the U.S. dollar having a negligible impact on revenue or expenses.

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

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

We expect a shift between 11.6 and 12.1 million units in the second quarter and for revenue to be in the range of $4.4 billion to $4.6 billion. ASP in Q2 is expected to be similar to or slightly above Q1 levels. I do mention product mix is the primary factor affecting device ASP and forecasting ASP for Q2 is particularly challenging, given the variability that can result from shifts in the mix due to the timing of new product launches in the quarter. We continue to expect ASP to increase in the second half of the year, as new higher price products become a larger part of the total product mix. We are targeting gross margins of the second quarter to be approximately 44%. As we said in the last call, we expect quarterly growth margins percentage to remain strong in the low 40s throughout the second half of the fiscal year. We are targeting net subscriber account additions for Q2 in the range of 4.9 to 5.2 million. This reflects the potential for a decrease in activity in European markets throughout the seasonally slower summer months, as well as the timing of scheduled new product launches in the quarter. These new products are anticipated to drive an increase in net new subscriber account addition run rates once they are in market. The timing differences between selling and sell-through may shift more of this benefit into the third quarter.

Total operating expenses are expected to increase in Q2 by approximately 7 to 10% from Q1 levels. We expect R&D to increase by approximately 6 to 10%, and sales and marketing and administration expense to increase by approximately 7 to 10%. In the second quarter, we expect depreciation and amortization to be approximately $100 million, and we expect CapEx to be approximately $350 million. For the third quarter, we expect CapEx to be slightly lower than Q2 levels. The primary areas of spending continue to be expansion of network infrastructure and facilities for R&D and IP operations. We expect the tax rate to be approximately 28% in Q2 and throughout the remainder of fiscal 2011. We expect Q2 EPS to be in the range of $1.33 to $1.40 per share diluted. This excludes the impact of any share repurchases that may occur during the quarter.

I'll now turn the call back to Jim.

Jim Balsillie
Thank you, Edel. Adoption of the BlackBerry platform in markets around the world continue to drive strong results and open up new opportunities. We are looking forward to the introduction of innovative new products later this quarter and throughout the remainder of the fiscal year, and plan to continue to focus on building strong partnerships, delivering quality products, and leveraging the unique capability for the BlackBerry platform to drive profitable growth in fiscal 2011.

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 p.m.

Ittai Kidron, Oppenheimer & Co.
Q: Thank you. I wanted to dig into your expectation that you mentioned of acceleration of growth in the second half. Can you give us a little bit more color as to, you know, what you expect really to drive this? Is it mainly international markets that you expect some big step up, a big recovery in the U.S., hero campaigns? If you could give us a little bit more color on what […] you mean by that. And also, how should that be measured? Is that year-over-year growth in devices should accelerate as a percent, or when you mean acceleration, can you be more specific in what is the financial item we need or performance item we need to look at when you say acceleration?

Brian Bidulka [unclear]
A: Well, we have the specific hero campaigns certainly in the United States. Major, bigger campaigns than we ever had before. And we certainly have launches throughout the world, so yeah, they are just -- you know, they're major hero campaigns, they're committed, it's booked the products, the shipments, the promotion campaign -- they're very substantial. And we also are rolling these out around the world. So you know, we have normal execution issues to ensure we manage those in terms of timing and all of that, but -- and we would like to get, you know, a certain amount of certain products in this quarter and then if the cutoff between this quarter and the next is always an issue of timing. But the commitment, the scale, the strategic position, the innovation, is fantastic. And there's global plans on these products. Some of them, you know, throughout the world. You know, you're seeing, constructive alignments got a renewed value. Efficiencies got renewed value. And these are the kind of products that allow you to have your cake and eat it, too. They offer premium performance, the ability to have enterprise and consumer on the same device, high efficiency, and yet […] carrier platform extension. […] And we might [have] a couple surprises up our sleeves in addition to that. So we feel fantastic about the business. We feel fantastic about the product set. The hero campaigns are great. Tremendous imperative on execution, of course. And you know, these are all measured in degrees of acceleration and degrees of new levels of performance and sales. But we feel very, very strong and optimistic about what you're going to see coming out of us throughout the rest of the fiscal year.

Ittai Kidron
Q: Can you give us a sense of magnitude on new products, how much are they impacting the August quarter, how much of that is taken into the guidance?

Brian Bidulka [unclear]
A: Well, part of it is, and I think it was mentioned in the comments that, you know, some of these are high ASP, and you know, we're now two months -- just shy of two months into this quarter, right? No, one month into this quarter. And we have two months left in the quarter. […] Sorry, I was just counting. But how much of that you can get in this quarter is an important question. And how much does that change the mix? And it's a quiet summer season, but there's all kinds of back-to-school. So definitely some of this stuff is planned for this quarter, you bet, you bet.

Maynard Um, UBS Securities
Q: I just want to ask you for clarification on the ASP trends and then a question. Just on the ASPs, with the full quarter of the 9650 in the August quarter, shipment of new higher ASP products in the later part of this quarter, and then seasonality presumably slowing the 8520, I'm just curious why your mix actually wouldn't help your ASPs up sequentially. And then the question just on the competition. You used to have BlackBerry built in to allow non-BlackBerry devices to kind of hook into the BES. I'm just curious if you might have plans to create something like a sandbox application for other platforms, other LSes and I guess, what the challenge is in doing something like that might be.

Edel Ebbs
A: Maynard, I'll take your first question. I really wish forecasting the ASPs was that simple. Well, there's really a lot of moving parts in there, and I did say that it could be slightly higher in Q2. It's really going to be a function of how much of the new products are shipped in the quarter and what the mix of the remaining products are, even though we talked about the potential for somewhat of a slowdown in parts of Europe. And that's not the only place where the 8520 sells well, or the 8530 for that matter. So I mean, I think it's a lot more complicated formula than just that. But we have a new guidance, and we can say that it could be slightly higher than this quarter, and we're just going to have to wait and see how much some of these other products ship.

Jim Balsillie [unclear]
A: On the competition, the enterprise side is just going through a tremendous set of opportunities. I think they're rethinking a lot of architecture's cloud and mobility and unified communications and companions and tablets. There's a lot of that going on right now. And we did the built-in program, you know, there's several hundred thousand BESs out there when you consider BES Express and BESs also. You know, they're not really coming at me for BlackBerry built-ins. There used to be a time they were. The security issues are still important, but the consumerization of IT is also important. They're much more interested in things like sandboxing, you know, do a profile as we say, personal and corporate, so that you can still have your control but you can have your non-enterprise part. The inside communications MBS is huge with black fly. How one works tablets and companions into this is super-strategic to them. Push-based application architectures like with Widget, and also being able to have enterprise app stores and consumerization of elements of what users want, and then making sure you support cloud services. So to answer your question, it hasn't been something that has been pushed in like a lot of our stuff, we like interrogate the boot ROM. It's not having security compromises. And I think they're aware of that. But I wouldn't strategically be super-averse to it if somebody-you know, if it became something the markets were pushing for. But if it's a half-measure it's a no measure in terms of enterprise requirements. And I can't say that they've come at me with that as a request. They come with lots of requests, but I can't say that that's one that's been (inaudible). They're basically saying, "we love what you got, love what you're doing, we'd like to get it deployed," you know. And if it's MBS, let's get it working on all the different IT PBX platforms, if it's-you know, do a profile (inaudible) if it's new form factors, get them going. If it's other kinds of companions or things that may work with it, how are you going to architect that? So it just hasn't been on the agenda.

Ehud Gelblum, Morgan Stanley
Q: Just a couple quick questions. If you can go a little bit more into the detail on the delay in the Pearl, the 9650-what caused the delay? The phone did come out at Sprint at the time when it appeared to be -- after you announced that -- your analyst day, so that seemed to be on time. Verizon followed up a little bit afterwards. If you can go into it a little bit when you were expecting them to come out versus when they did, and why? And then, Edel, on international units, can you just confirm us that international actually grew? The only number we have is for the international growth, is that 40% for the number of subscribers you gave? When you try and back into -- I know there's a lot of rounding going on, but when you try and back into the number of the actual devices, you sort of get that possibly international devices may have been relatively flattish. If you can give us a sense as to how much international devices grew and how much the U.S.-North America devices grew. And then, the last thing is just a follow-up on the previous question. The guidance of 11.6 to 12 million units -- what exactly does that presume with respect to the launch of these new products, because presumably they are on -- they're both have BlackBerry 6 and the new webkit browser. So does your 11.6 to 12.1 assume that they come out August 20th, or does that assume that they come out September 10th or 15th? If I were to pick a date, what would I assume therefore with respect to that page?

Edel Ebbs
A: I think a lot of questions I heard. The last one is freshest. So yeah, I mean, I can't give you that kind of detail. It's a combination of a couple of products, like we said, and these timing issues were-one of them is set for a certain date, and that means if the other one goes on time it cannot have any impact at all. So it's a really hard question to answer, and I'm not going to say a whole lot more details on that. Obviously, as Jim said, we are expecting the products to launch this quarter. But I'm not going to give you any more in terms of what date we're expecting or how many units or anything like that.

I think the other question-your first question was on the product delays. Some of it is just different certification cycles. Like you said, the 9650 launched at Sprint and then at Verizon. The biggest step [inaudible] certified at the same time as the other one. It's just kind of normal stuff in getting certification. And I missed your middle question.

Ehud Gelblum
Q: The growth in international.

Edel Ebbs
A: Yeah, I have to look up that data.

Brian Bidulka [unclear]
A: International is going very well. We feel great on the international. The international and the carriers are planning major, major extensions in international. They're doing tiering plans and deeper channel. And quite frankly, the constructive alignment strategy is working fantastic throughout the world. And you know, you throw in these hero campaigns for new product launches in key carriers in the U.S., and I think you're going to see-if you saw what we're coming along with for the back half of this calendar year, you know, what's lined up and cued up, there's always lots of execution. We have to execute well. International looks -- continues to be fantastic. I think you're going to see a real swing in the United States. There's obviously the timing thing. But none of these are what I'd put in the category of long-term strategic; they're just operational execution timing things, and there are issues we've passed before. Sometimes you get a little more, sometimes you get a little less. You'll always take more than less. You'll always pick early over later. But it doesn't change anything in the strategic point of view.

Matthew Thornton, Avian Securities
Q: Good evening, thanks for taking my question. Just one point of clarification, I think this was alluded to on the previous question. The two devices that we're talking about are straddling the end of the August quarter. I assume those are both OS 6.0 and these are both higher ASP products; did I understand that correctly?

Edel Ebbs
A: We haven't commented on the software on the products. We gave many details on features. But they are higher ASP products, yes.

Matthew Thornton
Q: Ok, then, just a couple of quick followups, I guess one for Edel. On the ASP, was there any impact there from aspects? I know it netted out to no impact at revenue. Did we see any impact on aspects that was offset through the other revenue line?

Edel Ebbs
A: No, there was nothing material there.

Phil Cusick, Macquarie Research Equities
Q: Thanks for taking my call. Can we focus on OPEX a little bit? I've seen the ad campaign around the city, and it looks good. But should we be looking for a gradual increase in sales and marketing, and then on the R&D line as well that's been creeping up as a percent of revenue? If that sort of things that are getting ready for this whole new product launch cycle, and is that going to drop back down as revenue ramps up, or is that something we should really be -- we should think about this as the new level? Thanks.

Edel Ebbs
A: Definitely on sales and marketing and R&D, you have your plans in place to execute over a longer period of time. And so it's not necessarily reflective of what's going on in the top line in a particular quarter. I think as Jim alluded to, we're expecting a pretty strong back half of the year, and while we continue to plan to spend on some of these sales and marketing activities that are doing so well, and continue to spend on R&D, you know, as a percentage of sales, it's really going to be a function of the top line growth that he's talking about, and how well we execute on that.

Jeffrey Kvaal, Barclays Capital
Q: Yes, thanks very much. And follow-up on Phil. Should we assume that there would be some operating margin pressure commensurate with the growth margin kickdowns in the second half of the year?

Edel Ebbs
A: Well, that's a tough one because, you know, the guidance we're giving on growth margin, we're giving a pretty vague number there because it's just so dependent on mix, and it really does follow onto the question that Phil just asked because, you know, what the top line looks like is going to be a big factor there. So it's a hard thing for me to give a whole lot of certainty on right now. We certainly were targeting to improve operating margins, but it's really going to be a function on the top line.

Jim Suva, Citigroup
Q: Thank you very much. On the acceleration that Jim talked about of new products in the second half of the year, just to make sure I'm clear, I assume it's fair then to assume also a corresponding increase in SG&A and marketing? I think that's pretty logical if you have some pretty wild products coming out. And then just a clarification. I assumed that EPS guidance does not have stock buy-back built in, because the timing of that will be subject to marketing conditions, in your discretion? Thank you.

Edel Ebbs
A: Yes, the EPS guidance does not have any buy-back built into it. In terms of the sales and marketing, yes, I mean, I think that, you know, obviously, you would want to back up big product launches and big plans in the market with support from sales and marketing. But we're also expecting a lot of support from the partners on these products, so while we're going to be out in the media and doing a lot of marketing around BlackBerrys and current with this stuff, we're also expecting that our carrier partners have plans to do a lot of marketing of these products as well. So it's sort of a compounding effect there in terms of the family getting to the market.

Vivek Arya, Bank of America Merrill Lynch
Q: Thank you. Jim, I think the fundamental question that a lot of us investors are grappling with is what will help when regaining US market share. It seems that AT&T channel is very strongly aligned with Apple, and Verizon and Sprint seems to be aligning with Android. So where does that leave RIM? So the specific question I have is, what's to motivate customers to buy a BlackBerry 6 product instead of say the new iPhone 4 or new Android products. You know, other than network efficiency, what kind of defense issues should we focus on?

Jim Balsillie
A: Well, be careful about your implicit assumptions in your question, or shall I say, the explicit assumptions in your question. Yes, I think you guys just have to watch and see what the plans are. I think there's a lot of implicit and explicit assumptions that maybe should be examined. And part of that is the question of how much does-how powerful is their innovation, is a good question. What's the timing, that's a good question. I think an important question to ask is, how much does constructive alignment matter to a carrier? Because that's been just an enormous issue throughout Europe and Asia, and definitely coming on in Europe. And I think, you know, how much does efficiency matter? And when you have these pricing plans, I think that that should tell you something. So watch and see. We have unprecedented campaigns and device programs and commitments in our history. And I'm just not going to talk anything more about our products and our launches until their time.

Gus Papageorgiou, Scotia Capital
Q: Thanks. Jim, I know in the past you said you spent a lot of time on media. Are we going to see kind of an evolution here, media strategy, in the second half of this year?

Jim Balsillie
A: Yeah, the media. Wait till you see the media strategy. Like it's great. Everybody -- the outside is going to really torque in a beautiful way with the -- once you see the new App World -- we talked about it -- and once you see the new platforms like -- you know, you'll be all very surprised. And I said this on the last call, you'll be really surprised by it. And I think you'll just be amazed at how it's a quantum leap over anything that's out there. Point number one. Point number two. You know, how this both leverages media that's out there -- and I also know that constructive alignment with media matters, because if you think this intermediation by carriers has got them scared, go talk to media companies who are concerned about commoditization. And so I think focusing on beautiful innovation, focusing on efficiency, in a world where innovation is valued, and design, focusing on efficiency when there are scarce resources, and focusing on constructive alignment where you have very powerful stakeholders who have a decision. Do they basically allow their businesses to be eroded, or do they invest heavily in those that have highly aligned strategies. And I don't think you'll have to wait too, too long to see tangible and powerful manifestations of this. And you bet, I think the media consumption side of this in different form factors, in very tangible commercial and technical ways, is poised for redefinition here. And I think we have some credibility because we played redefining roles in this mobile computing in the past. And so I couldn't be more -- you know, I just wish I could wind the clock forward a few weeks, because you'll see it. I think I said it on the call-was it the last call? And you will all say, "I get it now." I think we talked a little bit about back there, when you see the pieces come together, you'll say, "Now I see what they were doing." And it is really powerful. And we're still sustaining very, very well. The international stuff is great. There's some timing stuff out. There is always -- and there's some powerful, you know, extension and reengagement stuff happening in the United States. And you guys -- all I can say, I wish -- you know, I can't say much more, but I couldn't feel better.

Michael Abramsky, RBC Capital Markets
Q: Yes, thank you. You failed to characterize the potential for the upgrade cycle for an existing BlackBerry user on some of these products we're expecting. Do you think that intentions to upgrade have changed now that there's a competitor -- a number of competitors in the markets that obviously have been out there going very strongly, and do you think that that could be any headwinds to the uptakes?

Jim Balsillie (unclear)
A: Well, no, we've got -- Our BlackBerry user world is pretty tight. And I think from the BES side and from the BDM and from the (inaudible) and from the brand and capabilities, and we talked about that. I think that's pretty bright. The other is, you have to remember that you guys talk a lot about competition. That's all said. But you do realize that the whole featured phone market is evolving to a SmartPhone market. So in the end, you're having some shifting in consumer electronics into sort of consolidated architecture of the SmartPhone. So you know, yeah, you definitely want to say, you know, what's happening with, you know, the divvying up of the pie, but you've also got to ask how big is the pie and how valuable is the pie. And so are there more users, and is a platform user more valuable, and what share of those are you getting? So it's very dynamic, very turbulent in the ecosystem. We have a very -- You know-and so I think, you know, our upgrade position is extremely strong. We're still growing net subs. We're still having 5 million sales a quarter, like I mean, you got to remember that. Those are net, those aren't gross. We're still, you know, 11 going to 12 million devices, and I know those ranges and all that Edel has guided, so -- But I also think that there are turbo chargers in the wings here, both in organizational transformations of business productivity, but also in how people are consuming media, and how are the content players going to bail which media, for those that work with them versus don't work with them. So there's lots of forces at play. But I don't see any -- I think the upgrade thing is pretty strong. But I think -- but like I said before, this is much more kind of a land grapple, you want to sort of -- You know, the customers are so valuable, the space has grown so fast, so you want to -- of course, you want to keep the customers you want and upgrade them. But this is much more about the sort of feature phone becoming the SmartPhone and the SmartPhone being consolidated. A lot more consumer electronics. And are you seeing is that place to go. And I think that's much more where our thinking is at. But I think we're in very good shape about the upgrade side, but I think the issues are the opportunities and the contention is really much beyond that.

Edel Ebbs
In closing, I'd like to remind everyone there's a replay of this call available at (416) 640-1917, pass code 4310298No. , or you can listen to the call as it's been recorded and is available on the Investor Event section of our website. Thank you.