BlackBerry Ltd (BB) 2002 Q2 法說會逐字稿

Good afternoon. Thank you for standing by. Welcome to the Research In Motion second quarter fiscal 2003 earnings conference call. At this time all participants are in a listen-only mode. During the presentation, we'll conduct a question and answer session. Instructions will be provided at that time for you to ask your questions. If anyone has any difficulties hearing the conference, please press star 0 for operator assistance at any time. I would like to remind everyone that this conference is being recorded. I will now turn the conference over to Mr. Dennis Kavelman, Chief Financial Officer. Please go ahead sir.

Thank you. Welcome to RIM's fiscal 2003 second quarter results conference call. With me is Jim Balsillie, RIM's Chairman and co-CEO. After reading the [INAUDIBLE] forward looking statements disclaimer, I will begin by providing an overview of second quarter results, plus our guidance for upcoming quarters. I will then turn the call over to Jim, who will provide a business and strategic update. We will then open up the call for questions.

I would like to note that this call is available to the general public by call-in number and webcast. A replay of the webcast will also be available on the rim.net website. We'll be wrapping up the call by 6:15 eastern this evening. The information presented today includes forward-looking statements within the meaning of the United States Private Securities litigation reform act of 1995. These include statements about our expectations, beliefs, intentions, our strategies for the future, which we indicate by words such as anticipate, intend, believe, estimate, forecast and expect; and similar words.

All forward-looking statements reflect our current views with respect to future events, and are subject to certain risks and uncertainties and assumptions we have made. Important factors that could cause our actual results, performance, or achievements to be materially different than those expressed and implied by these forward-looking statements include: continued acceptance of RIM's products, intense competition, rapid technological change, timing of roll-outs of new network technologies, changes in the macro economic environment, dependence on intellectual property rights, dependence on the success of shares and distribution partners, risks related to product defects and product liability, and any risks relating to foreign exchange fluctuations, changes in Canadian and foreign laws and regulations, risks relating to international operations and other risks detailed from time to time in RIM's periodic reports filed with the SEC and other regulatory authorities. If any one or more of these risks or uncertainties materialize or [INAUDIBLE] underline the forward-looking statements to be incorrect, actual results could vary materially from those that are expressed or implied by these forward-looking statements. We base our forward-looking statements on information currently available to us. We do not assume obligations to update them.

I would now like to provide an overview of the second quarter results. Revenues for the second quarter ended August 31st with 73.4 million. This represented an increase of 2.5% over the $71.6 million in the prior quarter, and an 8.4% decrease from 80.1 million in the second quarter of last year. This was slightly lower than guidance given on the July conference call for revenue in the $75-80 million range. The main reason for the decrease was that fewer 5810s were shipped than expected during the quarter, due to customer anticipation of the pending 6710 product launches. Total hand-helds represented $27.1 million or 37% of RIM's revenue during the quarter. This was down slightly from $28.1 million in the prior quarter.

We shipped approximately 62,000 hand-helds during the quarter, and ASPs were approximately $437. Service and software revenue was $39.7 million or 54% of revenue for the quarter. The service component was $31.3 million with a remaining $8.4 million being split between enterprise software revenue and software NREs paid from shares and other partners for Blackberry development. RIM added approximately 79,000 gross subscribers during the quarter.

After total deactivation of 31,000, net subscriber additions were 48,000. Total [INAUDIBLE] subscribers was 403,000 as of August 31st. Almost 7,300 companies have installed the Blackberry [INAUDIBLE] server organization, up from 6,100 at the end of May. Sales of OEM radios and other revenue such as accessories were strong, at 6.6 million, or 9% of revenue for the quarter. Gross margin for the second quarter was 45.8% vs. 33.5% in the prior quarter, and 38.7% in the same quarter a year ago. Gross margin increased in line with expectations. Gross R&D spending was $17.5 million for the quarter.

R&D expenditures and net of government funding for the quarter were 13.9 million or 19% of revenue. The increase in net R&D was 10.3% quarter over quarter. RIM actually forecasted an increase of 20 to 25%. Selling, marketing and administrative expenses were 2% higher than last quarter at $28.5 million. This was substantially less than the forecasted increase of 15-20%. While we continue to invest [INAUDIBLE] programs, brand awareness and global expansion, we are managing costs very tightly and believe the lower than expected SG&A expense this quarter is evidence of these successful management efforts.

This quarter RIM recorded an additional expense of $4.9 million associated with ongoing patent defense litigation. Costs associated with [INAUDIBLE] of RIM's RP are capitalized, with all other legal costs and expense. This expense was related to one particular action and not expected to be incurred in Q3 or Q4. Depreciation and amortization was $7 million, down slighty from the 7.2 million in the prior quarter. Last quarter was unusually high due to the writedown of tooling and [INAUDIBLE] costs for some legacy products. Investment income in the second quarter was $2.9 million.

The decrease from $3.2 million in the prior quarter was due to lower interest rates and to a decrease in cash, cash equivilants, and marketable securities of $66.1 million. Net loss for the quarter was $14.3 million or 18 cents per share basic and fully diluted. This was within our guided range of 15-20 cents per share. Excluding the tax affected litigation costs, our net loss for the quarter would have been 10.4 or 13 cents per share. RIM's balance sheet continues to be very strong with high cash reserves, negligible long-term debt and appropriate working capital balances.

The end of the second quarter, RIM had $549.9 million in cash, cash equivalents, marketable securites and long-term portfolio investments, a decrease of 66.1million for the prior quarter. Normal cash burn during the quarter was $17.8 million made up of $7 million from operations and 10.8 million in Cap Ex. The remaining $48.3 million consisted of $14.4 million of share repurchase, and approximately $34 million in acquisitions and intangibles such as licenses. The increase of [INAUDIBLE] $40 million was due to the additional acquisitions and the share repurchase program.

We are modeling a substantial amount of cash burn for the third quarter of approximately $30 million, excluding any further share repurchases. We are forecasting cash burn to be approximately 20 million in the fourth quarter which is in line with guidance on the last conference call. Trade accounts receivable increased slightly to $44.6 million from $43.3 million in the prior quarter. Trade sales for Q2 were flat at 55 days compared to the previous quarter.

Other receivables increased to $5.8 million in the second quarter up from 2.4 million in the prior quarter, and continued to relate to government funding and sales tax receivables. Inventory decreased to $25 million in the current quarter down 4.3 million from 29.3 million in the prior quarter. The majority of RIM's inventory continues to be raw materials components. The inventory balance has been steadily decreasing as legacy raw materials are reduced. Net capital and intangible assets increased by net 39.3 million in the second quarter to $238.9 million. The increase was due to acquisitions in the quarter, as well as normal Cap Ex and production facilities, R&D and IT, and intangible assets such as licenses. Accounts payables and [INAUDIBLE] liability increased to 59.4 million from 49.2 million at the end of the first quarter. Deferred revenue decreased to 8.8 million, down 2.8 million from 11.6 the end of last quarter following recognition of preset carrier NREs.

Offsetting NREs were continued growth of prepaid customer airtime usage fees with [INAUDIBLE] internet addition, to further licensing revenues and deferred warranty payments. Weighted average basic and diluted shares used in the EPS calculations for the quarter were $77.8 million. Actual basic and diluted shares securities outstanding at August 31st were 76.9 million and 87.9 million respectively. During the quarter the company repurchased 1 million 253,500 common shares for a total cost of 14.4 million pursuant to the common share repurchase program. This brings the total shares repurchased under the program to 2,308,500.

RIM's board for the [INAUDIBLE] renewal of the common share repurchase program will purchase up to 3.8 million additional shares over the next twelve months. At this time I'd like to discuss our outlook for the upcoming several quarters. I will provide a financial outline and Jim will expand on the individual produces and channels. Again a reminder that these forward-looking statements reflect management's best current estimates and should be taken into context with the risk factors outlined in the beginning of the call and are under our regular filings. With respect to revenue; On the July conference call we provided a revenue estimate for the November quarter in the range of 90-100 million. We now expect Q3 revenue to be approximately flat with the second quarter.

This decrease is due to the revised timing of launches of the 6710 GPS hand-helds in North America and Europe, and [INAUDIBLE] in North America, to later in Q3. The expectation at the time of the last conference call was that these products would be introduced early in Q3. With respect to the fourth quarter ending in February, we are targeting revenue in the range of $85-$95 million. The fourth quarter also reflects the effect of the shift in Q3 launch schedules. This revised guidance for the third and fourth quarters leads to a revised forecast for the rest of the year of $300-$315 million down from the July forecast of $350-375 million. As expected, gross margin increased in Q2 to 45.8%. This was in line with expectations of this quarter between 45 and 48%. We continue to model gross margins in this range for upcoming quarters.

With respect to operating expenses and evidence of lower than expected expense levels excluding litigation costs in the second quarter, we are tightly controlling costs, even as we are aggressively rolling out new carrier partners and new products. With research and development we are targeting net R&D expenses to increase by approximately 15% in Q3, mainly due to additional head count from recent acquisitions. We continue to see longer term leverage in R&D and look for it to drop as a percentage of revenue by the fourth quarter and into the next fiscal year. With respect to SG&A, due to the timing of industry events, such as Mac and TTIA, and a fall branding campaign, we expect SG&A to increase, excluding litigation costs, to increase by approximately 15% in Q3. We then expect SG&A in the fourth quarter to drop slightly from Q3. We expect depreciation expense to grow by approximately 10% in each of the next two quarters due to Cap Ex and recent acquisitions. We are currently modeling annualized yields on our portfolio of approximately 2% for Q3.

Total investment income in the third quarter will therefore be in the range of 2.5-3 million. Given the revenue reduction for Q3 and Q4, we now expect a net loss for the third quarter to be in the range of 18-23 cents. Our current estimate for the fourth quarter is a smaller loss in the range of 6-12 cents per share due to an expected revenue increase and a reduction in RFX over Q3. While I have not provided specific guidance in Q1 and the rest of fiscal 2004, we are forecasting top line growth and targeting break even and profitability in the first half of the year. I will now turn the call over to Jim.

Thanks, Dennis. Our revenue was slightly weaker than expected this quarter, we continue to manage our operating expenses carefully and the loss of 18 cents in Q2 was within our guided range despite the 4.9 million in litigation costs. Without these litigation costs, RIM's litigation loss was 13% -- or 13 cents. While I believe it is prudent to lower our forecast for Q3 and Q4,, we remain positive on the underlying strengths on our strategy and repositioning. Blackberry subscriber additions were quite strong in the quarter ,particularly given the continuing weak IP spending environment. Our work with global carriers and the enthusiasm with which they are launching with Blackberry continues despite the weakness in the overall telecom secretary.

Our [INAUDIBLE] customers are very excited about the new 6710 RIM brand hand-held as well as the new I Band hand held, CDMA [INAUDIBLE] hand held. The launches of these products were originally expected to occur earlier in Q3 and will now happen mid-to late Q3. This timing shift will obviously have an impact on our short-term revenues and is a contributing factor to our lower guidance for Q3 in the remainder of the year. We believe that once these are available on the market, we'll experience a meaningful jump in Blackberry growth. We've been investigating heavily in head count facilities and infrastructures to support the global rollout of Blackberry. Over the last year, RIM has been transitioning to make Blackberry a global platform, and we expect to increase our address for market many times over.

This transition has occurred during a drastic slow down in corporate IT spending in the midst of turbulence in the telecom sector. I believe that our strategy to invest heavily in global expansion remains the right one. Our competitive position continues to be exceptionally strong and our subscriber base continues to grow, even as we are launching new products. As demonstrated by our results in the last several quarters, we continued to manage operating expenses carefully and prudently. Even as we complete this transition and launched these new and exciting expenses and capital outlays. With new exciting produces and services around the world we will continue to carefully manage operating expenses and [INAUDIBLE] outlays. During this time we fully intend to grow the top line and take advantage of the significant leverage in our business model.

In the next few minutes, I will provide an update on our existing channels and global carrier relationships, provide updates on our current and pending new products and provide a general update on RIM's operations. For Blackberry, as Dennis said, at the end of the quarter we grew to 703,000 Blackberry subscribers. Over 7,300 companies have installed the Blackberry Enterprise service, up 20% from the 6,100 in the previous quarter. New net subscribers of 48,000 were up 41% from 34 thousand in the prior quarter. Gross subscriber odds were very strong at 79,000. For the third quarter we are targeting net additional subscribers in the range of 45-55 thousand, again expecting a high level of growth additions offset by customer deactivations in the similar range, as in the past quarter. We are working hard to manage deactivations which continue to be caused by corporate downsizing and tightening IT budgets. I will now provide an update on our global carrier relationships. In Europe in the last quarter, Blackberry became commercially available to [INAUDIBLE] UK, [INAUDIBLE], and [INAUDIBLE].

At present Blackberry is available in Europe, directly in the UK, Germany, Holland, Ireland, and Italy and is on trial in France, Austria and Spain. Through GPS roaming agreements established by MMOT, Voda phone, Sprint, and Nokia, Blackberry users can obtain their e-mail in nearly every western European country though at least one and in many cases, two network operators. Through Nokia and MMOT roaming agreements, European Blackberry subscribers in Germany and UK can also obtain their e-mails while traveling the US, when using a world band Blackberry hand-held.

We have heard that since quarter end, during the month of September, the paid Blackberry subscriber base in Europe grew by 20%, mainly through a significant upturn in activations by MMOT in the UK. In North America, Team Member USA,, formerly known as Voicestream, continues to aggressively market Blackberry with programs aimed at the enterprise, small to medium businesses and personal retail locations. Blackberry web client, which will allow users to access multiple e-mail accounts from a [INAUDIBLE] will be launched by Team Mobile USA. In addition, the launch of the [INAUDIBLE] 6710 hand held is coming soon and we are seeing very strong interest in customers from beta users. Team Mobile is also finding that 90% of Blackberry users are activating voice on their hand held.

This is a trend that we believe will continue, particularly with the launch of the 6710. For AT&T wireless services, AWS, they are expecting their Blackberry distribution channel from approximately 300 national account reps to the entire business to business sales force of 1400 reps. A new dealer agent program is also expected to be launched in the upcoming months. We expect AWS to launch the 6710 hand held shortly, as well as Blackberry web client and the Blackberry 5810 with approximately 1,000 indirect retailers. Signalar continues to have a great deal of success [INAUDIBLE].

The attraction of robust nationwide service and competitive hand held pricing has resulted in steady subscriber additions. Signalar is also expected to launch [INAUDIBLE] in the upcoming months with the 5810 hand held. RIM and Nextel are driving toward the upcoming product introduction of the Blackberry 6510, a key component of Nextel's strategy to expand and evolve as a leading provider of voice and internet wireless services. The Blackberry 5810 will also be key to Nextel's recently announced wireless solutions initiative. [INAUDIBLE] will provide complete solutions for the business and enterprise customer.

Customer feedback on the 6510 hand held has been very positive and Nextel is forecasting launching takeup of the product, early launch this year. PDA, as well as IDT hand-helds are expected to be launched in North America in the upcoming months. We are working with several North American [INAUDIBLE] carriers on their pending Blackberry service offerings. Rogers AT&T continues to have strong results with [INAUDIBLE]. As well Rogers will be one of the first carriers globally to launch service on the 67 and 6710 hand held in coming weeks.

In Asia on September 23rd, RIM and Mobile launched Blackberry in Australia. It dominates the market in Australia with an estimated 80% market share. The entire sales team is equipped with Blackberry and has already begun selling the solution to existing customers. The four major corporations in Australia that tried the IT solutions market have already become reference customers. In Hong Kong we continue to add new [INAUDIBLE] customers despite a challenging IT spending environment. We've seen early success in the [INAUDIBLE] and are conducting trials with many major corporations in Hong Kong. On September 20th, RIM launched Blackberry web client in Hong Kong. Contrary to [INAUDIBLE], many hand-helds inside Hong Kong are purchased by the individual.

Given this fact in Hutchingson Telecom's powerful retail presence and dominance in the consumer space in Hong Kong, we expect Blackberry to be successful in closing the margin and also help drive our growth in the enterprise. RIM is also in discussions with network operators in several additional countries in Asia. For an OEM radio update: earlier sales continue to be strong, climbing 24% in Q22 versus Q1. In Q2, RIM achieved regulatory approval for the RIM 1902G and the RIM 1802G OEM radio modems in United States, Canada and Europe.

Additionally, the technology group signed the first contract for distribution of the RIM 1802G along with initial purchase orders in the UK and Europe and alpha micro components in the UK. Alpha micro supplies to the security of ruggedized global computer markets. On the direct sales front, [INAUDIBLE] selected the RIM 1902G and 1802G as the wireless engine of its Omni 3600 terminal. Later in the summer RIM also secured a design win with Lippman USA, who also recently received shipment of over 50,000 RIM global tech-data tech module. In the area of acquisitions, in addition to the June acquisition of Slang Soft which we discussed as a font engine in the July conference call, RIM acquired two other companies during the quarter. In July, RIM acquired Air Zan.

Air Zan has a service-based document conversion engine which when combined with RIM's existing communications infrastructure, allows Blackberry users to secure and view e-mail attachments. RIM will also extend its development environment with software tools to enable developers to create document handling applications through Blackberry. These enhancements to the Blackberry solutions will compliment existing wireless features and allow customers to more efficiently manage their documents while mobile. The development team remains located in the Atlanta office.

In August, RIM acquired Team On systems. Team On is a mobile office product that enables users to access corporate proprietary and IMac based systems from a variety of wireless devices. This technology will compliment RIM's [INAUDIBLE] solution by providing a lower cost e-mail access often than individual users can purchase and individual users provision. The Team On employees will remain located in their Seattle office. These acquisitions combined with the [INAUDIBLE] acquisition and the move to Java have all been focused on the goal of growing Blackberry as a [INAUDIBLE] .

In addition to messaging, companies can have access to other enterprise applications. With 3.5, we add [INAUDIBLE] conductivity. Slang soft allows different fonts, attachment reading, Team On for consumer messaging applications. The licensing strategy will allow Blackberry to run on multiple devices.

Blackberry as a [INAUDIBLE] carrier is a platform on which to base their future business plans and customers have been given all the product features and flexibility they require. In the intellectual property front, during the quarter and subsequent quarter end RIM filed three additional complaints against NewTechnology. One alleges infringement on a portion of RIM's copywrite portfolio associated with the user interface on RIM's line of Blackberry wireless hand helds.

The second alleges that NewTechnology engaged in unfair competition, false advertising, trademark infringement, and trademark dilution, resulting in the unlawful use of the RIM and Blackberry marks; and the third alleges that New Technology engaged in misappropriation of trade secrets, breach of contract, malicious interference of contract with respect to economic relations, unfair competition, unjust enrichment, breach of implied duty of good faith and fair dealing, and corporate conspiracy.

As well, subsequent to quarter end RIM filed a complaint against Hand Spring, alleging that certain devices in [INAUDIBLE] manufactured and marketed and sold by Hand Spring infringed the claims of the patents associated with the unique keyboard features implemented by RIM's Blackberry hand held. I will now provide an update on RIMs internal operations. As I said a few moments ago, we are invested heavily in building the infrastructure necessary to launch Blackberry on a global scale. R&D and technical personnel have been focused on new products and in working with the technical teams of our carrier partners and preparing them for launching Blackberry.

Valuable marketing personnel are engaging corporate customers in North America and Europe, and are working with carriers on the programs necessary to make their Blackberry launches successful. Branding remains a focus through carrier marketing programs as a direct expense in new Blackberry product. Customer support continues to be essential as carrier numbers continue to grow. IT continues to improve the efficiency and reliability of the Blackberry infrastructure. The manufactuing facility maintains the flexibility to act quickly to an uptick in demand, while operating effectively at current levels. We will continue to improve our internal operations, making it more efficient while focusing on managing costs effectively. In summary, I believe we are continuing to perform well in the challenging economic environment, particularly with subscriber growth. Key events for our [INAUDIBLE] going forward are the launches of new Blackberry products and services and subscriber growth on these networks.

We remain focused on execution and working to make our global carrier partnerships successful while keeping a close eye on managing our costs. We are entering an exciting new product cycle with the launch of the 6710 for GPRI, the 6510 for Nextel Highjack, and a CDMA [INAUDIBLE] product later this year. We expect that these launches will help drive growth going forward. This concludes our formal comments. I would like to remind everyone that we plan to end the call today by 6:15 p.m. Would the operator please come on to handle questions.

Thank you, sir. One moment, please. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star followed by the 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. The questions will be polled in the order they are received. If you would like to decline from the polling process, please press star followed by the 2. Please ensure you lift the handset if you are using a speaker phone before you press any keys. One moment, please, for your first question. Your first question comes from Ray Sharma from Nedford Burns. Please go ahead sir.

Thanks. First question just is in regards to the patent, the patent specific to the segmentation of the patent costs. Can you describe to us, Dennis, in more detail as to what was involved there, any reserves appropriated for future costs, and just any help you can give us in terms of interupting whether it's a one-time in nature or whether we should see it as an ongoing operating expense.

Sure Ray. What it was is relating to particular piece of litigation where someone is asserting that RIM infringes on certain of their patents. A portion of the expense was incurred in the second quarter. The remainder was a reserve for anticipated expenditures in Q3 and Q4 which would be the anticipated life of this event. So we fully reserved for all estimated expenses in this particular litigation.

Okay. So okay. I hear you then, thank you on that one. And in regards to population, can you give us a sense as to where the current head count is and where your plans are outstanding--outside of current acquisition which is difficult, I should say, outside of acquisitions, what do you think will happen with population going forward?

I can comment on where it currently is. Last quarter around we were around 2,000. Just under 2200 at the current time. And you know, obviously the majority of the people are in Waterloo. But a significant have been involved in different locations in getting these carriers up and running.

Okay, great. And last question for Jim, Jim, I'm sure you spend all your time trying to figure out how to get the carriers to start effectively selling through the devices and the services, really, to the 2.5 G networks, what do you identify as sort of the key challenges and what you can do to help push through the devices into customer's hand as soon as.

Well, there really, a great question. Just coming back from a couple days meeting with a bunch of CIOs and large customers and really being close to them. The number one issue really is trust to the system. And I'm not pinning that on the application or the device or the carrier or anything.

It's people, this is a very visible product, people become very dependent on it very, very quickly. And at the end of the day, do they trust the reliability and coverage and uptime and all that kind of stuff. It's just a-- And clearly in certain circumstances, that's something, and again, I'm in no way pinning this on the device, the application or the carrier, it's the hardening of the system so that somebody says this is reliable and I'm going to trust my business on it. And really, you know, people who now use Blackberry maybe missed the first couple generation cycles that we had to go through in this and sometimes it takes--you have to iterate this stuff to get it as hardened as you want it to be. So I think that personally is the number one issue that we've gone through and clearly when something is hardened enough, that's very experimental in the market. But the feedback I'm getting in stating the product is IT--CIO's are saying, I'm feeling quite good about this.

I'm feeling very, very confident. Very, very comfortable about not only the hardening of the product, the whole solution. The second issue is really grappling with and understanding the kind of [INAUDIBLE] people are taking to driving up the ROI and that's specifically things like is attachment viewing fully integrated, have they tested the 3.5 upgrade and looked at additional application extensions. You know, have they really, you know, are the things they are looking for kind of to take it where it wants to be or customization of a forms engine, you know, is that all done. So, you know, if people sort of saw the state of the developments and activities, it is very, very exciting.

And really getting that stuff integrated and done, and again, these are kind of 15, 30, 45-day activities that are real deep. I'd say the third thing is the completion of the sort of commercial operationalizing of new data services. And you know, most of these carriers are launching with voice turned on right away.

On Monday this week, MM 02 announced full roaming across twelve countries throughout Europe. These kind of, you know, roaming pricing special rates, migration paths, you know, sort of, okay, I'm ready to buy, but here's the deliverable specks I'm looking for. Not, gee, I want to test the product phase they are in. Are the kind of things that are happening. And really I put this all in the whole big category of just sort of gestating a new service. You know, again, I talked a long time. But his stuff, you know, this stuff, the demand is no question.

The power of the solution, no question. The issue is, you know, has everything been tweaked through so that people are saying, okay, this is going to be part of my IT organization, this is going to be mission critical to me, I'm ready to move in a serious way. And I prepared to represent that you will see a meaningful difference, meaningfully different set of stages in all these occur in the next 15, 30, 45, 60 days. These things are all planned for announcement at the major shows in October and in November. So you know we're putting, burning the midnight oil, putting in the frequent flyer miles. This is a bit of a schizophrenic time. I mean, I want this to be a very candid call.

On the one hand saying this is a lot of work and we want more traction, of course. On the other hand, to see, you know, the competitive positioning we've got and the value proposition to the customers and the enormity of resources and push and excitement by our partners, you know, it's not like we've got rose-colored glasses. It's really that, really that variety that's out there right now and that's where we are. All I'm going to say to people is putting my credibility on the line.

This stuff -- you'll see stuff launched this month, like PTIA, Context, [INAUDIBLE] and so on, in October, November and first week of December are major breakout season for us. All this work we've been working on for years and years that's been gestating. You know, I'm quite certain it's game time now, so we are thrilled. Again, recognize, I mean, we are giving a duality of messages here and that's not normal for us but you know, I'm certainly going to be honest with you all.

Okay, that's great Jim. Thanks for the comprehensive answer.

You next question comes from Bill Crawford from U.S. Bank Corps. Please go ahead sir.

Thanks. Could you talk a little bit about, kind of, tear yourselves from the--we tend to recognize revenues but what's happening in terms of the carriers actually selling out. You mentioned something about MM 02 if you could repeat that comment, I think it was MM 02, something after the quarter ended. But I need to get some comfort that the carriers are really going to be able to sell Blackberry. Because I haven't gotten any evidence to this point. Can you help me there?

Yeah, honestly I think the carriers are getting a bit of a bum steer on this one. I think they really are. You know, the number of customers who have said -- the number of customers who have said I'm, you know this is what I want and this is where I'm going and I'm so keen and I want to do it and totally keen, they are very, very high. What has really happened has been, you know, people have taken it and used it and said this is what I'm looking for before I commercially roll out a comprehensive expense.

This experience before I do a full comprehensive commercial roll-out, you know, and not trying to say, not pinning that on anyone on particular. We get issues like, you know, I need more application features or a certain pricing thing or a world band unit or I need more roaming to different geographies or I need more coverage in the network or certain resets which, you know, will be whatever it's going to be and I'm not trying to say we're perfect and we got it all at once. I'm prepared to represent that the carriers I've met with and I deal really at sea level, most of these carriers, they know a little better of what they are doing than given credit. Everyone is hitting a little too hard and swinging right.

At the end of the day what's made their life hard is the quality of the customer experience being represented maybe has not always been quite equaled what was really put in their hand and they kind of said, well that's nice but I need these other pieces done before I'm ready to go primetime. And so I think that's where we are that those preconditions are being completed. I mean, I see the carriers doing, actually, quite a good job.

But they are frustrated because they say, you know, I got all these customers warmed up, all ready to go, you know, everything is looking great, but you know, there may not be coverage that they want, they may not trust the reliability, they may be looking for an integrated speaker or mic, or a feature upgrade, with the 6610 they want a price break, I mean, the carriers are working on roaming things, and global things, and this is new stuff. Customers saying here's my purchase order, respond to it. I'm seeing the carriers being a little more smart and sophisticated than being given credit for and again, I'm prepared to say the proof is going to be in the pudding.

You're going to see within 60 days, you know this call next quarter, you know what, that will be 70 days, 75 days, by this time the call in December, you are going to see, you know, the proof is going to be in the pudding. You know, and having spent the time and seen the programs and seen the initiatives, and I'll give little examples like AT&T and all they are doing and all the programs, they are doing a lot, you know, but they're just turning on, they're just announcing in a week or two San Francisco and New York. Those are key preconditions and I'm not saying that's been the only thing, I'm not saying that, but the point of these pieces that need to be in place are just getting done.

And so I think people are judging the success and saying is there a market or people know what they are doing and the real issue is, is the system there to give the value proposition and I would put forward being in there, dealing with customers, seeing through their base, seeing through their trials, the demand in interest has not waned. It's when do we hit that sufficiency level of operational value proposition they are looking for and that's the number one barrier and that's the threshhold I see us crossing at this point in time.

Bill hello. It's Dennis. Your other question was on the Europe comment. Just meant to show that Europe's subscriber growth is picking up. We had said that in the month of September, total in Europe increased by 20% and a lot of that was attributable to MM 02.

Yeah, I've heard of that. It's like I mean, just a small comment. I mean, MM 02 just announced roaming to twelve countries. I mean, when you're in Europe, I mean, people travel to countries like people travel to different states in the states. So it's like, if you had a product that was only available in a couple states in the US, I would say that would severely compromise our sales. Once you get roaming, I mean, the promise to the customers when they're traveling and all that, it opens up, you know, really a primary objection it addresses. So that's a good example that comment in action.

Okay. Final question, on paper, one of the things, probably one of the best carrier partners, what's going on there, what's behind the delay and any issues that are going to last? Or is this going to last or be resolved pretty quickly?

It's under control. What happens is you go through gestation phases and then you have mandatory testing phases prior to launch. You get, you know, material but manageable issues and I would say there's one material issue that related to how we exercise power management that was addressed and has been implemented and has been tasked. So you run in that last stretch of long run, that last, you know, little bit and you know you're there.

And it's to the point where there's specific dates scheduled for production and shipment and soft launch and hard launch. And you know, people are using the product and showing the customers and showing at trade shows. You see them using it in speeches and and all that stuff, you know, and they're living on it. We are so close.

A very -- I mean, you know,that's the case of a very specialized network pushed to talk married with an overlay placation application Blackberry with a [INAUDIBLE] sales force, with a vertical lineage. That's a powerful power value proposition. And I can tell you every carrier partner has their own very, very unique set of powers and customer value proposition and you can be equally enthused by every one of them.

Okay. Thank you.

Your next question comes from Andrew Lee from QD Newcraft. Please go ahead, sir.

Just a followup Jim, with regards to the CDMA. Could you talk about hitting the launch time with Sprint. Is it the same sort of issue you just discussed with Nextel?

The--I don't know if I said Sprint.

Just the timing of launch, for Nextel.

I have not said any particular network, although you'll hear network launches. Yeah. It's really gestation of -- products are very multifaceted and a lot of issues and you get issues. Technology issues where things are innovated, new code loads, network upgrades. Again, you know, RIM makes products now in beta and, sure, you know, sure we would like to have it all done in September. You know, it's -- it's going to be, you know, early November or so. Like that kind of range. And you know, there's a lot of issues. This is complex stuff.

We're baking new numbers and protocols. But, I mean, there are a bunch of people using the product and, you know, on sort of very controlled alphas and now betas and having a great experience and all very excited. You know, mobility companies and so on and you know, U.S. companies, they're are all very excited. So, yeah. I can paint a great story there, and it's true. And so, yeah. That product -- it's a nice product. I mean, it's nice.

Do you think you can maintain the fees with your next three generation products coming out, in the $500 range?

No, I think there's going to be issues but what happens is the cost curve is driving down on this stuff which is great. So I mean, we have an ASP lineage where we baked all this stuff ourselves. We've come out with -- we have new integrated designs which substantially take down the parts cost. There's no question like a beautiful product road map which is staggeringly attractive. So, yeah. Fees are going to come down and costs are going to come down and it's going to be right in there where you love it to be for, you know, a good phone but not bad. You're going to see that.

Margins preserved reasonably, but I think what we are seeing is carriers are almost going to make sort of, you know, voice data just a mandatory aspect of what they sell. They become -- you sell voice data devices and offer services and what they offer. If you provide the enabling CFO and the partnership, you become a meaningful agent to help strategically get to their success points. So that's why we are investing so much in the partnerships and the technologies and so on because we know that we're enabling a material part of very substantial enterprises. We are trying to tap into that substantial growth curve. Yeah. Given the ASP is down is a big, big part of that if you want to be more main stream.

Let me tell you, that, you're going to see, you're going to see meaningful material stuff before the end of the quarter-- before we call again in December. We are ahead on this stuff, I don't want to telegraph too much. I want to share the duality. The challenges and nature of getting this hardened, not pinning it on anyone. But the enormous value proposition that goes into people's hands. It drives you crazy because it's good when it works well and you just want to get it perfect because people will accept nothing less than that and we are very much on the edge of that.

Andrew, one quick follow on. You'll see product intros where we have product offering, sizes, shapes and a variety of different ASPs so a high end product but a range of products that means the blended will be lower.

Where would you see the margin range and how would that compare to where you stood this quarter?

I said we expected margins to remain consistent over the next quarters and certainly with the cost reductions that Jim eluded to, we expect that to continue.

Are you still in the 40 range?

We did 45.8% in Q2 in overall gross margin.

And on the product side?

I haven't done a breakout on that.

Where's the revenue break-even level you are putting into your business model.

The current Op Ex level of 50 million [INAUDIBLE] break even would be around 100-120 million.

Okay. Great. Thank you.

Your next question comes from Gus [INAUDIBLE] from Scotia Capital.

Thanks. Two questions for Dennis and then a question for Jim. Dennis, can you give us a little bit more, the 81.5 million in portfolio investments, tell us more about what exactly those are and how liquid they are. Second question for you is of the [INAUDIBLE] gross ads in the quarter, can you give us a rough idea how many are outside North America. For Jim, a couple things I've been hearing out of Europe is, obstacle for adoption of the Blackberry, is senior executives are comfortable using MMS so initially at least, they think they can get along just find with MMS. How much of an issue that has been and secondly, that because Europeans are used to a plethora of styles in mobile phones, that the Blackberry design is too boring and not slick enough for the Europeans. Can you discuss those issues?

I'll go first to get it out of the way. Whenever you have an investment in investment paper similar to what we previously call marketable securities, it has a duration of more than one year, it gets pulled down into long-term investments.

These are not usual or different types of corporate paper, they are just investment grade paper that has a duration of more than one year so we are taking a look at our cash requirements and looking at the yield curve and managing the treasury accordingly. Does that answer that question?

Yes, thank you. On the sub ads.

I haven't provided a breakdown yet on Europe versus North America. I said before we are experiencing good takeup in Europe. We haven't broken out those numbers yet.

Okay.

And on your question on Euro, I think you meant to say SMS not MMS.

Yes.

That's a chat protocol. It really on our device, you use the same messaging and SMS is just another payload. To say use SMS for e-mail, no. Not allowed to for corporations.

These devices, the existing cell phones are brutal or e-mail, just an absence of e-mail and really before Blackberry came on the scene, there was no e-mail in North America and people said, why would I want my e-mail, and you see how it went on that. That's one. And number two, the carriers are very, very excited and there's a lot of demand and just launching the surface.

[INAUDIBLE] just coming out of pilots and other countries and Germany and so on and just establishing roaming. There's a lot of people who live on corporate information and have never had this and got at it through awkward mediums and are very keen about this. SMS is an alternate payload. It's mainly for chat, and that's a complicate for e-mail.

I understand that.

Use the same messaging.

In terms of style, I think if you start to look at our styles and where we are going, I think you're going to see us getting more stylish on the one hand. Number two, really the style in my view is going to migrate less from the device on the physical and more on the media. So Dennis and I were talking out this acquisition and development strategies and these platform architectures.

When you start doing font engines and media engines, you start giving back, you suddenly have this powerful near media, near rich media capability with really new display technologies. I think that's very powerful. So the richness and the stylishness is going to be in the media experience when you judge a TV, you don't judge a TV by how the TV looks by you but by the image. In a sense these devices are going in that direction. It's less the color but how it renders and graphically entertains you. Coupled with some styling, sure.

And the third point I'm going to put is that we told you we are on a strategic direction to bring on other major partners that will enable Blackberry on the key hand held and that strategy is very comprehensive part of what we do and what I do every day. By the time we talk again. Deep in [INAUDIBLE] and going to have Blackberry working on the devices. New media platforms on these things to go with new display and carrier working out. The game is turning on.

The points are well taken. I want to say when you look at the parallel gestation points, they are all converging on this. Therein lies the duality. Those comments you're going to see substantially nailed, you know, October, November, December.

Right. Thank you, very much.

Your next question comes from [INAUDIBLE] from National Bank Financial. Please, go ahead.

Hey, guys. Maybe you could talk a little bit about the GPRS coverage, is that what you are seeing as a major concern for a lot of the corporations to that platform or holding off until the networks are stronger and so on?

In certain cases, they want to see more network coverage. All the carriers have announced extensive roll-outs and rolling out of coverage. As an example, AWS is pretty much completing their roll-out. I have the dates out, but the first week of November or I can't remember what it is, or the first week of October. I think the launch of New York is a couple of weeks from now and Pittsburgh launch. People say it looks great.

I travel there once a month and travel once a month and that's a precondition before [INAUDIBLE]. People say, I want a world band, some said, when can I have a removable battery? You were right on the cusp. I like what I got. When you're done, I'm there. When I get that.

Now sitting there saying I've been trying it for x-period of time and getting real serious now. Getting real serious, and that's the difference. Whatever experience they had three, four, five months ago in terms of coverage and liability, if the whole system, it's been good for certain ones globalized or the coverage fit with the movement patterns, but, yeah, you know, coverage is experiential. By the way, Mobile Text went through a period where they had to fill in coverage where people are screaming the loudest. We are going through this where people put in pressure to fill it in. It's been a major issue in certain cases and we think substantially the carriers have under control. If it's not there today, it's within that 30-45 days where the final pieces are filled in. One of them has a bit of an issue for themselves but roaming relationships set up with other carriers. It's getting under control.

Okay. Maybe in terms of the carriers working with now, could you maybe quantify or in some way tell us how big or the direct carrier sales people you worked with, the thousands of people pushing Blackberry products.

Mostly we had to do direct training, a very substantial, built a whole training organization to train the carriers. [INAUDIBLE] account executives, each carrier, most of the carriers are north of 1,000. Some have global accounts on top of that which are another 300. Some of them have retail stores north of 1,000 and indirect channels and training and supporting and product placements and techno account and all those and you play that out over five or six carriers. This is one country. And you got to train them, support them, technical support, point of purchase, demo units, feed units and you play that out and I'm just talking in the U.S.

Let's play that out to South America, play it out to Canada, play it out to Asia, play it out to Europe. We're being prudent and careful in our resources but making sure we achieve that knowledge transfer. These are scaled organizations. I'll tell you again, they are all excited and getting comp big and working with the known market. Folks, just get it hardened for me so I don't compromise with the customer. Once they cross that trust threshold which I have experienced, we didn't have every aspect nailed the first time but it's being in the game and reiterating that gets you there.

Fair enough. Dennis, quickly, in the last quarter Singular, can you give us a hand held number for the year?

Sure, quickly so we can get a few other people on. Singular continues to be strong, I didn't provide a breakout of what the percentages were. As far as [INAUDIBLE] for the year, Jim guided net ads to be 45-55,000. We haven't provided a Q4 number but expect it to be higher with the launch of the 6710 and other products.

And maybe like a hand held number?

A hand-held unit number for the year. Since we did around 62,000 units for each of the first two quarters based on the revenue guidance for Q3 being flat, obviously it's going to be in a fairly similar range. Given the revenue guidance for Q4, you can expect quite a jump from the current-based number.

Around the 300,000 mark, probably.

North of that number.

Fair enough. Thanks, guys.

Your next question comes from Tom [INAUDIBLE] from Merrill Lynch.

This 33.5 million that went to, I'm going to describe it as acquisitions and technology licenses, can you describe that? 20 million for acquisitions?

Right, if you called on the July conference call, you recall that licensing agreement with Ericsson. That was the majority of the remainder.

I thought that was a world agreement.

It was an up-front fee in that agreement.

Okay. And in the SG&A line, last quarter you expected it to go up 15-20%. That did not contemplate any of the patent litigation?

No, actually it didn't. That patent litigation was separate at that time and we weren't sure what that total amount was going to be back in July. So that's not a reason for the drop. Quite frankly we just were very tight in managing the expenses that were discretionary and we weren't hiring any significant new people.

Okay. And just help me, the patent lit gauge were normal litigation is capitalized.

For example, if we are asserting one of our patents, you would capitalize those amounts because that's the patent is not worth anything until it's been successfully defended. Vs. this situation where we are the accused and someone saying we violate their patents. So in a case where we are defending someone else's assertion, we are expensing the litigation costs in an assassins where we are suing someone else over our patents, we capitalize those costs.

The reduction in the outlook, is that primarily due to the delay in the 6710?

It's more the shift out in the launch timing and therefore the initial shipments to the carrier [INAUDIBLE] in North America and Europe.

Your guidance for the February quarter is below what you have for the November quarter prior to this. All the products are shipping then.

Yeah, it's more a function of if the launch is later than the ramp starts a month or two later and we know there's a bit of a sales lead time with these new products.

You haven't changed your assumptions on the uptake rate once you've launched a product here. Just that your guided 90-100 for November, that's assuming you had the 6710 shipping for the quarter.

Assumed we had 6710 shipping, assumed we had product shipping and assumed we had CMA product shipping.

All shipping for the February quarter?

That's correct.

Your guidance for February is lower than guidance for November. I wonder if there's a change beyond that.

No, I'd say we are just being conservative and given the current environment, it's not always easy to tell what the next three months are going to do than the following three months out. I attribute that to being conservative because it's an out quarter.

You next question comes from Barry Richards with [INAUDIBLE]. Please go ahead, sir.

Dennis, I wonder if you could quantify the split and I know you don't want to give us the numbers specifically but are we getting close to 2/3 or 1/3?

Without providing the numbers or ratio, I will say that the carrier partners on the 5810 are experiencing some really good feedback and results on subscriber ads not just in Europe, which is growing well on its own, but even the North American carriers are getting feedback. So I can't give you the breakout yet. Once that's farther along it is going to be a meaningful statistic.

And you talked a great deal about the enterprise sales factor, could you quantify it in the UK and Europe. 3-6 months? 3-12 months or something different than those numbers?

The pentup familiarity and demand in North America is quite high. migration path is powerful and simple. A focus on the writing of the networks and sophistication and data and experts and [INAUDIBLE] language and stuff like that and national or near national networks. That and customers want that, enterprise customers want that. I think the top in North America and Canada is the same way is much more substantial is closer in.

Europe is exciting in its own ways and important for us; however, each kind of country has to go through its own gestation of services and building of their forces and localization of the product and training and many of them really haven't launched commercially services quite yet. I would say, you know, what you are seeing is success like in the UK that is UK-centered that you got them addressing the key barrier issues. That's going to be a continued, you know, just kind of really working along and carrying on and doing well and going on the margin. I don't look saying this is going to pop out of the gate because of all that.

Because I see that I see substantial growth but I see the nature of kind of pop things, if you will, in North America, and that's, you know, that would be my characterization between the two of them.

And I don't mean to pin you down but an additional three months or north of six months, as far as the difference between Europe and the U.S. Right now.

You know, in a sense, you know-- Because it's a hard thing to answer. Kind to give you flavors and honesty but not going going to try to overstate it. I can't really answer that. Global companies and more domiciled companies. The demand is more than enough to get us interested. You keep filling in the puzzle and they all feed off one another. Just many carriers and many activities to Europe and that's the particular nature of that. But, you know, we talk about Tim.

Tim has aggressive plans and they are the largest carrier in Europe. Who am I to say. You know what I'm saying? And UK is getting aggressive, too. And once we do world band and triband and the French are just in test and other countries, Spain and Austria where we have exciting stuff going on. But the whole thing is establish the capability, transfer the knowledge, build the partnership, avail the platform, you know, communicate the capability to the customers and carefully manage our exposure to time. You have to be ready to respond. As I sort of say, you know, our strategies are patient but we're in a hurry.

For me to say I have precise knowledge that all these are going to pop, I'm not going to put RIM in a position where we are time dependent. We know it's material, we know it's attractive market. We know we're in leadership positions and keep doing the right things. We're not going to blow our brains out on assuming something is going to happen. But the truth of it is, you look at our models and all that, and, you know, it only takes one or two carriers to start tracking reasonably to below everything in the direction big time. But you have to be doing all the platform capabilities and working in the right places. The customers to enable it through.

That's the strategy we ply and no question we're positioning for that meaningful uptake in the capability and -- you know, but I would say you're going to see the bigger pop just naturally in the U.S. by structural aspects. You'll see that continuous, grinding, nice compounding, really picking up in Europe. That would be my guess. I came back from eight days in Asia. On the one hand a lot of complexity there but very substantial desires to do some very substantial business. We're not talking about that, you know, and wanted to do business there yesterday. You've seen us launch a couple of carriers and a bunch more lined up and localize to characters and licensing. Very, very -- this is the duality we are at. I'm not trying to hype anyone, telling you the way it is.

At the end of the day, we believe we have a product, the technology, the team and the partnerships and the balance sheet and the intellectual property to hammer this one through and I'm representing, you're going to see very, very meaningful indicators of traction this autumn. You know I'm just that confident.

Thank you.

Our last comes question comes from Tim Long from Credit Suisse First Boston. Please, go ahead.

This is Jason calling in for Tim Long. I had a quick question on the share repurchase agreement that had been decided on with the board of directors, the3.8 million in shares. What is the trigger for this? Is this -- is 5%, the 3.8 million, is that the ceiling or a different amount. Can you talk about that or any plans for that going forward. Also is this something that is flexible given ash burn plans or uses of cash plans? Thank you.

Sure. I'm happy to elaborate. We put a similar plan in place last year. That's a total number of shares approved for repurchase. It just means we have the ability to repurchase up to 3.8 million over the course of the next twelve months.

And then, okay. Great.

Does that answer your question?

Yeah, thanks.

Ladies and gentlemen, the Q&A session is now over. I'd like to turn it back to you.

Thanks, very much. I'd like to remind everyone again that there is a postservice available. You can listen to the call on our website. The number is 416-640-1917. reservation number 181806. Thanks, very much.

Ladies and gentlemen, this concludes the conference call today. Thank you for participation and please disconnect all of your lines.