BlackBerry Ltd (BB) 2004 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen.

And thank you for standing by.

Welcome to the Research in Motion second quarter fiscal 2004 earnings conference call.

At this time, all participants are in a listen-only mode.

Following the presentation, we will conduct a question and answer session.

Instructions will be provided at that time for you to ask questions.

If anyone is having difficulties hearing the conference, please star zero for operator assistance at any time.

I would like to remind everyone that this conference call is being recorded.

And will now turn the conference over to Mr. Dennis Kavelman, Chief Financial Officer.

Please go ahead, sir.

Thank you.

And welcome to RIM's fiscal 2004 second quarter conference call.

With me is Jim Balsillie, RIM Chairman and co-CEO.

After reading the required forward-looking statements disclaimer, I will begin by providing an overview of second quarter results as well as 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 a call in number and a webcast.

A replay of the webcast will also be available on the RIM.com website.

We will be wrapping up the call by 6:15 p.m. eastern this evening.

The information presented today includes forward-looking statements within the meanings 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 from those expressed or implied by these forward-looking statements include continued acceptance of RIM's product, risks related to patent and other litigation, intense competition rapid technological change, timing of roll out of network technology, changes in the macro economic environment, dependence on intellectual property rights, dependence on the success of carriers and distribution partners, risks related to product defects and product liability, risks related to foreign exchange fluctuations, changes in Canadian and foreign laws and regulation, risks relating to international operations including international conflicts, and acts or potential acts of terrorism, and other risks detailed from time to time in RIM's periodic reports filed with the SEC and other regulatory authorities.

One or more of these risks or uncertainties materialize or if assumptions underline the forward-looking statements prove incorrect, actual result could vary materially those expressed or implied by forward-looking statements.

We base our forward-looking statements on information currently available to us.

We do not assume any obligation to update them.

I would now like to provide an overview of the second quarter results.

Revenue for the second quarter ended August 30 was $125.7 million.

This represented a 20% increase over the 104.5 million in the prior quarter, and a 70% increase from the 73.4 million in the second quarter of last year.

Handhelds represented 66.2 million or 53% of RIM's revenue during the quarter.

Similar to the 50% of revenue they represented in the prior quarter.

Approximately 178,000 handhelds were shipped during the quarter.

As expected, average ASPs dropped as the lower priced products were rolled out in the second quarter.

Average ASPs were approximately 370 dollars compared with the prior quarter at 410 dollars.

Service revenue was 40.1 million or 32% of revenue for the quarter.

An increase over the 39 million in the prior quarter.

RIM added approximately 96,000 net subscribers during the quarter in total BlackBerry subscribers at August 30, was approximately 711,000.

As we roll out new handheld products, we are continuing to see a significant number of BlackBerry customers upgrade their handhelds from earlier mold models or move their service contracts between carriers.

We no longer report growth subscriber data both channel partners and internal team provided data that indicate we are experiencing a meaningful upgrade cycle in our subscriber base.

In addition, there is a normal replacement cycle that occurs when handhelds are lost or damaged.

We review channel inventory regularly by considering total handhelds shipped versus upgrades, new subscribers, and replacements, and through discussions with our carrier partners.

We believe channel inventories are marginally higher than last quarter but are appropriate given the recent launch of the retail channel.

Software revenue was 11.3 million or 9% of revenue for the quarter.

This consisted of bed sales and client access licenses, technical support services, and software maintenance agreements.

There are currently approximately 14,000 BlackBerry enterprise servers connected.

We believe that the total number of beds connected is a more relevant statistic than the number of companies using beds as there are many large corporations that have more than one bed installed.

We estimate more than 15% of active beds are now outside North America.

Sales are OEM radios and other revenues such as accessories was -- 8.1 million, or 6% of revenue for the quarter.

Gross margin for the fourth quarter was slightly higher than the prior quarter at 46.3%.

This was due to the increase in software revenue, as well as improved plan efficiencies related to higher volumes.

R&D spending was14.7 million or 12% of revenue for the quarter; slightly lower than forecasted expense range, approximately unchanged from Q1 levels and lower than the 14% of revenue in Q1.

R&D as a percent of sales in the second quarter last year was 19%.

Selling, marketing, and administrative expenses were up slightly to 29 million versus 28.1 million in Q1.

And were 23% of revenue, lower than the 27% of revenue in Q1, and down significantly from 39% of revenue in the same quarter last year.

The patent litigation provision in Q2 was 5.7 million.

This was lower than expected resulting from adjustments to previous estimates for legal and professional fees, other costs, and interests.

These accrued amounts are deposited in an interest-bearing account and will remain in escrow pending the outcome of any appeals process.

GAAP net income for the quarter was 2.1 million or 3 cents per fully diluted share, excluding litigation, adjusted net income was 7.8 million, or 10 cents per fully diluted share.

The number of shares used in the fully diluted earnings per share calculation was 81,630,000.

No tax expenses was recorded for the quarter, due to the use of tax losses not currently recorded on the balance sheet.

RIM's balance sheet continues to be very strong with high cash reserve, negligible long-term debt and appropriate working capital balances.

At the end of the second quarter, RIM had 528 million in cash.

Cash equivalents and long term portfolio investment, up 18 million from the prior quarter.

This was favorable versus the forecasted cash decrease discussed on the last conference call.

This increase in cash was a result of achieving profitability in the quarter, low cap ex, and stable working capital balances.

Restricted cash on RIM's balance sheet refers to the accumulated, enhanced compensatory damage amounts relating to the NTP matter that must be deposited quarterly into an escrow account pending the outcome of the appeals process.

We are currently modeling a cash burn for the third quarter of approximately 0 to 5 million.

This excludes any further share repurchases or IP licenses.

We anticipate an increase in cap ex spending in Q3 as we invest in the manufacturing facility and invest in BlackBerry operations to support our increasing subscriber base.

For Q4, we are currently modeling a cash increase in the 5 to 10 million range.

Trade receivables increased to 50.3 million from 39.9 million in the prior quarter, consistent with the increase in sales in the second quarter.

DSOs improved in Q3 to 33 days compared to 35 days in the previous quarter and 55 days in Q2 of last year.

Inventories decreased slightly to 28.6 million in the current quarter from 29.7 million in the prior quarter and the majority continues to be raw materials.

Net capital assets decreased by 5 million from the first quarter to 152 million.

Cap ex of 3 million was offset by 8 million in depreciation and amortization.

And weighted average fully diluted shares again using an EPS calculation were 81.6 million.

At this time, I would like to discuss our outlook for upcoming quarters.

Again, a reminder that these forward-looking statements reflect management's best current estimates and should be taken in the context of the risk factors outlined at the beginning of the call and outlined in our regular filings.

On the June conference call we provided a revenue estimate for the November quarter in the range of 115 to 125 million.

We have improved visibility this time.

And due to increased demand for 2 1/2 G BlackBerry products we are raising expected revenue range from 140 to 150 million.

We are currently targeting net subscriber additions in the range of 115 to 125,000 in Q3, which is expected to increase the total number of BlackBerry users to over 825,000.

For the fourth quarter ending in February we are forecasting revenue to be higher than Q3 in the range of 150 to 160 million.

We are currently forecasting gross margins to increase slightly to the 46-48% range.

The margin outlook continues to be favorable.

As production run rate increases result in higher plant efficiency, and also a softer revenue continues to grow.

With respect to operating expenses, in Q3, we expect overall op ex to increase by approximately 10-15% from Q2 levels.

This is due to increased expenditures on branding and marketing initiatives in North America, Europe and Asia to support new product launches, increased investments in BlackBerry operations to support the ramp in subscriber growth, and head count increases in R&D.

In Q3 assuming we continue to operate without additional government funding, we expect R&D to increase by approximately 5% in the third quarter.

And by subsequent 5% in the fourth quarter.

As we increase head count in key development areas.

We expect SG&A to increase approximately 15-18% in the third quarter.

As you will recall in the third quarter of last year, these expenses are seasonally higher as a result of planned fall marketing and branding campaigns.

An additional variable marketing costs related to the higher revenue forecast as well as expanded branding and marketing initiatives in Europe and Asia contribute to the increase.

We expect Q4 levels to be approximately flat with Q3.

We expect cap ex to be low over the next several quarters.

Thus, depreciation expense is anticipated to be relatively flat with current levels.

The cap ex will occur in the plant and in the BlackBerry operations area.

We are currently modeling annualized yield in the portfolio of approximately 2 to 2 1/2% for Q3.

Total investment income in the third quarter is therefore expected to be 2 to 2 1/2 million.

Based on the revenue guidance for Q3 and Q4 the patent litigation provision should be between 7 1/2 to 8 1/2 million, in Q3, and between 9 and 10 million in Q4.

Previous guidance for Q3 was for earnings per share to be between a loss of 2 cents per share, to a profit of 3 cents per share, excluding NTP accruals.

Based on the increased revenue forecast and expected margins and op ex, we are now expecting adjusted EPS, not counting the litigation, in the range of 14 to 20 cents per share for Q3.

The GAAP EPS range which includes litigation accruals, is expected to be between 5 and 10 cents.

For Q4, we are expecting adjusted EPS to be between 18-24 cents per share.

And GAAP EPS to be in the range of 7-12 cents.

With respect to taxes, RIM does not expect to record a tax provision for the next several years, this is due to tax losses or tax deductions available to RIM that are currently not recorded on the balance sheet.

A reasonable long term forecasted tax rate would be 20-25%.

However, once we start recording it, this tax provision, the tax expense will be largely offset by investment tax credits earned on and deducted from R&D expenses.

Therefore, we don't expect taxes to have a meaningful effect on our model for quite some time going forward.

I will now turn the call over to Jim.

Thank you, Dennis.

We are pleased with RIM's performance this quarter.

These results reflect the continued success of our new product launches throughout the summer, and the efforts by our carrier partners in marketing the BlackBerry family of product, as well as the dedicated efforts of RIM's employees.

As stated on our last three quarterly calls, our number one issue is the execution of our plans, and I want to take this moment to give credit and thanks to the carrier teams around the world and to RIM internal staff for their exceptional efforts.

While summer traditionally represents a quieter business environment for many company, RIM experienced favorable business conditions this quarter, and there were several positive developments since our last call.

These include the launch of the prosumer marketing strategy including BlackBerry web client, and the color screen and tri-band Blackberry in North America.

The launch of a strategy by Nextel to offer lower pricing to individuals and enterprise customers to the 6510 BlackBerry handheld and bundled service.

The successful sell through of the BlackBerry 6200, 7200 series handhelds by our European carrier partners following their launches during the past two quarters.

The launch of the new 7230 handheld with our carrier partners in Asia.

Record BlackBerry subscriber additions during the quarter which were spread across a broad base of carrier partners.

Continued strong performance by our legacy handheld products, and increasing numbers of companies deploying BlackBerry, or expanding the number of BlackBerry users in their organizations.

I will now provide an update on BlackBerry.

At the end of the quarter, our BlackBerry subscriber base grew to approximately 711,000 Blackberry subscribers.

There are now over 14,000 BlackBerry enterprise servers installed globally.

Net subscriber adds of 96,000 were higher than expected, and up 19% from 81,000 in the prior quarter.

Subscriber growth is accelerating as carriers continue to have success with BlackBerry enterprise solutions and begin aggressively marketing our new prosumer base products in Europe, North America and Asia.

Handheld shipments in the quarter grew significantly.

Strong end user demand, our breadth of carrier partnerships, and the expansion of BlackBerry distribution into retail channel, continue to contribute substantially to these results.

Further, we continue to experience an upgrade cycle as BlackBerry customers with older devices continue to upgrade to the new 2.5 G handsets.

The new 7200 color series handhelds were launched in North America and Asia in quarter following a successful launch in Europe the prior quarter.

These products are well accepted by carriers and customers and continue to receive most favorable reviews in the media and by industry analysts.

Our manufacturing team has successfully scaled production levels to match the increased demand over the past quarter.

The implementation of new equipment and relay over manufacturing lines have increased capacity, driven production efficiency, increased yields, improved delivery performance and ensured uncompromising product quality.

The new line configurations are capable of manufacturing RIM's older generation products and of manufacturing current GPRS, CDMA and IM products as well as future new product concepts.

We are currently operating two full shifts five days a week and a partial third shift operating in key product and process areas.

Within the Q2 installation, with the Q2 installation of additional equipment, line relay outs and current product mix, we now have total capacity of close to 2 million unit per year.

Output capacity will increase to approximately 2.5 million units per year, following the planned Q3 investment in plant and equipment.

Our strategy of manufacturing RIM's products in-house remains unchanged, as we continue to realize the benefit of co-location of manufacturing with product development teams.

These benefits continue driving improved time to market for new products, improved product manufacturability, and design robustness.

The manufacturing organization continues to closely manage relationships with key suppliers and strengthen the overall supply chain.

RIM's relationship with IBM continues to strengthen and during the quarter we announced BlackBerry support for the IBM lotus instant messaging every place three application.

Together, Lotus Instant Messaging, Every Place, and BlackBerry will help mobile professionals and work groups increase coordination, improve responsiveness and enhance customer service.

By extending Lotus Instant Messaging to BlackBerry, enterprise customers gain a secure, integrated, wireless messaging system on the same BlackBerry handhelds and service that already supports wireless applications for other e-mail, phone, SMS, organizer, web and Intranet applications.

We also announced last week an agreement between RIM and IBM to provide mobile workers with better access to enterprise information applications.

This relationship with development in integration efforts focused on IBM's Web Sphere Every Place access mobile middle wear and BlackBerry enterprise server allows BlackBerry users to access and work with enterprise data and wirelessly sync their handheld with server applications.

Developers will also be able to easily customize enterprise applications, for the BlackBerry handheld.

This quarter, RIM also introduced the S/MIME support package version 1.5 for BlackBerry.

This software add our product provides S/MIME, or secure multipurpose Internet mail extension, support for Java-based BlackBerry handhelds and commercially available to all government and corporate customers.

S/MIME support is an important purchasing requirement for many of our customers, including the U.S.

Department of Defense.

This furthers RIM's leading position as the most secure wireless data solution on the market.

In addition to RIM's support for S/MIME, BlackBerry is the only solution to have obtained both FIPS 140-1 and FIPS 140-2, certification from the U.S. government's National Institute of Standards and Technology.

RIM continues to work a number of third party ISBs to advance the BlackBerry value proposition for customers.

RIM also recently launched a systems integrator alliance program that certifies selected SI partner for RIM's community of carrier partner, ISPs and customers.

BlackBerry integrators provide value to our customer base as experts in BlackBerry best practices, understand the various solution offerings from RIM's ISP partners, and leveraging the powerful capability of the mobile data service platform.

These certified BlackBerry integrators benefit customers by offering RIM competencies across all verticals in the SMB and large enterprise market and by working with customers to deploy applications beyond mail to the BlackBerry platform.

For example, InterNoted, a RIM SI partner, provides an integrated solution to enable push-based corporate wireless applications for BlackBerry customers.

Also during the quarter,Tufts Health Plan and Vicks Corporation, a RIM ISP partner, launched a pocket scripts solution for wireless prescription management.

This solution allows electronic prescribing capabilities, formulary compliance, and a drug interaction guide for physicians and hospitals.

It is now available nationwide.

I will now provide an update on our global carrier relationships.

In North America, North America continues to be a strong market for BlackBerry.

The response was excellent as carriers rolled out the new BlackBerry products over the past quarter and as RIM announced new handset and software products.

Data only handset sales are also continuing at a healthy pace.

Multiple carriers in the U.S. are now offering the 7200 series of color BlackBerry handhelds to both their enterprise and retail customers.

These carriers continue to grow their respective GPRS subscriber bases and continue to increase their channels and support capabilities.

We are certainly very pleased with the execution by our carrier partners in the past quarter.

Aggressive service pricing by any many of our carrier partners in the U.S. is also spurring BlackBerry adoption.

Many carriers are now offering packages that make both BlackBerry handhelds and monthly service fees more affordable, allowing them to address a much broader group of potential customers.

The Canadian carriers are also experiencing success with their BlackBerry enterprise offering, and with the BlackBerry web client.

In Mexico, we are finalizing launch plans with American mobile mobile operator, Tell Cell, to launch into the Mexican marketplace over the course of the next quarter.

In Europe and Asia, BlackBerry continues to gain momentum in Europe with a launch of new handsets, the launch of BlackBerry web client and aggressive handset and service pricing by our carrier partners.

We estimate that approximately 15% of active beds are now at side North America.

Following the launch last quarter of the 7200 series handhelds, T-Mobile is rapidly expanding sales channels.

In the U.K. the retail 7230 on the T-Mobile network is also available through select leading High Street retailers including Car Phone Warehouse, Dixon, Link, as well as through an increased number of T-Mobile stores.

In addition, T-Mobile is offering attractive pricing with packages starting from as low as 10 pounds per month for BlackBerry service.

In Italy, TIM, Telecom Italian Mobile, introduced the BlackBerry 7230 and the BlackBerry web client to small businesses through their business sales channels in July.

MMO 2 recently announced availability of the color BlackBerry 7230 for enterprise customers and the availability of the prosumer 7230 before year-end which will include BWC and support integration with the O 2 active service, or their wireless portals.

To support the accelerating growth in Europe, RIM opened offices in Germany and France during the quarter; these are in addition to our European head office in the U.K.

In Asia Pacific, BlackBerry continues to make its mark and entrench itself in local markets.

During fiscal quarter two, activations in the Asia Pacific region grew substantially quarter over quarter.

Each of our four carrier partners in the region had their best quarter yet in terms of activation.

Telstra in Australia, successfully launched the 7230.

They continue to be an extremely aggressive in their efforts to build a substantial BlackBerry subscriber base in Australia.

Telstra offers customers the new 7230 at no cost if they sign up to a two-year air time contract.

In Q3, Telstra will be expanding their distribution channels for BlackBerry enterprise to address the demand in the small and medium business segment in Australia.

As well in Q3, Telstra's gearing up for a substantial BlackBerry web client launch through their direct sales force, dealer network and retail shops.

They expect to be just as aggressive in pricing and overall approach to the BlackBerry web client market as they have been in the enterprise market.

Telstra owns the largest ISP in Australia and expects some immediate cross marketing opportunities for BlackBerry web client.

In Hong Kong, Hutchinson had the best quarter ever in terms of BlackBerry activations.

Hutchison recently launched a 7230, and initial reaction has been extremely positive.

Given the country's reputation as an early adopter of new technology, and its global orientation, the 7230's tri-band functionality, color display, and pleasing form factor, have helped it find a home in Hong Kong.

BlackBerry web client continues to make up a substantial portion of our activations in Hong Kong, and we expect this to grow as we look to begin offering Chinese character support for BlackBerry web clients later this calendar year.

In Singapore, Q2 marked the first complete quarter for Star Hub in selling BlackBerry and have been extremely pleased with their success to date.

Star Hub views BlackBerry strategic to their plans to drive deeper in the corporate market.

We expect Q3 to be an exciting time in Singapore as Star Hub plans to launch both the 7230 handheld and the BlackBerry web client.

Smart Communications the largest carrier in the Philippines and BlackBerry partner there has had good success in penetrating some local corporations and multinational companies with Exchange and Domino.

Smart is also gearing up for a BWC launch in Q3 and going to be key to our success in the Philippines as most corporations and individuals use hosted web mail accounts or ISP e-mail accounts.

We've been evaluating business opportunities in China over the past year and see significant opportunities in this market.

We expect that we will bring our technology and solutions into the Chinese market by mid-2004.

We hope to be able to announce further details on our activities in China in the coming months.

For BlackBerry Connect, we're making significant progress with our BlackBerry Connect partners.

Product development efforts between RIM and Nokia are ongoing, and Nokia is moving ahead with the introduction plans for the Nokia 6800 I-Messaging phone with BlackBerry connectivity in Canada, Latin America, Europe, Middle East, Africa, and Asia Pacific, as expected in calendar Q4 of this year, but we will be delaying the introduction of the Nokia I-Messaging phone of the U.S. to allow for Nokia's legal department more time to further review and understand the complexities of the current RIM MPP legal situation.

With respect to HTC or High Tech Corporation, we have moved into the precommercial phase, including beta and network casting, and are targeting the release of a product by the end of the year.

Further details will be announced at a later date.

The response to the BlackBerry Connect program by OEMs and other hardware vendors continues to be strong, and we expect to have a number of new relationships with leading industry players to tell you about by the end of the calendar year.

For the OEM radio update, the OEM group continues to grow its in-market sales presence in Europe and Asia, and relationships with existing customers continue to strengthen.

Over the past quarter, RIM's OEM team has secured key wins in the mobile computing and climate verticals.

RIM and Panasonic has extended their relationship to the CF 29.

Panasonic also received AT&T wireless carrier certification for the CF 28 and the MC 34 using RIM 1902 G radio modem.

Air Link, a leading provider of wireless and mobile data systems has also signed a significant supply agreement for our current GPRS modules.

Within the point-of-sale vertical market, Veraphone has launched its international efforts for the Omni 3600.

As global demand has grown, the OEM group has strengthened its in-market sales presence in Europe and Asia and further defined their global distribution strategy with activities in Israel, Hungary, Turkey, South Africa and Japan.

In addition, our current GPRS modules, the RIM 1902 G and the RIM 1802 G, are undergoing approval testing for the Telefonica Mexico, Telefonica Chile, and Tell Cell networks.

For an update on intellectual property, we continue to dedicate significant resources to the development in defense of RIM's intellectual property.

As well, we expect IP and IP-related litigation to continue to be a significant industry-wide issue in wireless technology.

RIM is deeply involved in standard setting bodies and industry organizations and works closely with major players, in licensing agreements.

All industry players will continue to face ongoing attempts by parties to derive value from questionable intellectual property and patents.

RIM will continue to focus resources on adequate preparation and defense against these frivolous suits.

With respect to the NTP litigation, as we announced in August, the court granted RIM's request to stay the injunction, sought by NTP pending appeal.

RIM's appeal was docketed by the Court of Appeals for the federal circuit on September 9.

Subsequent to the jury verdict in November, the director of the patent and trademark office initiated a reexamination of several patents held by NTP.

Including four of the five patents disputed in the NTP versus RIM litigation.

Further the U.S.

Patent and Trademark Office has also granted a reexamination in regard to the fifth patent in suit.

As a result, eight of NTP's patents are being re-examined.

The five patents being litigated as well as three other NTP patents that were not litigated.

RIM is able to, and will participate in the reexamination of the fifth litigated patent, as it is classified as an interparties reexamination.

We believe it is reasonable to expect that all five litigated patents will be interpreted in a similar manner by the PTO.

RIM also plans to petition the Court of Appeals to stay the appeals process, pending the reexamination of the disputed patents, by the U.S.

Patent and Trademark Office.

It is unknown whether this stay will be granted as there has never been an appeal to the U.S.

Court of Appeals and to the U.S.

Patent Office reexaminations relating to the same patents pending at the same time before, but we think it is reasonable that the court of appeals would wait for the Patent Office to complete their work.

In the event that this stay is not granted, the Patent Office reexamination would take place concurrent with the appeals process.

We do not expect any substandard rulings from the patent office until the first half of next calendar year, but we will provide updates on our conference calls and as material events unfold.

If the Patent Office reexamination of NTP patents leaves their validity unaltered and should the trial court claim construction pre-trial ruling and jury verdict be upheld by the appellate court, then it would be an industry-wide issue not just a RIM issue as NTP have sent letters to dozens of industry players in addition to RIM.

Regarding GTI, the litigation with GTI is continuing, and there are no new developments to report at this time.

For Xerox, Xerox and RIM have amicably resolved a matter for RIM's motion of declaratory judgment filed against Xerox in July of 2003.

RIM has withdrawn the motion.

I will not be able to answer further questions related to legal matters at this time.

In closing, we are pleased that our work and the work of our carrier partners over the past several quarters is very proof in the form of strong subscriber growth and increased BlackBerry market presence.

We look forward to the second half of the fiscal year as we build on our success.

This concludes our formal comments.

I'd like to remind everyone that we'd like to finish the call by 6:15 p.m.

Would the operator please come on to handle questions?

I'd like to add just a comment.

If everyone would limit their questions to one, then everyone will have a chance to ask a question, please.

Thank you, 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 one on your touch-tone phone.

You will hear a three tone prompt acknowledging your request.

Your 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 two.

Please make sure you lift the hand set before pressing any keys.

One moment please before your first question.

The first question comes from Pat Chiefalow, Merrill Lynch.

Please go ahead.

Thanks, guys.

Just a couple of quick ones.

First can you give us some color on the growth you're seeing in the European markets,i.e., some kind of ballpark on the proportion of handhelds and sub additions there?

And secondly, similar question related to the prosumer product.

I would expect this product probably represents a good proportion of the handheld sales and new subscriber additions.

Could you give us a little more color on that as well.

It is Dennis.

We are not able to break out those items, and we would separately disclose them if we could talk about them.

There have been numbers out there on Europe in the past.

I think it is safe to say that the number of subs in Europe is well over 50,000, as you said for a ballpark, but I can't give you specifics.

And we are not prepared to bleak out blooz web client versus enterprise yet but we anticipate doing that in future quarters.

And one quick follow-up since that was so quick.

And since, I would expect this prosumer product is ramping pretty strongly, do you think, is there a risk that this could accelerate the decline in the average sub per user?

I mean it is sort inform a steady decline.

We've known that for a while.

But do you think because of the prosumer product being so strong, there is a risk to that accelerating?

I don't think this is going to accelerate much faster than we already anticipated.

We talked, I talked a bit before about an upgrade cycle where people are going from direct on the data only devices over to the next gen networks and we knew that was going to happen, so you're right, the R 2 decline was expected.

Now it is just as profitable and that is resulting in gross margin increases.

On the BlackBerry web client, yes, as I said, in our statement, we do get a little bit less per month but the BlackBerry enterprise side continues to grow very, very quickly.

So you know, it is going to continue to decline.

I don't think it is going to speed it up too much.

Okay.

Thanks.

The next question comes from Andrew Lee with TD Newcrest.

Please go ahead.

Good evening.

On the software revenue it is a little strong than I was looking for.

Could I summarize the strength for new adds, or are you monetizing your technical support services and getting good revenue from that as well?

It is both of those Andrew.

Obviously the adds were significant.

And you know, the number of server connections has increased a lot.

With the adds, we don't just get the server software revenue.

We also get the client access licenses, but the technical support services have been growing quite significantly and software maintenance.

So all those things are sort of coming together.

And just to split your guidance then; it fair to assume that that run rate is something good to be looking for like over 10 million revenue per quarter?

It is tough too to say.

The software side is a little bit tougher to forecast than just straight subs.

I think that is probably a fair mentor on a go forward basis.

It is not something I want to put a range to or want to give guidance on but it wasn't as if we had a really anomalous spike this quarter.

It was up significantly from about the 6 million range in prior quarters.

I think if it is anywhere from high single digits to low double digits that would be reasonable.

The second question then, on the BlackBerry Connect, do you have any guidance from the -- is any revenue from that included in your Q3 and Q4 guidance?

I assume not Q3 but maybe Q4.

And maybe, Jim, if you can answer the Nokia delay because of the legal process; is that something you guys are overly concerned with, or in your mind are they being overly cautious on the NTP impact.

Thanks.

Andrew, it is Dennis.

With respect to overall BlackBerry Connect it is not a part of either Q3 or Q4 forecasts and quite frankly not a significant part of my forecast going out even into the first half of next year.

So it is not [INAUDIBLE].

Yeah, Andrew, for the Nokia 6800 I, I am not going to speak on Nokia's behalf, but I will reiterate that Nokia has indicated to us that they are delaying the U.S. introduction to allow the Nokia legal department more time to further review and understand the complexities of the current patent litigation.

But our discussions to Nokia remain very positive.

And we're moving full steam ahead on our product development efforts.

And launch plans like in Europe.

And Canada and Latin America.

And Asia Pacific.

We're moving forward in calendar Q4 as expected.

Thank you.

The next question comes from Ray Sharma, BMO Nesbitt Burns.

Please go ahead.

Thanks.

First of all, guys, congratulations on a really strong quarter and some pretty impressive guidance.

I think that is worth mentioning right off the top.

My two questions are, one for Jim and one for Dennis.

Jim, tough question for you given your guidance restriction over the next two quarters.

My question is, as we look at fiscal '05 is trying to assess how long, how long the company can continue to grow on a sequential basis given the momentum have you with the carriers.

What is -- I'm not asking for anything specific but do you think that ongoing sequential growth in revenues is possible through fiscal '05?

I mean we're certainly planning our business to scale.

And we think that the -- all the initiatives are still nacent when you consider the nature of this market, and our -- you know, so we're very, very early in this market and our penetration is very low.

We feel -- we certainly planned for substantial growth for many years to come.

Obviously, it is conjecture beyond that.

But we see that this packets to your hip kind of phenomenon value to be something that is going to be as common as just about anything is in this sector.

All right.

So Dennis, just a quick question on the share count, then, maybe it is related to the line item the cash flow statement about share capital and what, you can you give us a sense, was there a reduction -- maybe I just missed it in my model, but was there a reduction in the fully diluted share count sequentially here?

The way it works, Ray, is you have a basic share count that is just over 77 million, and then you have roughly, you know, 7 million options or so that are in the money but the way you do the calculation is you take the proportion that those options are in the money versus an ending share price, so you don't take all 7 million in the weighted average calculation.

It is actually a little bit more complicated than that.

Okay.

Well, I will take that offline.

Thanks.

The next question comes from the Barry Richards, CIBC World Markets.

Please go ahead,.

Yeah, nice job.

I wondered if you can characterize for us a little bit the distribution in Europe specifically, here in North America we have the ability to buy BlackBerry in the phone centers in the retail as well as through the business office, but it seems to be a little bit different in Europe.

And do you see that changing over the next year?

And also, if you can just comment on whether the activity we've seen in the U.K. might also expand over Europe in the next year.

Thank you.

To really comment on those two questions, distribution is not materially dissimilar in Europe than it is in North America.

In that you have your national account teams that sell this as an enterprise.

You have specialized VARs and then you have, you know, retail channel, you know the two forms that are carrier owned as and third party retail and that, you know, there is different permutations and all of that, but it is substantially similar in Europe to what it is in the U.S.

As so far being a little different because they go 100% through VARs.

But you know, really it takes quite a while to get an enterprise force really up and running nicely.

Which is really starting to take -- well, it has taken hold well in North America and it is just starting to really ramp nicely in Europe, what is so exciting about this is that the -- they're now starting to make this a real retail product in Europe and in North America, and you can buy as a prosumer, or as an enterprise if you've already got a bez in, so the launch of the retail channels is an exciting new channel extension, and the launch of BlackBerry web client is an exciting line extension.

And these are definitely harmonious with our existing businesses, and they're part of the reason that is fueling the growth as well as the new technology.

So they're not a whole lot different.

The comment on the U.K. rolling across Europe, that is a certainty, and it is extremely near term.

Thank you.

Good luck.

The next question comes from Deepak Chopra, National Bank Financial.

Please go ahead.

Good quarter, guys.

Thanks.

I was wondering, Dennis or Jim, if you could just talk about you guys scaling capacity to 2 1/2 million from 2 million, is that to say you guys expect to fill that within the next 12 to 18 months from your current run rate levels?

We wouldn't be scaling to that capacity if it is not something we're targeting to grow to.

And is there a time frame in terms of what you guys forecast in capacity went to build out through?

No, Deepak, we're adding the plain capacity over Q3, so by the end of November, we should be able to do close to 2 1/2 million.

I'm not going to provide any specifics on how fast we're going to ramp to that sort of run rate.

That's just something we can't know at this time.

But as Jim said, you know, we're scaling all aspects of the business and we think we're going to continue growing throughout next year.

Okay.

Fair enough.

And maybe just very quickly, in terms of supply, are you guys noticing any constraints on that front?

You know, given the color seems to have ramped very well; there any supply constraints on the screens or any other components through the newer devices?

There is always a latency when you have a jump in demand.

And so, you know, you have various forecasting metrics and there is no question that when it there is such a substantial jump, that all your forecasting and flow is predicated on certain assumptions.

So that the quick jump is created a squeeze and then you adjust to that on a normal flow.

So you keep some buffer stocks, keep provide some forecasting but you know, when demand goes down sharply, companies can experience excess inventory and write-downs which has happened you know, in other cases with other companies, and when there is a sharp step-up, key long lead time, and critical components can definitely have an allocation squeeze.

And you navigate it by anything you can do to give more orders, in pull times and allocate product accordingly or swap out components as can be.

That is a very, very regular part of our business.

And when are you experiencing, you know, a change in acceleration of growth, it definitely intensifies those issues.

On the interim, as you transition into a new acceleration level.

No question there is a critical part of our business.

Fair enough.

And maybe just one last quick question here, in terms of -- is it fair to characterize that this quarter, the next couple of quarters are sort of the push, North America now, Europe throwing Europe on to the model and next year would be the Asian push by the second half of next year and if you could add a bit of color there in terms do you see a similar ramp profile as we've seen in the European continent?

Yeah that is a fair characterization in terms of timing and all that, that is pretty fair that Europe is going to accelerate this quarter with a bunch of launches and Asia is setting the table for next year and North America is really happening now.

That is a fair characterization.

Great quarter, guys, thank you.

The next question comes from Gus Papageorgiou, Scotia Capital, please go ahead.

Congratulations on a good quarter.

Dennis, a question for you and one for you, Jim.

Your carrier partners are starting aggressive campaigns particularly in the print medium.

Are you subsidizing any of the campaigns at all?

And Jim, we have been hearing from the channel partners that the color screen block has really acted as a positive catalyst.

Could you just talk about that a little bit to see what it has done to -- in certain markets where it has been introduced in terms of adoption of the BlackBerry platform?

Sure, Gus, I will take your ad campaign question first.

Yes, a number of carrier partners have been doing a tremendous ad campaign, I think is is very visible.

As in the past, I mentioned that we are going to increase expenses in Q3 due to variable components in the brand name marketing campaigns.

We don't pay directly into each campaign.

But we do do marketing co-op funds and development funds into our different carrier channels and those fund does go in part towards these different ad campaign, so we don't participate directly in paying for them but we certainly do give market development funds to the different channel partners.

Great, thanks.

On the color, I have been surprised at the relative adoption of color.

I underestimated how important color is to the market.

We -- it is definitely a powerful thing that people want.

I knew it was -- we knew it was going to be an important segment and extension and defining aspect, if only to price and compare to black and white.

I underestimated just how popular color is.

It is -- it is more popular than I expected.

And it has been a catalyzer, I just thought it would be a nice segment extension, for product, you know, just sort of to show the others our more expensive color and the less expensive black and white, but it is -- for a substantial parts of the market, it is a must-have.

Great.

And given all the geography you cover how soon before you think every country that you currently ship into will have color screen devices?

Color for all carriers in all -- and all protocols is -- I mean for GSM it is there now.

And for [INAUDIBLE] and CDMA, it is in very near term road maps and you know, I mean that varies.

So color is something that is very important -- it is -- it surprising me how important it is to the industry.

I didn't think -- we knew it was a factor.

And we knew people want it.

But it is -- it is almost a precondition now.

In fact it is not almost.

It is a precondition to be in the market.

You've got the high end color, you've got the less expensive black and white.

But a very substantial proportion in color, because they demand, and it is just something accepted.

And demanded and I didn't realize that and I didn't realize that at this call last quarter.

It is a phenomena that took me by surprise.

Great.

Thank you and again congratulations on an excellent quarter.

Thanks.

The next question comes from Arindam Basu from Morgan Stanley.

Please go ahead.

Hi, guys you can hear me?

Yes.

Question on the prosumer customer base, are the -- given the comments you made at the analyst day, are the -- are your monthly revenues from the prosumer customer base still in the three to five dollar range per month?

And what are the margins on those prosumer customers?

I haven't changed anything from the analyst day.

So without getting into specific margins and revenues on the prosumer stuff, I will just say that I haven't changed any of the guidance from that time.

And margins are strong.

In both areas of our service business.

In both bez and with BlackBerry web client.

Okay.

But you didn't -- you didn't share a margin number at the analyst day.

So that is why I was wondering if are you able to share that now on the prosumer customer specifically.

For the purposes of modeling, I would look at margins in the different areas of the service business as very similar between bez and BWC.

Okay.

Thanks very much.

The next question comes from Chris Umiastowski, Orion Capital, please go ahead.

Thanks, guys.

Geez, I didn't think I was going to get through with all those questions.

First of all great job on the quarter.

Fantastic numbers and guidance.

I wanted to ask you a couple of questions that are on the top of my mind.

The first one really has to do with pricing differentiation between the BlackBerry web client consumer product and the enterprise offering.

Starting to see it happen in Europe with T-Mobile but haven't seen any carriers in North America even indicate they are going that that way yet.

Just wondering if you could give us any indication if you're making any progress towards helping them out in terms of doing inventory control or whatever needs to done so they can feel like they are not going to risk their high priced enterprise customers to web client as a guy goes into a retail store and plugs a device into a bez.

I'll leave it at that and ask the next question.

That is more on our back than the carrier's back, and I think the -- I think the phrase that our technical people call it a service blocking, and we have to -- we've recently you implemented technically service blocking that allowed it to differentiate between the two streams on the device.

So that they don't in fact you know, mess up their SL 8 enterprise business in going for a lower and different kind of consumer service.

So that -- that capability is currently implemented and there are planned strategies by the carriers to do segmented service pricing, and concurrent with, you know, broader launches and retail launches, of BlackBerry web client.

So, you're going to see that sort of bifurcation in the pricing and the service qualities and the bucket plans between prosumer and enterprise, and it is more on our back, because we had more pre-existing enterprise install base in North America with these carriers and say it is a little different for T-Mobile who was maybe coming on a little later and hadn't really pushed that as much installed base in Europe, so they weren't quite as worried about that issue on the short term knowing that service blocking was coming so yeah, you can expect to see that forth with.

Okay.

And just if I can follow-up on that one, Jim, how many carriers would you say have indicated their desire in doing pricing differentiation?

Oh, I mean I couldn't give you a -- you know, a real accurate number on that.

Just because it is just conjecture by me.

Okay.

But you know, it is pretty common.

They do that for all their business.

And I would be pretty surprised to not see that evolve.

As a pretty common and sensible strategy by, you know, a preponderance -- you know, the majority of the carriers.

But I'm not privy to, you know, all the plan, you know, personally, but you know, I know it's happening with certain key carriers, that I'm close to, and it seems like a sensible strategy.

So I can't see -- I mean you know, the pricing and capability that you get on an enterprise account, the products cheap at twice the price but regardless of the value proposition for more elastic markets, price elastic markets, if you don't hit that price point you just don't get at those more prosumer/consumer levels an those that want to target them, they have to do service differentiation and they have to do service blocking, and they have to do price adjusting, or they don't get the penetration levels, so if are you going to go after that market, you know, you've got to do it and we've got to support it, so I can't see, you know, most of them not pursuing it.

But that's just conjecture on my part.

Okay.

Thanks.

That was great.

Then the second question I had was really with respect to lead times that you're giving your carriers on the -- specifically the new 7200 series product, I've been hearing from some guys that the lead time is out as far as three months, just wondering if that was kind of a short term blip that you guys have -- you got caught off obviously with a little more demand than you thought.

And not enough inventory.

Is that going to be something where, you know, from one perspective, it is nice if you have a long lead time because it gives you a stable revenue stream, that gives you confidence in your guidance, or from, you know, a negative perspective, it can result in you guys not being able to ship as much as product as you otherwise could.

Could you comment on that a little bit?

Yeah, first of all let's characterize when you say lead times, let's be -- you know, we want to be clear.

Lead times vis-a-vis recent deltas in forecast requirements, as opposed to to any product, so when you talk about latency, this is latency vis-a-vis changes in forecast.

Right.

So we have buffer stocks.

And we had forecasted demand.

Now, if some client, key carrier partner said I want X number of units, and they forecasted a third X each over the next three months, and they say now I want 2 X that number, there is some latency in responding completely to all that.

But that doesn't mean they lose what they previously forecasted.

That is real important.

Because it is not like there is a gap in the market.

You know, a complete gap.

We do have -- we have experienced a substantial increase in requirements.

And that's reflected in some of -- in Dennis's guidance.

And we expect to be -- and there's a couple of key components that we've materially increased requirements and orders with them, and our expectation is in late November, to early December, to be completely current with all the current and expected new forecast requirements, barring some staggering new sort of, you know, expansion scenario.

So that is a 60-day latency and that is a 60-day latency to get current with all forecast requirements in that time so that there is no unmet requirements.

And that's -- that's pretty good, I think, you know, it is not perfect, but I think that is pretty good, given that, you know, they get all current requirements, they get a lot of additional requirements and we've had carriers, certain carriers up their orders three and four times, and we're able to keep up with them the first couple of dimes and then we got stretched a little bit on maybe the third one and on the fourth one, you get stretched a little bit more, but we scramble.

I mean that is kind of our and we really adapt to this.

We really pay attention.

We scramble for these people.

And you know, Mike goes on trips to Asia, to key component suppliers and we've, you know, we do all we can to keep the plant going and to, you know, allocate supply so we're doing everything possible.

So not everybody gets everything the moment they want it.

But, you know, this is a balancing act.

And net net net, you know, it is pretty good when you consider the degree of change and how -- I mean all this sort of jump kind of happened in August.

And sort of, you know, 45 days, we've been shipping a lot more product than we forecasted and you saw the guidance, and we're still shipping a lot of product, and we're still upping demand and then we're -- or upping production, and we're getting them current within a 60-day window.

While we're doing all these launches.

You know, a lot of people are doing some heavy lifting to make that happen.

So you know, it is important because I don't want to you sit there and go for 60 days nobody gets no product.

Do I get 90% of what I want or 100% of what I want, or when I do get to 100%?

And they're getting most of what they want.

And then sometimes a little lag on that last little bit of the order.

And you know, a lot of people like to have some buffer stocks around for themselves, and there's not a lot of that sitting around, so everybody kind of likes to have a cushion in life, so you know that's the phenomena we are in right now and it is a lie sort of execution-focused aspect of our life.

And there is no question, you know, we would rather fall on our sword than let down our key carrier partners, and but -- but there is a lot of heavy lifting and a lot of adaptation and a lot of, you know, additional efforts by people to meet that.

So I don't want to you think -- it is not a binary exercise.

I guess what I'm trying to say is, it is not a binary exercise.

It is a question of degree.

And delay, you know,.

What percentage they get now of what they want and how long before they get to 100%.

And it is an ongoing balancing exercise that we comprehensively attend to really every day.

Okay.

I appreciate.

I understand perfectly what you're trying to say.

If I could just leave but a last quick one, Dennis I know you didn't want to give Europe as a split, you can give us split on either total subs or the last quarter's subs split between north America and the rest of the world?

What I will tell you is the the stat that I mentioned before, Chris, is that 15% of the bez connects are now rest of world.

Okay.

85 North America.

How does that work on a last -- just last quarter basis?

Rest of world is obviously growing very, very quickly relative -- I mean North America keeps growing but the rest of the world is sort of starting near zero and as Deepak said before, you know, Europe is in serious growth mode right now.

And Asia is getting warmed up.

So it is --

Like for every 100 new --

It will be a big growth driver.

When we get 100 new subs, every, you know, so many days or whatever, are we looking at it kind of approaching a 50/50 split between North America and the rest of the world?

I don't think we're there yet but it's growing fast.

Thanks very much, guys.

Great quarter.

The next question comes from Mike Abramsky, Canaccord Capital.

Please go ahead.

Hi, guys can you hear me.

Yes.

Great.

Congratulations.

My just question is on competition.

Clearly, you guys have a strong competitive lead over some competitors that were thought to be having some impact on you, and my question is, the field is going to get a bit more crowded now.

You've had it a bit to yourself for a while, in 2.5 G front.

Certainly with, you know, good Hand Spring, good Dell, and others, what if any impact to you expect from customers and carriers either waiting, or becoming distracted, or perhaps even some pricing pressures as a result of some of those guys coming into the market?

This is Jim Balsillie.

It is a good question.

I sort of come at this, you know, in a multifaceted basis.

Because it is a multifaceted industry.

You know, in this industry, the first thing you've got to do is come to market with a comprehensive solution.

And that is very, very heavy lifting.

And the second thing is to then establish a market.

And then the third thing is to provide all the support to the carrier to execute on that market.

And there is a real breadth to that equation that -- and it is a partnership and to get it right, is also it [INAUDIBLE], not only the technology but also the execution with the carrier.

And then our view of the value proposition, that the value proposition we try to avail has some -- some significant network economics, because customers or channel partners or carriers like the fact that we support different e-mail environments, both Notes exchange and IMAP environments and all the platform extensions, so the partnership with us is something that they get levered to all of their enterprise market opportunities.

As well, really, the prosumer and consumer market is a much bigger market for these carriers, so the fact that 90% of the execution strategies they implement apply to their much bigger market of prosumers, provides a lot of carrier value.

And as well, to corporates in particular, the fact that we're in you know something like 40 countries around the world and growing, if not more.

I haven't counted lately with over 50 carriers, means that as a global solution, they can really standardize on us for different carriers and different places around the globe.

And then the really next powerful piece of the value proposition is the fact that we have so many BlackBerry connectors, BlackBerry Connect partners, both announced and communicated under NDA.

They can have their choice of key handset vendors.

So you know, it is a free and open world.

We think of ourselves as good implementers of standards.

On standard-based solutions.

And everything we do is based on standards.

You know, HGGP and map or IMAP on sort of the server app side.

Obviously, transport standards.

J2ME on the client, IP on the back haul and it is a value proposition.

If somebody -- we think that is a comprehensive value proposition and carriers are very free to act otherwise.

However, you know, I think we're at a -- at a time when carriers are becoming more focused and leaning out their alternatives and rationalizing alternatives, but they are free to choose alternatives and we feel we have to get out of bed every day to win our business, and win the respect and trust of our end customers and our carrier partners delivering to those end customers and that's the only part we can control.

So just to clarify, of all the things that you were just talking about, Jim, like which is the biggest barrier to avoiding that scenario where the new guy is either targeting corporations or trying to get the carrier's attention, you know, you can sort of maintain the carrier's focus and drive, and the momentum that you are -- you know, you're poised to receive from them?

That's kind of like asking what's the most important link on the chain.

And I don't mean that to be glib.

It is every part is an important part of the equation.

If you can't -- if you don't have a good carrier-execution model, you can't bring it to market well.

If don't have a certified solution on the carrier, it doesn't work well.

If you don't have a care model, it doesn't -- you know the customer has a poor after market experience, if you don't support all the segments they need the carrier doesn't get efficiency and leverage in their delivery channels.

If you are not where the customers expect you to be, you know, you sell them short on geographies and if you don't give them device choice, that is a precondition for addressing more of a prosumer marketplace, or an architectural requirement for a corporations, and I'm not even going at the manageability and security and scalability and certifiability of the RIM, you know, established customer base, as well as the going concern strength of the business.

So it is very, very hard to, you know, to say which -- -- you know, because it is a breadth equation and each link is as important as the other.

And if you say one is not important, like how can you say security is not important?

How can you say care is not important?

So it is a good question.

But it doesn't lend itself to a simple answer.

Okay.

Thanks.

Just my second question is, really more, if you -- your manufacturing efficiencies improve and the model designs become more similar now and perhaps a bit more stable, and as part of your shift to software and services, any chance you're going to -- we're going to see you outsource manufacturing or any thoughts on that?

Mike, it is Dennis.

It is certainly something that we look at all the time.

And I think that it is a reasonable conclusion that when it makes sense to do so, we will begin to bring outsourcing into the mix.

I don't think it will be a complete switch-over.

I think where it makes sense to use external parties for, you know, packing and final assembly, et cetera, or the day that may come when it makes sense for other markets to use contract manufacturers.

Right now, we're still going full steam ahead and having the plant close to the R&D folks has been a real bonus, but of course, when it makes sense, we will be doing it.

Okay.

Thanks very much.

The next question comes from Howard Lis from Griffiths McBurney and Partners.

Please go ahead.

Thank you and congratulations on a great quarter.

A couple of quick housekeeping items followed by another question.

Head count quarter end and what was the complete fully diluted share count, Dennis?

Howard, as far as head count goes, it was just above 1900.

And the fully, fully diluted number of shares I'm going to look for while you're asking your next question.

Regarding the expansion of the manufacturing facility, is it contemplated that you will be doing any manufacturing for BlackBerry connect partners?

Are you building devices that are for other OEMs?

And when you go into China do you think it will be with RIM BlackBerry branded units, or will it be through a connect partner?

Thanks.

That's -- one thing -- I'm not aware of, of us doing any manufacturing plans for BlackBerry connect partners.

So we are a software protocol load, either in manufacturing or after market on these devices, to enable application extension on these devices.

And there is no plans for us to manufacture to the very best of my ability, I'm fairly close to these things.

In China, we definitely will be -- we're going there with an OEM partner.

And that would be likely in a joint branded or rebranded RIM device with a BlackBerry application on it, as a BlackBerry app.

That wouldn't be a BlackBerry connect partner per se.

Although there are BlackBerry connect partnerships lined up.

And that's not for an OEM of our module.

Although we are working closely on OEM module.

But more a powerful sort of in-market player who says let me use my channels and brands and let's take your product and put their label and value add on it and then they evolve to a more OEM relationship thereafter.

Howard, it is Dennis again.

On the share count number, you know, basic was 77.6, fully diluted using a calculation was 81.6.

If you look at all options granted, was in the money or out of the money, take total number to between 88 and 89 million.

Great, thanks, gentlemen.

Ladies and gentlemen, due to the time allotted for the question and answer session, we have time for one more question.

The final question comes from Michael Urlocker, UBS please go ahead.

Thanks very much.

A couple of simple questions.

On the software revenue, the report that you report is about 11 million you can tell me are there any NREs or other one time revenues of substance other than the normal ongoing bez revenue in there?

No, Mike, there weren't.

There were no big NREs this time around.

As I said, it was the bez client access licenses, and then this technical support business that we've really built has started to achieve pretty good run rate and that's definitely added to it and it's ongoing software maintenance.

So we've had strength in the new product launches, new markets, there is a lot of bezs being installed a lot of client access licenses and the technical support is growing.

Okay.

And I don't want to sound too nosey here, but I know you can't fully examine your subscriber base from U.S. or not U.S., but it seems to me that the NTP provisions are calculated in some way unknown to us, but related to your U.S. sales.

Would it be possible for us to look at your -- your provisions for that charge to make some deductions about the proportion of sales in the U.S.?

It is going tough, Mike, because it is only -- there are certain relevant revenue in the U.S.

Do are you not go be to be able to take total U.S. revenue and apply it.

Okay.

And I think Jeffrey has asked me to ask a question about the bez I guess, if we look at the announcement you had recently about IDM and the MDS, do you -- I mean it looks like an important thing.

I just wondered Jim if you could characterize, do you see the IBM relationship as something that would really substantially stimulate revenue?

And to pick an example, compare it to what you're seeing in terms of stimulation of revenue caused by color.

Well, they're very different kinds of stimulations, because the color was a spikey type stimulation.

Where platform extension is kind of a rumbling ground swell type of stimulation.

And so they're very different.

We have -- we definitely have key major, major accounts, government and industry, who have really demanded web sphere extension to the devices with the web sphere every place access product or WEA in the pervasive computing and software part of IBM, so it is platform extension, you know, these -- our view -- our vision of this is these devices are a front end to all the relevant server stores in your life.

And obviously, you know, web sphere is a very leading web apps server.

And the elegant integrations and secure push integration to all the application servers and transaction engines that corporates are using, you know, drives that further.

So you know, I mean again, our sort of vision is, these devices are front ends.

Okay.

The front ends give you the geography you want, the trans port protocol you want, and the presentation nature you want, and the -- and link you to the server store that you want.

And so, you know, we -- I think the nature -- they're both catalytic events but they are of a different nature.

I think you've explained that well.

And lastly, clearly, your business is scaling, and perhaps at a much faster rate than many of us on the outside thought.

Perhaps even faster at least in August than you thought.

That may start to cause you to push up against your expectations of how big your network operating centers may have been and all the data infrastructure associated with operating knocks.

Are you bumping up against any restrictions?

Or if you had to change your plans in terms how you deploy and build knocks, especially in Europe?

That's a really good question.

And I will say there are certain people in the company, you know, and I give sort of our production people and our knock people and Mike credit, they have very good anticipatory skills and they sort of set like these issues are going to be problem, and they've been sort of going at these issues, kind of three, four months ago, so I think what you're going to see in the model and Dennis can comment on it, that cash flow is going to change next quarter.

There is going to quite a bit more cap ex.

And this cap ex was planned throughout the summer as being implemented right now and paid for right now.

Precisely on this issue.

So the people who are responsible for the sort of production aspect of the company and the operating aspect of the company and the care aspect of the company have, you know, pressed all the alarm bells a few months ago, and we have a very weekly meeting that is very regular with all these parts of the business where we distill the priorities, and the execution imperatives, and I think that sort of provided all the learning mechanism -- alerting mechanisms and these people were given the resources and they're implementing and they're supported completely and comprehensively to do all this.

But there is no such thing as perfect implementation, there is no such thing as perfect certainty.

It is just a question of degree vis-a-vis the rate of uptake of the business.

All I can tell you is that these issues were anticipated.

They are being acted on, on an intensive and diligent, executive basis.

Absolutely daily.

Concurrent with, you know, allocation stuff.

And again, you know, our number, number one priority is do not let our carrier partners down, and do not compromise the quality experience for our customers.

And customers.

And if we look after that, everything in life ultimately will look after itself.

But if we compromise one of those two thing, so much of what we've worked for is lost.

Those priorities are not lost on us.

So our number one priority is do not let the carrier down.

And do not compromise the customer experience.

Above all else.

And that's how we focus and define the priorities of business, and that's how we're executing and operating at this time which I will say is a very different set of priorities than say a year ago, and it just shows you, as businesses evolve, you have to really sense the shift in priorities, or you know, because the critical priorities of today usually aren't the critical priorities of tomorrow.

And you know, but it is with a good sensing in distilling, you know, approach, we try to get ahead of these.

And it is ironic, you asked that question, it as kind of a final question because it is very much reflected in the model Dennis reflected, it I don't know -- yeah, it is the cap ex, it is in the cap ex.

I talked about cash burn next quarter saying cash balances are going to stay approximately flat and if do you the math, you know, there is going to be a little bit of an increase in working capital, as we do have inventory on hand to be able to produce these thing, and as Jim said in cap ex we are going to be scaling the knocks and the production capacity.

100% correlated to the -- these guys are very busy in the summer planning all their scale strategies.

And there was an intensification on, it I mean, you know, that we actually had double time out, a little more than we wanted and it is reflected of the cash flow of the quarter we're in right now.

Maybe if I lied here and that wasn't my last question can I ask one that is a little bit philosophical?

And I know you're in a difficult position with a legal dispute here, but I think it is probably fair for us as outsiders to say when we see Nokia delay a product launch in the U.S., I draw the conclusion this dispute has an impeding effect on your business.

And I know you want to do what's right, but to what extent as CEO do you have to consider doing something that is expedient to remove what is very a very random factor here in terms of courts?

It is a fair question.

And again, I'm going to really reiterate I am not going to speak on Nokia's behalf.

I wouldn't dream of doing it.

But it has causing obstacles, right?

I will say these factors that number one, what they -- you know, as I said, that they're delaying this, pending completion of a review, and understanding what is going on here.

So that is number one.

Number two, we are experiencing very strong growth in the U.S. where we're chasing growth very quickly.

Number three, I said Nokia remains very positive and is moving full steam in the product development efforts, and launch plans in Europe, Canada, Latin America, Asia Pacific, and I will -- you know, this quarter, and I will say that we are in, you know, we are an absolute expansionary mode in all these markets, so you're making a comment vis-a-vis a factor, and I don't want to in any way dodge it, or under-emphasize or under sort of state it, but I wouldn't -- I wouldn't overstate it.

Okay.

Thank you very much.

Thanks.

Take care.

Mr. Kavelman, please proceed with your closing remarks.

Thanks very much.

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Thanks very much.

Ladies and gentlemen, this concludes the conference call for today.

Thank you for participating.

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