BlackBerry Ltd (BB) 2004 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and thank you for standing by.

Welcome to the Research In Motion fourth quarter and fiscal 2004 year end results 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 queue up for questions.

If you are having difficulties hearing the conference press star zero at any time.

I would like to remind everyone that this conference call is being recorded on Wednesday, April 7, 2004 at 5 p.m. eastern time.

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

Please, go ahead, sir.

Thank and welcome to RIM's fiscal 2004 fourth 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 fourth quarter results as well as our guidance for upcoming quarters.

I'll 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 via call-in number and 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.

Some of the statements Jim and I will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995.

These include statements about our expectations and estimates with respect to cash flow, revenue, gross margin, operating expenses, investment income, earnings and earnings per share for Q1 and Q2 fiscal 2005 and future quarters, anticipated increases in the number of BlackBerry subscribers, our product development initiatives, developments relating to BlackBerry Connect, and other statements regarding our plans and objectives.

I'll indicate forward-looking statements by using words such as expect, anticipate, estimate, may, will, should, intend, and believe.

All forward-looking statements reflect our current views with respect to future events and are subject to risks and uncertainties in assumptions we have made.

Many factors could cause our actual results, performance, or achievements to be materially different from those expressed or implied by our forward-looking statements including: risks relating to patent and other litigation; our ability to protect our intellectual property rights; our ability to enhance our current products and develop new products; our reliance on others including carrier partners, third-party network developers and suppliers; our ability to effectively manage our growth; risks relating to possible product defects and product liability; intense competition; general economic conditions; foreign exchange risks; risks associated with our expanding foreign operations; and other factors set forth in the risk factors and MDN&A sections in RIMs filings with the SEC and Canadian securities regulators.

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

We do not assume any obligation to update them.

I'll now provide an overview of the fourth quarter results.

Revenues for the fourth quarter ended February 28th was $210.6 million.

This represented a 37% increase over the $153.9 million in the prior quarter and a 141% increase from $87.5 million in the fourth quarter of last year.

This was at the high end of our December guidance range of $195 to $210 million.

Total revenue for the year was $595 million, an increase of 94% over the $307 million in the prior year.

Handhelds represented $138.6 million, or 66% of RIMs revenue during the quarter; up from 56% of revenue in the prior quarter.

This increase in hardware as a percentage of revenue mix was expected and reasonable given the ramp in new subscribers and their initial handset purchases, new product launches by carriers, and the ongoing migration of 2.5g products.

Approximately 380,000 handhelds were shipped in the quarter.

Average ASPs were consistent with the prior quarter at approximately $365.

Total handhelds shipped during the year were 920,000.

Service revenue was $47.5 million, or 23% of revenue for the quarter; an increase over the $44.6 million in the prior quarter.

Software revenue was $16.5 million, or 8% of revenue for the quarter.

RIM added approximately 204,000 net new BlackBerry subscribers during the quarter and total BlackBerry subs at the end of February were approximately 1,069,000.

The difference between handsets shipped of 380,000 and the 204,000 net subscriber adds is 176,000.

As I discussed on the last several conference calls, the significant portion of this difference arises due to the fact that we report on a net subscriber add basis rather than on gross additions.

The 176,000 difference can be explained by handset upgrades; the movement of subscribers between carriers, which means they need a new handset; and normal product replacement cycle.

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

Discussions with these partners have indicated that channel inventory levels are still low and are being appropriately managed.

There were approximately 20,000 BlackBerry Enterprise Servers connected at the end of February compared to approximately 17,000 at the end of Q3.

We estimate that about 22% of active BESs are outside North America, up from 20% last quarter.

Other revenue such as accessories, repairs and OEM radios was $8 million, or 3% of revenue.

Gross margin for the fourth quarter of 49.1%, an increase from 47% in the prior quarter.

This was slightly above our targeted range of 46 to 48%.

We had several small favorable adjustments to cost of sales during Q4, mainly in service, that cumulatively caused the majority of this increase.

As expected R&D spending was $17.9 million, or 9% of revenue for the quarter; an increase over the $15.7 million in Q3, but down as a percentage of revenue from the 10% in Q3 and down significantly from the 14% in the fourth quarter of last year.

For the year, R&D expenditures were $62.6 million compared to $55.9 million in the prior year.

Selling, marketing & administrative expenses increased to $32.3 million versus $26.2 million in Q3 and were 15% of revenue, lower than the 17% of revenue in Q3; and down significantly from 29% of revenue in the same quarter last year.

For the year, selling, marketing & administrative expenses were $108.5 million compared to $105 million in the preceding year.

The patent litigation provision in Q4 was $12.9 million.

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

The patent litigation provision for the year was $35.2 million.

RIM recorded a one one time current tax recovery of $4.2 million, or approximately 5 cents per share diluted in the fourth quarter.

This recover was the reversal of a prior period tax accrual for previously estimated liabilities that have since been resolved.

GAAP net income for the quarter was $41.5 million, or 46 cents per share fully diluted.

Excluding the patent litigation provision and the tax recovery, adjusted net income was $50.2 million; or 56 cents per share fully diluted.

For the year GAAP net income was $51.8 million, or 62 cents per share compared with a net loss of $148.9 million, or $1.92 per share in the prior year.

Weighted average fully diluted shares used in the EPS calculation for the quarter were $90.3 million.

Actual shares outstanding at February 28th were $92.4 million, and total options outstanding at February 28th were $8 million.

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

At the end of the fourth quarter RIM had $1.49 billion in cash, cash equivalents and investments.

This was up $959 million from the prior quarter or up $24 million excluding the issuance of share capital in January and related financing costs.

We're currently modeling positive cash flow in Q1 in the range of $35 to $45 million, excluding the issuance of share capital.

We expect increases to working capital items such as AR and inventory to partially offset cash earnings.

Trade receivables increased in line with sales during the quarter and DSOs in Q4 held constant with the prior quarter at 37 days.

Inventory increased to $42.8 million in the current quarter from $34.2 million in the prior quarter.

The majority continues to be raw materials components.

Net capital assets remained unchanged from the third quarter at $148 million.

Today, RIM also announced a two for one share split in the form of a stock dividend.

RIM undertook this effort in order to reduce the price per share and make our stock accessible to a broader range of investors.

The record date will be May 27th and the effective date will be June 4th.

Following the stock split, the total number of shares outstanding will be approximately 184.8 million and the total number of options outstanding will be approximately 16 million.

We estimate the post split fully diluted share number for the EPS calculation for Q1 will be approximately 198 million shares.

At this time I would like to discuss our outlook for the upcoming several 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 listed at the beginning of the call and outlined in our public filings.

Please also note that this guidance reflects the effective two for one stock split announced today.

On the December conference call we provided a revenue estimate for the May quarter in the range of $220 to $240 million.

Based on orders in hand, subscriber growth trends and the success of recent product launches; we are raising the expect the revenue range for Q1 to $250 to $265 million.

We are also increasing our subscriber targets and are currently targeting net subscriber additions for Q1 in the range of 250,000 to 265,000, which will increase the total number of BlackBerry users to over 1.3 million.

For the second quarter of fiscal 2005, ending in August, we are currently forecasting revenue to be higher than Q1 in the range of $270 to $290 million.

The continued growth in Q2 is very positive since the summer months are typically slower for IT purchasing.

Our revenue and subscriber growth expectations for the second half of the year continue to be very strong as many new carriers are scheduled for launch, as we continue to bring new products to market, as the retail market grows, as BlackBerry Connect partners begin to launch their solutions, and as Europe and Asia continue to develop.

We are currently forecasting gross margins to remain in the 46 to 48% range that I had guided on the December call.

With respect to operating expenses, in Q1 we expect overall operating expenses to increase by approximately 20% from Q4 levels.

This is slightly higher than expected last quarter and is mainly due to increased sales and marketing expenses tied to our rapid carrier expansion.

In addition we continue to focus expenditures on branding and marketing initiatives in North America, Europe and Asia to support new product launches, increase investment in BlackBerry operations to support the ramp in subscriber growth, and head count increases across most departments, particularly research & development.

In Q2 we expect to have a smaller increase in total op ex of approximately 5% from Q1 levels.

We expect op ex to continue to decrease as a percentage of revenue in the next several quarters, as forecasted revenue growth rates exceed the increase in op ex spending.

We expect continued positive earnings leverage in RIM's operating model.

We expect R&D to increase by approximately 15% in Q1 and 10% in Q2.

R&D is expected to remain at approximately 8% of revenue in Q1 and Q2.

We are hiring aggressively into many areas in R&D to support plans for new hardware and software products, as well as BlackBerry Connect.

We expect sales, marketing & admin to increase approximately 25% in the first quarter and then remain approximately flat in Q2.

This Q1 increase is the result of the necessary growth in our carrier support groups to keep up the expansion in our carrier channel.

We are committing marketing funds to launches and ongoing carrier programs, and are focused on increased branding initiatives in developing markets; as well, there has been a significant amount of trade show activity early in Q1.

Even with these increased commitments, we expect sales, marketing & admin to remain at approximately 15% of revenue in Q1 and Q2.

We expect op ex depreciation and amortization to be approximately $7.5 million in Q1 and approximately $8 million in Q2.

We are currently modeling annualized yields on our investment portfolio of approximately 1.5 to 2% for Q1.

Total investment income in the first quarter is, therefore, expected to be between $6.5 and $7 million.

Based on the revenue guidance for Q1 and Q2, the patent litigation provision is expected to be between $13.5 and $15 million in Q1, and $15.5 and $17 million in Q2.

We continue to forecast a zero corporate tax provision for fiscal 2005.

The expected longer term tax rate continues to be approximately 25%.

With respect to earnings.

Previous guidance for Q1 was for GAAP EPS to be between 35 to 50 cents or, post-split, 17 to 25 cents per share; and 50 to 65 cents adjusted or, post-split, 25 to 32 cents per share, excluding the patent provision.

This guidance was based on a fully diluted share number of approximately 87 million.

Following the January financing, this fully diluted share number has increased to approximately 99 million pre-split and 198 million post-split.

Factoring the increased revenue forecast and continued strong margins and also the higher share count due to the recent equity issue, we are increasing post-split GAAP EPS guidance for Q1 to the range of 21 to 26 cents per share.

The adjusted EPS forecast for Q1 excluding the patent litigation provision increases to 28 to 33 cents per share, from 25 to 32 cents per share.

For Q2, we're expecting GAAP EPS to be higher than Q1, between 24 and 29 cents per share; and on an adjusted basis, 32 to 37 cents per share.

I'll now turn the call over to Jim.

Thank you very much, Dennis.

RIM's fourth quarter was a success with strong financial results, continuing subscriber growth and an important subscriber milestone, numerous carrier launches, new BlackBerry Connect partnerships, several important product launches as well as further strengthening of our balance sheet through an equity offering.

We announced carrier relationships and launches with Orange in France;

KPN in The Netherlands, Germany and Belgium;

Cingular GPRS;

CSL in Hong Kong;

SingTel in Asia; and cable and wireless in the Caribbean.

Today, RIM is also very pleased to announce that we have formalized a partnership with Bharti AirTel, the leading GSM/GPRS wireless operator in India.

Under the terms of the agreement executed earlier today, we will work with Bharti Airtel in the coming months to launch the full complement of BlackBerry Enterprise, BlackBerry Prosumer, and Blackberry Connect products and services throughout India.

T-Mobile and O2 announced support for Blackberry Connect enable products such as the MDA XDA 2, the Sony P900, and the Nokia 6820.

In addition to our existing BlackBerry Connect partnerships with Nokia, Sony Ericsson, HTC, and Symbion; we announced new partnerships with Samsung, Siemens and PalmSource which would support products like the Trio 600.

We announced the Color 7750 for CDMA networks, the color 7730 for GPRS networks, and the color Nextel 7510- the only BlackBerry with speakerphone capability.

We also announced the availability of the Plasmic content developers kit version 3.7.

At the beginning of February we crossed the 1 million subscriber milestone and we ended the quarter with 1,069,000 subscribers.

While this was a major accomplishment, we are now focused on how we get to 5 million and then to 10 million subscribers as quickly as possible.

In January, we completed a successful equity offering raising $905 million.

This has strengthened RIM's balance sheet and gives us a strong financial base on which to base our growth plans.

We have also focused on building RIM's execution capabilities across all areas of the company during this period of rapid growth.

We continue to add resources to carrier teams, research & development, manufacturing, the customer care center, and IT and internal management systems.

Today, we also announced a two for one stock split in the form of a stock dividend.

We believe that we will continue to grow significantly over the next several years and this stock place -- stock split will make the share price more accessible to investors.

In the past year we nearly doubled revenues and doubled our subscriber base while rolling out BlackBerry to the world.

In the upcoming year, we believe we can repeat or exceed the performance and are excited by the market opportunity ahead of us.

For example, today we have over 50 carriers in launched in 30 countries and we have an additional 25 carriers scheduled for activation in the next six months.

I will now provide a detailed update on BlackBerry.

In the Americas, AT&T wireless continues to experience high activations growth, particularly with the launch of the 850 band products which expand coverage area and improve in building coverage.

AWS also launched an extensive advertising campaign to support the launch of the 7280 and has been running a series of promotions and rebates on BlackBerry.

T-Mobile in the USA still continues to see strong demand for BlackBerry as they have been focusing heavily on expanding market presence by indirect and retail channels, and are now getting a meaningful percentage of activations through these outlets in addition to the success they are having with their own direct enterprise sales force.

T-Mobile launched a national advertising campaign featuring BlackBerry in February and was prominent at IBM Partnerworld, where all attendees at the show received T-Mobile BlackBerries.

T-Mobile is particularly focused on growing retail and are accelerating marketing efforts in this channel.

Nextel successfully launched the color BlackBerry 7510 this quarter.

The 7510 is the first BlackBerry to include a speakerphone and it also features Nextel's Nationwide Direct Connect service.

The BlackBerry 7510 was launched in all of Nextel sales channels: direct sales, Nextel retail stores, web sales, telesales, and Nextel's authorized reseller channel.

National marketing programs, including an extensive print outdoor and online advertising campaign supported the launch.

Nextel continued to market BlackBerry to their key vertical segments including financial, business services, government and public safety, transportation, construction, real estate, manufacturing and healthcare.

Further, Nextel continues to place strong emphasis on extending corporate data applications through the Nextel Developer Program.

Cingular launched the 7280 and 6280 nationwide in February and featured attractive end user pricing to support the launch.

They are also embarking on an aggressive advertising and promotional campaign to support the launch.

This is significant as Cingular has a long history with BlackBerry over their Mobitex network and we look for them to become a major driver of activations now that they are fully engaged with a compelling GPRS offering.

In addition, Cingular announced Monday that they have launched BlackBerry to over 6,000 of their retail stores.

Verizon saw strong activations in Q4 as they began selling BlackBerry through their direct mid-market teams nationwide.

In addition, an E911 compliant BlackBerry was launched with Verizon in January and a color BlackBerry 7750 was announced with availability planned for April.

Verizon also has significant plans for a retail push with BlackBerry WebClient.

Rogers has run extensive advertising this past quarter, both to support the launch of the color BlackBerry handheld and to promote their new voice-data bundling plans which start as low as $45 a month for voice-data combination service packages.

Rogers has also been expanding the BlackBerry further into the retail channel with the recent launch into the national Best Buy chain of retail outlets.

TelCel Mexico has a wide mix of companies, both international and domestic, piloting the BlackBerry solution in Mexico's primary markets of Mexico City, Monterey, and Guadalajara.

Many of our U.S. customers are expanding BlackBerry rollouts to include local offices in Mexico.

TelCel is currently in the process of certifying the 7280 handset, and we expect TelCel to make it available to their customers in the coming months.

TelCel is also currently testing BlackBerry WebClient, which would allow TelCel to address the large mid-market in Mexico.

Cable & Wireless Cayman launched BlackBerry service on the 7280 handheld on March 27th.

There are already a number of corporate trials underway and feedback is very positive.

Discussions around expanding into other cable and wireless properties are progressing rapidly.

We are pleased to be working with Cable & Wireless, as their geographic footprint serves our important financial vertical market, as well as popular vacation destinations of many of our North American and European customers.

RIM is also looking forward to hosting the third annual Wireless Enterprise Symposium this May 17th to 19th in Chicago.

The event provides an opportunity for CIOs, carriers, ISPs, and other industry players to get together and share ideas and learn about wireless technologies and strategies from experts in the industry.

In Europe, the BlackBerry growth continues to ramp.

This quarter we signed two new major carrier partners in the region, Orange and KPN, and we continue to expand availability in Europe with our existing carrier partners.

While the UK continues to be our largest market, the other major markets in the continent are quickly catching up.

For example, 25 out of the 30 top DAX 30 companies in Germany are now BlackBerry customers.

RIM launched the BlackBerry 7730 with the large color screen this quarter, and a number of our European carrier partners, including: Vodafone UK, Vodafone Spain, O2, T-Mobile, SwissCom and SFR are all offering this product.

It has also been a busy quarter for retail in Europe with BlackBerry WebClient being launched with a number of new carriers, including Vodafone Italy and Vodafone Netherlands.

O2 UK also introduced BlackBerry WebClient to SMEs through direct sales channels, and to retail customers through retail channels this quarter.

A number of important trade shows were held in Europe this quarter, including Cebit and 3GSM.

BlackBerry Connect-enabled handset from partners such as Nokia, HTC and Sony Ericsson were demonstrated at these shows and interest from European carriers in these products has been strong.

There is no doubt that BlackBerry was a feature offering at these shows.

We expect Europe to continue to be a major subscriber growth driver throughout this year, in both corporate BES and Prosumer BlackBerry WebClient markets with all carriers.

In the Asia Pacific region, our existing carrier partners continued to make significant progress and we are currently working with a number of carriers to help them bring BlackBerry to market in the coming months.

In Australia, Telstra has continued to lead the way with strong activations growth through their dedicated data sales group and they are anticipating additional support from their dealer channel.

We expanded our existing partnership with Telstra by announcing a deal that launched with Telstra's subsidiary in Hong Kong, CSL.

CSL is the second larger operator in Hong Kong and focuses heavily on the Enterprise and Prosumer markets, with two distinct brands that cater to each of these segments.

The Hong Kong launch in March was attended by over 100 companies and CSL sales in the first month have been encouraging.

In March we announced a key regional partnership with the SingTel group which consists of properties in Singapore, Australia, the Philippines, India, Indonesia and Thailand.

Our initial work with this group will focus on Singapore, Australia, and the Phillipines.

SingTel continues to be recognized as a leading telecommunications group in the Asia Pacific region and this partnership is key for both companies as there is a great fit between SingTel's core customer group and our BlackBerry solution.

We expect great things to come from this partnership in the coming months.

StarHub in Singapore and Hutchison in Hong Kong continue to show significant quarter-over-quarter activations growth and corporate focus on BlackBerry.

We expect the introduction of a second carrier in each of Australia, Hong Kong, Singapore and Phillipines to drive broader market awareness and increase activations as it has done in other markets around the world.

Fiscal 2005 is shaping up to become a breakout year for RIM in the Asia Pacific region with the addition of the SingTel group and CSL to the BlackBerry family, we now have 8 carriers in the region and expect more to follow shortly.

In the coming months, we expect our existing carrier partners to continue to build on their great success to date and we look forward to working with our new partners that have chosen to focus their efforts on BlackBerry for both the Enterprise and retail markets.

For BlackBerry WebClient we are seeing strong demand for BWC, our self-provisioned offering targeted at the Prosumer market.

The majority of our carrier partners are now offering BWC and those that don't are planning to launch in the near future.

There are in excess of 20,000 retail points of presence around the world where a Prosumer customer can purchase a BlackBerry.

RIM has a number of training and promotions programs in place to assist and support our carriers who sell BlackBerry in retail outlets.

RIM is running a BlackBerry expert program for carriers which involves RIM targeting top stores in key markets and training a top sales person as the BlackBerry expert.

This person then becomes the go-to person for BlackBerry in that outlet and is also responsible for training other sales people in the location.

This program has been tremendously successful, with stores that have a resident expert far outselling their counterparts in the same region.

RIM currently has trained several hundred BlackBerry experts who are stationed in the carrier retail channel throughout North America and Europe.

The retail team has also had good success with the store level promotional campaigns where special incentives are offered to both customers and sales people and where BlackBerry training refreshers are offered to staff.

We have seen a meaningful increase in new subscribers in locations where we have run this program.

We have also recently implemented a new point of sales support program for carriers that assists them in monitoring the quality of the sales experience in the channel and ensuring that BlackBerry merchandising and demos are being managed appropriately.

In the coming months, RIM will also be deploying a new in-store BlackBerry demo, whereby software will be loaded that allows a potential customer to try out the BlackBerry application and e-mail features at the point of sale display.

We have see repeatedly in market that the probability of a BlackBerry sale increases markedly once the customer takes the BlackBerry in his or her hand and tries it.

On the product front the BlackBerry enhanced browser for BWC, which offers a rich web-browsing experience to users integrated with the carriers wireless portal strategy, is currently on trials with a number of carriers and we expect this to rollout over the upcoming months.

For BlackBerry Connect, our BlackBerry Connect strategy which is designed to extend the BlackBerry experience onto non-RIM hardware platforms from leading handset vendors providing end users and enterprise customers with a compelling choice of features, form factors and price points; continued it to exceed expectations.

During the quarter we announced licensing and distribution deals with Siemens, Samsung and PalmSource.

Development is underway for these platforms and we are excited by these partnership additions to the BlackBerry Connect initiative.

The fourth quarter also saw the first public demonstrations of beta BlackBerry-enabled handsets from Nokia, Sony Ericsson and HTC; at 3GSM and Cebit.

Many of our important carrier customers have moved to bring BlackBerry-enabled handsets to market with Telstra, O2, T-Mobile International, releasing strong public statements of support for the BlackBerry Connect program and have announced commercial availability of several products.

Customer trials of BlackBerry-enabled-- BlackBerry Connect-enabled handsets are underway in the U.S., Canada, Europe and Asia; and the first commercial deployments are expected to begin very soon.

We believe that we reached the tipping point with our BlackBerry Connect strategy and are well on our way to delivering the promise to extend the BlackBerry platform onto world class hardware platforms that deliver material benefit to our customers, our partners and end users.

For an ISP alliance update, we have experienced tremendous growth in our ISP alliance program over the past several months.

Mobile data service usage continues to expand across our customer base, and the number of new and innovative applications being enabled on BlackBerry is growing rapidly.

This past quarter, Sun and RIM announced an alliance to extend mobile java web services technology to BlackBerry users, Sun and RIM will enable the end-to-end secure delivery of Enterprise data via BlackBerry base on Sun's java enterprise system, java technology for mobile devices and web services technologies.

This will allow IT departments to fully and securely extend their existing applications and systems to BlackBerry users.

The Sun/IBM relationship is expected to greatly expand mobile data services in networked applications and extend the reach into enterprise markets.

Sun will work closely with RIM to help developers, software vendors and solution providers to simplify the development and deployment of mobile enterprise applications based on web services with java technology.

RIM is also working closely with companies such as IBM, Microsoft, Oracle and BEA Systems on similar expansion of web services via BlackBerry.

The winner of the BlackBerry Extensibility Challenge, sponsored by Nextel, was also announced this quarter.

The winning application was mPod by MedicTouch, which is an application for the healthcare industry that allows remote monitoring of blood oxygen and pulse rate by the BlackBerry 6510 handheld from Nextel.

Retrieval Dynamics, a RIM alliance partner, announced that it's mobile listing advantage application, which provides real estate agents and brokers with immediate wireless access to all local MLS listings via BlackBerry, is now available to 200,000 real estate professionals in major markets through the U.S., including Boston, Chicago, Dallas, Tampa and several others.

These type of applications and partnerships add value for our customers and carrier partners; and RIM remains committed to growing a strong group of alliance partners both in North America and overseas.

RIM will expand the ISV Alliance program to Europe in the coming months as demand for BlackBerry applications, beyond e-mail, was clearly evident in the recent European trade shows, Cebit and 3GSM.

RIM plans to work closely with its partners Siebel, IBM and SAP in these efforts.

During CTIA in March, our plasmic subsidiary launched the plasmic content developers kit version 3.7 for BlackBerry, which includes a fully integrated content development environment, and advanced simulation tools that significantly ease the content creation process for the BlackBerry platform.

Developers, graphic artists and independent software vendors will be able to use this suite of tools to simplify the authoring of rich wireless content and web-based applications that leverage the high resolution color screen of color BlackBerry handheld.

The plasmic content developers kit generates content in SVG, or scalable vector graphics, and the W3CXML--which is the W3CXML based standard for rich media content.

IBM Partnerworld was also held during the last quarter.

BlackBerry had a significant presence at the show.

The approximately 5,000 IBM business partners attending the show received a complimentary BlackBerry WebClient-enabled handheld with service from T-Mobile upon registration.

As a point of clarification, these complimentary activations were not included in our net subscriber additions of 204,000 in the quarter.

RIM is also working closely with IBM business partners to extend IBM portal solutions to BlackBerry.

In addition to their existing portfolio of IBM hardware and software, IBM business partners will also begin reselling BlackBerry hardware and software.

For an update on litigation, as we announced last week we reached a settlement on the litigation with GTI and they have agreed to pay us an upfront sum along with quarter royalties under a license agreement negotiated as part of the settlement.

All pending suits between GTI and RIM have been dropped.

With respect to the NTP litigation, both sides have completed their written filings to the appeals court and we are currently awaiting a date for oral examinations to be set.

We are also awaiting the findings of the patent office's re-examination of NTPs patents, and have nothing new to report on that front.

We will continue to disclose material events as they occur.

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

In summary, we are pleased with the growth in all segments of our business with BlackBerry Enterprise, BlackBerry WebClient and BlackBerry Connect all making outstanding progress in the past quarter.

We remain focused on execution in supporting our key partners and look forward to updating you on our business again next quarter.

This concludes our formal comments.

I would like to remind everyone that we plan to end the call today at 6:15 p.m.

Will the operator please come on to handle questions?

[Caller Instructions] One moment for your first question.

It comes from Andrew Lee, TD Newcrest.

Please go ahead.

Good afternoon.

Starting off with the BlackBerry Connect.

Dennis, is there any of that revenue baked into the next two quarters guidance?

No, Andrew, no BlackBerry Connect subscribers have been built into the guidance for the next several quarters.

Is it a view that -- did I hear Jim correctly when you said it would be rolled out over the next few months?

Is that the expectation and what geography would you think it would come out in?

This is Jim.

The rollouts are fairly eminent.

I would say you can expect to see material developments next month.

And I know directly from the BlackBerry Connect partnerships that their plans for rollout and their demand is global.

Okay.

Great.

Can you give us an update, Jim on the China opportunity and how you are progressing vis-a-vis possible outsourcing and development partners there?

China we have--I think for outsourcing purposes, we are well underway in our outsourcing strategies and we look for geographic proximity to our markets, whether it be Europe or Asia for that; and certainly China is part of our consideration list in that purpose.

For launching BlackBerry and selling into China, we have a few hundred units currently in use in China through roaming SIM relationships from Hutch; and CSL also has a number of customers that want to be in China on a roaming basis.

As well, really for expanding in China, not only is the BlackBerry Connect important and we have direct relationships.

What's really important is that we implement the upgrade of the BlackBerry Enterprise Server to support Unicode.

So we have--and that is due later on this year.

We have Chinese character support on the handsets, but we also need to support the passthrough of Chinese character sets in the Enterprise Server.

So, we will continue to see a lot of development and planning and a fair bit of success with multi-nationals and X pats in the region.

And success in areas where English is pretty acceptable to use, like India and Singapore and Australia and pockets of Hong Kong.

But the real turbo charger of Asia is not only the continued warming up of our carrier and BlackBerry Connect partnerships, but also the implementing of what is called Unicode support and that is a later this year software development priority.

Switching gears to the components side.

Are you guys still experiencing some component issues?

And if so, which components?

It's Dennis.

There are certain components, Andrew, that still remain tight, you know we've been talking last quarter about displays.

We certainly worked very hard to work closely with display suppliers to make sure that we can get what we need, and our team in the manufacturing plant feels very good that that is all under control.

There are other things that come and go and get tight and then loosen up.

But in general I'm comfortable with our situation and certainly in the context of the guidance I've given.

Okay.

Great.

Last question with respect to the monthly ARPU.

How was the trend in the quarter with the direct sale versus the carrier reselling?

I notice that the ARPU goes down to below $17, I think, in the quarter.

Is that primarily a switch from Mobitex to the 2.5g, or were you seeing any pressure on the $7 to $10 bucks a month.

Thank you.

It certainly wasn't a decrease in the $7 to $10.

It was because our net new subs are all on the new networks and there is some moveover from the data only networks, or the direct sales, to the $7 to $10.

So it 's definitely a combo of the migration and just that all the new adds are at $7 to $10.

Thank you.

The next question comes from Pat Chiefalo of Merrill Lynch.

Thanks very much.

Just to start off with, can you give us an update on the manufacturing capacity and utilization right now?

Yeah, it's Dennis, Pat.

We'd said our theoretical capacity, working on 724 fullout is around 3 million units a year; and we are currently adding more lines and we will be doing so' over Q1 and Q2.

We have recently switched to 724 but, you know, we're not quite at the full outstage.

So that capacity I would say our total capacity is 3 million.

With increases coming very soon in our Waterloo facility as well as bringing on outsourcing for packing configuration in the U.S. and full manufacturing likely in Europe first.

And can you give us a little bit more color on the geographic side in terms of the subs and hardware can you give us an idea of what sort of went into North America and what went in internationally?

It as breakdown that we don't provide yet.

I tried to give an indication of it by the percentage of BES.

The trend we're seeing where Europe is growing faster as a percentage of North America continues to hold true and we are pleased with the sales into the European market and Asia certainly coming on.

But we can't provide that geographic breakdown for you yet.

Okay.

And my next one is on BWC.

I think I heard Jim mention training requirements for some of the retail forces that the carriers.

Could this cause an increase in resource allocation at RIM IE now there is a retail sales force at the carrier that's required to be trained on the BlackBerry or is it going to just be nominal?

I mean I think there is no question that the BWC as a line extension and as a channel extension definitely requires resources.

And we have enabled a detailing firm that really helps us maintain some support in the stores.

And our training organization did over 16,000 modules for different carrier personnel and groups last year.

So that knowledge transfer and knowledge capability is critically important part of our business.

While there is leverage in what we do there, when you see, you know, Cingular bringing on 6,000 stores and we have other stores that, you know, other carriers that are bringing on upwards of 10,000 additional retail points of presence, later on this year, we are going to see a lot of challenges on the executing operating side of our business to support the dramatic scale of this channel.

No question.

And now with the BlackBerry WebClient it's one skew for a BES enabled and a BlackBerry WebClient enabled device.

That means a business person can but it in the store which is a very exiciting thing because you also get the channel extension for the BES and theBlackBerry WebClient can be provisioned and activated in the store.

And with our new BlackBerry 4.0 coming on which is in trial soon and commercial launched this summer, late this summer, you can then provision a BES device in the store cradlelessly.

So this whole retail training, retail execution, retail expansion for the consumer as well as the prosumer in the enterprise coupled with all the BlackBerry Connect devices is a very positive dynamic for both the device companies and us; as well as for the carriers and their owned and channel partners.

There is a dynamic of capturing profitable accounts here, that is, you know, it is somewhat explosive right now.

And it's safe to say the increase in resources is factored into sort of the SG&A guidance going forward?

Yes, that's right, Pat.

Just last one for me.

Can you talk a little bit about the BlackBerry Connect problem and -- program and what you're seeing on the competitive landscape that is developing out there?

Well, I mean I think what we're seeing is that there is -- there is -- I can't think of, you know, a company that we are not dealing with for BlackBerry Connect.

And that we're very, very active in it.

And it is -- it is because, you know, it is a -- it is a value to the carriers around the world and a value to their customers and it gets these advanced devices into an application market that the carriers and us have invested several years in maturing.

So, and -- you know, the fact that we are -- and we have such strong resource teams doing this and many of these environments are very different.

They have different OS's, some of them are proprietary, some of them are open ended.

There is something like 7 different OS environments we are supporting this on.

And this leverages 100% off of our care and training and lease lines and technology for a 2.5G push product that doesn't use SMS.

Which is very very resource intensive on the network and on the channel and on -- and on the battery.

So it is -- I mean it is -- it is really becoming a -- a mainstream if not kind of the mainstream app for a lot of customers carriers who want, you know, push capabilities for messaging and -- and then what's also very, very exciting is each of these carriers and most of the corporates and most of the device companies are very, very excited on wireless web services right now.

And I kind of like to -- you know extra stress that we talked a lot about applications today.

There is something, you know, we talked about, you know, a year ago, 2.5G really breaking out.

And I think that's kind of proven itself over the past month.

I would like to sort of comment here on this call that what we are seeing is wireless web services is really creating quite a ground swell, there's kind of a ground swell right now.

And you will see is first in enterprise.

But I think you will see a tremendous extension into the consumer space.

You heard a lot of stories, you know, about, you know, M-commerce and L-commerce and all that kind of stuff and they never really happened because the networks and the devices weren't ready and the platform technologies weren't ready.

Well, fundamentally wireless web services is the platform piece.

And it's going to be very simple to craft these programs for consumers and so to really tie it back on a competitive front, it is less of a competitive issue right now and more of an execution implementation thing and then an extension thing.

And we are chock full of work.

And we're just trying to get it done for our handset partners and for our carrier partners and for our CIO partners.

Because there is more opportunity than there is hours of the day right now.

Great, thanks very much.

The next question is from Dale Pfau with CIBC world orld Markets.

Please, go ahead.

Couple of question here.

I think I may have missed it.

Could you fill me in on the number of new carrier partners you expect over the next two or three quarters?

And if you could give an indication of when you expect them to come on?

And then you also mentioned approximately 10,000 new retail stores from one carrier, 6,000 with another.

Do you have any idea total how many new points of presence you will be able to see carrying the BlackBerry over the next two quarters?

Sure, well, the -- yes, I -- that was correct when I said 25 new carriers in the next 2-6 months.

So, you know, you spend 6 months, 9 months getting the carrier up to speed and then they start clicking into gear and we are accruing the benefits of the work we did last year now.

And we think throughout the summer we are going accrue the benefits of the work we have been doing the last six months.

And we are doing the work now for what we will accrue at the end of the year and early next year.

So these properties, some of them we mentioned like [Bar-D], and the SyncTel and there's a number of Vodafone properties and a number of Orange properties and KPN has KPN and E+ as well as a Belgium property and others.

So, you add those up, I mean we have another, you know, 20 odd Vodafone properties to get online.

Just Vodafone alone.

There is 10 or so orange.

There's 30 on just two, you know, carrier properties.

And T-Mobile has a bunch of properties some of which we are doing in Eastern Europe but a bunch are gated by the need for Unicode because for nonlatin character sets you need Unicode and that's for places like Poland and Hungary.

Although we are going to launch using English language only for X pats and -- and multinationals.

And then really test all the infrastructure and the pricing, the billing and some of the care and lease lines and over the air link.

And then when Unicode slides in on an application basis these carriers are really ready to go mainstream.

There is a tremendous amount going on.

It's very, very exciting but that part of the business is under just as much pressure as the channel retail business.

And the retail, I mean the one, you know, we talked about -- about Cingular bringing on 6,000 points of presence.

Yeah, it is a big number when you add it all up what is going on in retail.

A big number.

And, you know, I mean we will let everyone else sort of do their own math and do their own carrier checks and so on.

But we are very, very excitinged about the retail relationship and I think BlackBerry Connect and new devices and mainly sort of the partnership and the success the carriers are having coupled with the ease of execution of BlackBerry WebClient and soon with BlackBerry Enterprise Server has really created a dynamic that is very exciting.

And most, you know, the highest, very, very high percentage of -- of these character activations happen in the retail.

And we have traditionally gotten 99 or 100 or 95% of our sales through their specialized enterprise direct channel which we are happy to work with.

But this idea that we move to their mainstream channel can only be positive.

And many of the carriers very wisely comp their direct sales through the success of their indirect for the corporate so that, you know, you create sort of no conflict there.

So, it is all very positive.

And could you talk a little bit about both trends in subsidies and trends in carrier service changes over the last quarter and what do you see coming up in the first quarter?

I think the main trining thing, that we have seen is an awakening by the carriers as to the somewhat over the top profitability of their BlackBerry type customers.

You don't have to tweak churn much.

And you don't have to tweak ARPU much to make these astoundingly profitable.

And quite frankly we made profound changes to both of those.

So, really the carriers are finding this segment very profitable and they want a lot more both on the enterprise and prosumer and potentially high end consumer.

The approaches they take is really segmenting their offerings so that they give consumer and prosumer price points that are different from the enterprise so they segment the service consumption and we do service blocking between the BlackBerry WebClients and the Enterprise Server.

They segment the devices and they offer some relatively heavy discounts if someone signs up for a contract for a reasonable period of time.

So, it is really, I think we needed -- the carriers needed to harden the whole -- we need to work with them to harden the whole value proposition.

And then they needed a quarter or two of understanding what the real profitability structures were.

And that was kind of the first, you know, 6-8 months of '03 that that happened.

And that is where you notice they kind of turned on the jets in the rest of '03 and '04 and all these expansion plans we talked about.

That is the dynamic at hand.

Though it's really different from geography to geopraphy, carrier to carrier.

Some of them are using shockingly aggressive carrier or customer capture plans.

And I think we are seeing some of those things particularly in Asia.

So, places like India and Singapore and Hutch or in Hong Kong and Australia, I think you're going to see some very positive things because they want to be very aggressive there.

Great, thank you very much.

The next question comes from Arindam Basu Morgan Stanley.

Please, go ahead.

Hi.

Can you hear me?

Yes, we can.

Okay Great.

Dennis, just a quick point of clarification on one of the numbers you gave earlier.

You said, did you say 22% of active BES's outside the U.S., or 22% of active subs on BES's are outside the U.S.?

I said the BES's.

Okay the actual service cell.

And secondly could you go over your Cap Ex plan given your capacity issues you discussed earlier?

Sure.

That is good question.

We are likely going to be spending more in Cap Ex certainly over the next several quarters and likely over the remainder of this year.

I would estimate that we would be up around the 20 million per quarter range in Cap Ex spending.

As is said the addition of lines into the manufacturing facility as well expansion in R&D with the hiring we are doing and in the BlackBerry operations center with -- with the NOC etcetera are the main areas for expansion.

So is that for each of the next two quarters or basically the rest of the or the fiscal year you think?

That is our current estimate for the next two quarters.

I think is is a reasonable estimate for go-forward and then I will continue to update that on each call.

Thanks.

Then last question, you talked about the spread between units shipped and the sub adds.

Handset upgrades or movement between carriers or normal replacement cycles.

How do you track that?

How do you know how much of your legacy subscriber base that has now converted to the voice enabled devices?

It is a bit of -- it is not just the legacy.

We actually do get some movement between carriers or you get someone for example who could have a black and white BlackBerry upgrading to a color BlackBerry.

So movement of handsets is, yes, it is moving from Mobitex to GPRS or CDMA or Nextel but it's also within those upgrading into new devices.

So you get multiple different levels.

The way we track it is each carrier reports to us their gross additions and deactivations.

So based on the gross additions of subs we can tell how many actual handset are getting put into hands and that's a number that we reconcile against total handset shipped to get an idea of the channel inventory.

And that is where I get the comfort that the channel inventory is very acceptable levels.

On the deactivation front it's very difficult to tell whether that's a true deactivation or whether that person has moved to a new carrier.

We hust have to work through and net them all out.

And then we get a very clear picture of the overall net new subscribers.

But reconciling on the gross handset by carrier is what would map to the overall handset shipments.

So the spread widening over the last couple of quarters primarily you guys are thinking that it is primarily driven by the handset upgrades?

Two things.

It's continuing upgrades and then this next level of upgrades from black and white to color or from nonspeaker phone to speaker phone or you name it.

But, I mean the carriers have been operating at razor thin channel inventories to this point.

And that is just not an acceptable level.

So, there definitely is the need and the desire by our carrier partners to get more acceptable levels of channel inventory.

Especially when they are going so hard into the retail channels.

So I expect to see that spread continue to widen.

Both from upgrades, introductions of new handsets and as we bring on all the new carriers you just need to have an acceptable level of channel inventory or else they can't commit all these advertising programs and these real marketing pushes if they don't have the stock to be able to fulfill the orders.

Thank you.

The next question comes rom Gus Papageorgiou, Scotia Capital Markets.

Please go ahead.

Hi, thanks.

Jim, you talked a lot about expanding the BlackBerry service globally in different regions but the one region you haven't talked about ia Japan.

I'm just wondering what if any activity is occurring in that -- in that country?

We are very active in Japan and it is a long-term partnership that we are structuring there.

And it will likely because of the proprietariness of the air link there and how it's evolving, we will almost certainly be implementing there using one of our BlackBerry Connect partnerships.

And we actually have a very exciting BlackBerry Connect partnership underway that addresses our sort of core markets.

But it is also the same kind of underlying process or architecture that we can get sort of a very quick migration to Japan for purposes of BlackBerry Connect.

And if that all comes to fruition which it looks like, it looks pretty positive because it is very sort of driven by the Japanese carrier and by the global customers for the handset vendor, then I think we have have to do a bunch of testing and establish a communications line there.

We are -- it's a pretty active part of what we to and it is senior wise very strategically pushed for by the carrier.

Very senior levels.

But, you know, it is a sort of gets more firm, you know, we will give more details.

But as it sort of gets more firm.

We'll give more details.

It's not like finalized and firm yet.

You know.

But, you know, I'm pretty positive about it.

Do you think something will occur within this fiscal year?

I think definitive plans are a certainty.

And the -- I know the BlackBerry Connect we're trying to do for advanced networks including 2.5 and 3G networks with the handset partner so I would think well underway this year commercially, in market this year, I doubt it.

Okay.

And so when you said you were working with the one of the BlackBerry Connect partners is that an existing partner or would that be Japanese Pacific.

It's a new one.

The next question is from Rob [Sanderson], America Technologies Research Please, go ahead.

Yes, thank you.

Congratulations on a great quarter and important milestones, guys.

A few questions maybe continue on some of the themes we have just been on talking about churn statistics and whatnot.

Is this something that you will consider disclosing in the future or is it something you want to hang on to for now or how should we think about that going forward?

Rob.

It's Dennis.

As you recall.

We used to disclose a gross and net number.

The problem is that the difference between gross and net is not churn in the way the industry thinks of churn.

The only way you can tell churn is if you are an individual carrier and you're billing the end customers.

You got so many customers this quarter and you lost a bunch of customers and that's your churn.

Because they went some where else.

For us, if you go from one carrier to another you are still a BlackBerry customer.

May bea deactivation and reactivation but you're not churn.

You are still one BlackBerry number.

So that whole gross number was really meaningless except for a check on how channel inventories are and where tje handset are going.

So the net number from BlackBerry perspective is the number of subscribers we are getting.

The number of people who are actually turning off their BlackBerries never to go back, I mean we only once in history did we have a real period of that.

And that was through the layoffs after the bubble burst in the sort of 2000 and 2001.

The statistics we're getting from carriers and I'm sure you will get it if yo do channel check with them and speak with them and speak with them; is that churn and BlackBerry users is much lower than normal voice.

So we are really not seeing people get them and then not like them or not keep them.

And that is one of the main attractions for the carrier partners.

But it is really tricky to try to put out a number like that.

I guess by describing the process on Channel inventory and trying to give listeners comfort that we do monitor this very closely and that there is certainly not an excess of Channel inventory out there.

Okay.

On the -- you know, we talked about manufacturing capacity, components and whatnot.

I mean were you for any of these reasons come what constrained during the quarter?

Yeah, on the component side, you know, displays continue to be tight as I said and we talked a lot about that when we were on the road during our financing and on the last call.

It continues to be tight.

We continue to manage it very carefully.

We had unlimited access to components could we have shipped some more?

Yeah, I think the demand continues to be very strong and that is probably the scenario in the next couple of quarters as well.

Our guys work real hard to build other relationships and to diversify dependencies in key components.

So that it something you are always working through.

When you just look at the sheer ramp we've been on, the number of handsets, it's pretty explainable.

Cause, who could have forecast this type of growth 6 months ago.

And that is often when you have to be building in these forecasts.

Right.

Okay.

Now, maybe more to more strategic kind of question.

You know, BlackBerry now very clearly established as a you know, total communications platform and Jim talked about wireless web really ramping and having a lot of potential.

Can you give us some color on, you know, what is the -- a what is the direction from here on new applications, you know, provided by RIM in terms of you know platform and tools or whatnot for some of your partners?

Where are we going with all this?

What is next?

Well, there is a lot of things that are baking that we have been sort of pounding or trying to talk about for awhile.

I think with the mobile data service, I think you're going to see -- take that with the additional tools for -- with the platform content servers that we mentioned the Suns and so on.

It means you're going to be able to do wireless enterprise web services where a web designer does it.

And you're thinking more about what you want to do not how you do it.

Because you are able to use objects and tools to do this rather than hard core programming and it is provisionable over the air using a Java VM.

So logistically it is manageable.

Code wise it is very simple.

I think this sort of extension of the platform using wireless web services and the enterprise is absolutely -- absolutely happening in a big-time way.

Second thing you're going see is as we talked about this enriched browsing we are putting that kind of capability in the BlackBerry WebClient so that you have have that MDS kind of capability with the carriers portal.

So this kind of rich extension for work flow can also be part of carrier portal services.

And that means that they can provision things.

Whether it is for, you know, business people wanting, you know, specialized stuff or whether you want to do custom applications and custom services for, you know, digital couponing or entertainment or wireless eCommerce this is very, very, very close to reality.

You mirror that or you parallel that with the plasmic XML to SVG media engine, that means you can have a near-rich media experience for things like the portal presentation and for these applications.

And as well, you know you take the fact that you can provision over the air with J2ME you can now do a lot of entertainment and gaming type things.

I think the other things we are seeing a whole lot of work on are the -- we're deep with a lot of the IM players.

So I think this idea of different messaging pay loads SMS, IM, corporate email.

Personal email.

Corporate IM like SameTime.

And then you have got this pipe with tools that connect you to logically maintained web services.

And the carriers I think the carriers are just going to continually monetize this stuff.

I mean think about it.

You know a carrier portal where you can really render beautifully pictures of pizza and pictures of flowers and you can just click it.

And carrier has a billing and transaction mechanism to avail all of these services in a very, very simple and useful way because the platform pieces are there.

Not -- so you don't have to do this hard coding super difficult to use device and hard to implement and maintain services.

It is a web designer doing it.

So I think, you now, I think everyone was right about these things kind of three, four years ago.

But kind of like 2.5G and 3G, I think they were three or four years too early.

So, I would represent you are going to see, you know, in a year, you know, a rather overwhelming ground swell of application extension and we just want to make sure we are part of it.

And all this L-Commerce and M-Commerce and this kind of stuff that everyone over hyped in '99 and 2000 was way too ahead of its time.

I would say, you know, late 2004, early 2005, that is its time.

And quite frankly, I would represent that while we are very supportive of things like edge and EBDO and 3G and all that.

I would suggest that these transformative applications are going to be much more of an economic turbo charger to the industry and carriers and handsets and to the ISVs than just a faster bit rate.

Not to say that a faster bit rate is a bad thing.

But I think the tools are more important.

If I had choose between: you can have 3G or web services, God for forbid I don't want to choose, but I think the latter holds a bit of surprising promise.

Sounds good.

Thanks a lot, guy guys.

The next question comes from Mike Abramsky, Canaccord Capital.

Please go ahead.

Yeah Jim, just following your last statemetns.

So if I'm trying to understand what you're basically saying is you're kind of going to be putting Visual studio out there for the BlackBerry platform and that's going to sort of make it far more easier for corporate developers and ISVs to start deploying applications and for carriers to deploying applications.

So are you sort of, do you think the timing is sooner rather than later for BlackBerry?

We sort of see competitors obviously that are trying to do this same thing under the Windows Mobile Platform for example.

Bingo you're not far off with that model.

I think, I mean I think you know, we are just trying to do it with our 50 carriers going to 100, our -- our you know, 7 or 8 BlackBerry Connect partners going to 10 or 12.

Our 20,000 BES installs going to whatever.

And our tens of thousands of points of retail presence.

So, really we're just trying to use tool extensions for us to connect in to really extend what is already going on, number one.

So I think that is the number one.

And number two, maybe what is kind of powerful for us is we're trying to do it -- we've got, you know, a super close partnership with IBM and Sun, BEA and Oracle and Microsoft we were showing dot.net stuff at Ativa with Affinity.

So we are not saying pick a web service platform which I think is powerful.

We are not really saying pick a device.

We are not saying pick a geography or even pick an air link protacol..

Wi-Fi or Nextel or CDMA or GSM is fine.

And we are trying to build from the installed base that we got.

It's not to the exclusion of anybody doing anything else or maybe they want to do something on a Windows mobile device and just use us for the e-mail piece on the BlackBerry Connect.

But, you know, we're pushed you got to remember and we are already ntegrated and got the leased line connected to the carriers.

What's really important you have to understand is we're a priceline offering on the carriers business plan.

It is a line item on their pricing sheet.

That doesn't use SMS.

So, you know, we're not trying to be the exclusion to anybody else, we're simply trying to, you know, avail a very profitable extension to our channel partners and application partners and ultimately a very, very compelling productivity ROI benefit to our end user.

How that works or doesn't work with somebody trying to do something else, that is a very, very extended conversation.

Okay.

And just you mentioned earlier I think in your opening commentary Dennis about the operating leverage continuing in your model.

I'm just wondering is it fair to expect some temporary impact operating leverage in the next couple of quarters as you scale your new infrastructure with some follow-on sort of strong increase as then based on that.

And particularly NOC infrastructure?

You start loading what is based on your outlook some obviously continued strong outlook fro strong subcribers on top of that?

By operating leverage I said even with the increase in expenses if Q1 and Q2 those expense items as a percent of revenue stay the same or actually improve.

So when we start to look at the second half of the year I mean we don't give guidance beyond a couple quarters.

But I certainly believe that we're going to see substantial growth in the second half of the year again.

Yes, there's going to be investment in the NOC and some other areas but with the subscriber growth that we are targeting and the topline growth that would follow along with that I think that the model keeps on improving.

Okay.

And just because we have been talking so much on retail here, there is a number of foreign networks or nonNorth American network is or countries like the Philippines, Mexico, China, Italy that are prepay oriented and I'm just wondering how strong the impact of retail in the WebClient will be in providing traction to RIM in those markets?

I I mean I think there already is some prepay going on in -- in Asia for BlackBerry.

And I think we -- I think as we, you know, become more mainstream and we can with BlackBerry Connect partnerships possibly use their sort of more down market devices it becomes very -- and as we can segment sort of access fees and pricing programs to the prosumer and as SMS becomes sort of - it doesn't bridge to e-mail well and control channel technologies are imited.

It is interesting to see how prepay could play out.

I think prepaid is something that we could possibly see a fair bit more of.

And one thing we haven't talked about it we have an awful lot going on in Latin America right now.

The three main players that really sort of come in there international American Mobile Telcel our Mexican partner, Telefonica our Spanish partner and our Italian partner all have multiple properties in Latin America where is is very much a prepaid market.

As is certain parts of Asia.

That will be an interesting dynamic.

I haven't thought a lot about it but it will be interesting.

Okay.

The last question is you have been really hinting about kind a strong consumer push although you have sort of been hesitant I think to officially talk about you moving into in that direction perhaps.

And how well to your advantages in push security and data efficiency play to that market and perhaps just offset what are stronger phone players that have far greater scale supply chain advantages, brand advantages and so on?

Well, I think when you go to consumer security is a lot less.

But push still matters and can alos extend to not only e-mail but to IM and to information that is integrated with the carrier portal strategies.

Evidence which you see by sort of the aggressively sort of branded Vodafone Live type front end with BlackBerry using the plasmic media engine.

As well, please, don't underestimate our work with the BlackBerry Connect.

Because while we do the work on the proprietary or open environments for these third-party partners, much of the work is on their higher end devices but the environment is the same, substantially the same for their lower end devices and we actually had some BlackBerry Connect implementations working on their lower end phones and we've just go to tweak the GUI and the user interface a little bit.

But it's all the same environment.

So it allows those devicemakers to go down market and the carriers too.

And it doesn't need to be us that does it.

So I really think, you know, it is really hard to exactly predict how all this is going to unfold in the specific.

In the general, I think carriers are going to aggressively monetize their network upgrades for more ARPU and create sticky differentiated services for lower churn.

And there is going to be a very vibrant supply market for applications and devices and integration services and channels for this market.

But the absolutely specific manifestation of all that stuff is really pretty much conjecture at this point in time.

We are just trying to enable, you know, where we have talked about it and my suspicion is we're all going to be pleasantly surprise.

Thank you.

We're now over time.

So I think that we will wrap it up with that last question.

I would like to remind everybody if there is a post service available the number's (416)640-1917.

Reservation is 21041109 pound.

Listen so the call on the website www.rim.com/investors.

So, thanks very much.

This concludes the conference call for today.

Thank you for participating and, please, disconnect your lines.