BlackBerry Ltd (BB) 2005 Q4 法說會逐字稿

Good evening ladies and gentlemen.

Thank you for standing by.

Welcome to the Research In Motion Limited fourth quarter and fiscal 2005 year end results conference call. [OPERATOR INSTRUCTIONS] I will now turn the conference over to Mr. Dennis Kavelman, Chief Executive Officer.

Please go ahead, Mr. Kavelman.

Thanks very much.

Welcome to RIMs fiscal 2005 fourth quarter conference call.

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

After reading our required forward-looking statements disclaimer I will begin by providing an overview of fourth quarter as well 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 up 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 extending the call slightly longer than usual tonight and are planning on wrapping up at 6:30 p.m.

Eastern.

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 revenue, gross margin, operating expenses, investment income, corporate tax, earnings, earnings per share, ASPs, and DSOs for Q1 and Q2 and beyond.

Our expectations regarding RIM's long-term tanks rate, anticipated increases in the number of BlackBerry subscribers and sales of new handsets, our product development initiatives and timing, developments related to BlackBerry Connect, BlackBerry built-in and our partners, new and expanding markets, for products and other statements regarding our plans and objectives.

I will indicate forward-looking statements by using words such expect, anticipate, estimate, may, will, should, forecast, intend, believe, and similar expressions.

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

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

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

Now as an overview Q4 revenue was at the high-end of our guided range and subscriber growth was stronger than expected.

Gross margin was much higher than forecast due to a higher percentage of software in the revenue mix.

Adjusting for the impacts of the litigation charge and related tax impact adjusted EPS of $0.71 was well above our previous forecast.

We are reiterating Q1 revenue guidance, introducing a strong Q1 subscriber forecast, and introducing solid Q2 revenue guidance.

The resolution of the litigation has led to a write-up of RIM's tax asset in the fourth quarter but RIM will be recording a higher tax revision in upcoming quarters than previously anticipated with no change to expected long-term tax rates.

I will now provide an overview of fourth quarter results.

RIM added approximately 470,000 net new BlackBerry subscribers during the quarter.

Total BlackBerry subscribers at the end of February were approximately 2.51 million which includes approximately 520,000 subscribers or 21% of the overall base outside of North America.

Subscriber additions in the quarter were significantly higher than our guided range of 435 to 455,000.

Revenue for the fourth quarter ending February 26, was 404.8 million.

Higher than expected software sales, offset slower lightly than expected handheld shipments.

This represented an 11% increase over 365.9 million in the prior quarter and a 92% increase from 210.6 million in the fourth quarter of last year.

This was in line with our December guidance range of 390 to 410 million.

Total revenue for the year was 1.35 billion, an increase of 127% over the 595 million in the prior year.

Handhelds represented 269 million or 66% of RIMs revenue during the quarter.

Up slightly from 260 million in the previous quarter, but down from a revenue mix perspective from 71% in the prior quarter.

Total handsets shipped in the quarter of 710,000 were up slightly from the 700,000 shipped in the prior quarter.

Total handsets shipped during the year were approximately 2.44 million.

What we've seen has been a desire from U.S. carriers to reduce overall channel inventories by several weeks for all handsets.

This has had an impact on BlackBerry hand-held inventories as well.

As I've discussed on previous calls we have particularly good visibility into our channels as we can reconcile handheld shipments with activations on the BlackBerry network and estimate carrier inventory levels.

Every quarter I discuss the difference between total handsets ships and net activations.

This quarter the difference is 242 handhelds, down in both absolute terms and as a percentage of subscriber editions from 313,000 handhelds last quarter.

We expect to see some continued reduction in relative inventory levels at our carrier partners in Q1 and Q2 and have factored this into our go forward guidance.

As expected handheld average ASPs were approximately flat at $378 versus $370 in the prior quarter.

We expect ASPs to continue in this range in Q1.

Service revenue was 68 million, or 17% of revenue for the quarter, an increase over the 61 million in the prior quarter.

Incremental revenue from new subscribers continues to be slightly offset by some direct build user migration from the Mobile Text Network to the 2.5 G. networks.

Software revenue was 56 million or 14% of revenue for the quarter, more than double the 26 million in the prior quarter due to stronger than anticipated sales of BES 4.0 and client access licenses growing in proportion with our higher subscribers decisions.

We expect software revenue to decrease slightly in Q1 as it normalizes following the BES 4.0 launch but to still remain substantially higher than in past years.

The number of BES installations continues to grow as there were approximately 42,000 BlackBerry enterprise servers connected at the end of February compared to approximately 36,000 at the end of Q3.

Other revenues such as accessories and repairs was in line with our expectations at 12 million or 3% of revenue.

Gross margin for the second quarter was up significantly to 56.8% from 52.3% in the prior quarter.

This was well above our targeted range of 51 to 54% due to software representing such a large percentage of the revenue mix.

R&D spending was 29.1 million or 7% of revenue for the quarter, flat as a percentage of revenue versus the 27.1 million in Q3 and down from the 9% of revenue in the fourth quarter of last year.

For the year in total R&D expenditures were 101.2 million as compared to 62.6 million in the prior year.

Selling, marketing, and administrative expenses increased slightly more than expected by 15% to 56.6 million versus 49.3 million in Q4, and were 14% of revenue the same as in Q3 and down from 15% of revenue in the same quarter last year.

For the year sale, marketing and admin. expenses were 190.7 million as compared to 108.5 million in the prior year.

This quarter RIM recorded an incremental expense of 294.2 million relating to the resolution of the patent litigation.

The total resolution amount was 450 million.

As expected the majority of the amount was expensed in Q4. 20 million was recorded as an intangible asset on RIMs balance sheet and will be amortized over future appears and 294.2 million made up of the remainder of the resolution amount as well as estimated legal and other costs to complete the terms of the resolution was expensed.

I'm going to spend a few minutes discussing the tax implications of the patent resolution both for Q4 and going forward.

Up to this point RIM has had a substantial amount of tax benefits and tax credits which were recorded at a zero value on the balance sheet due to accounting rules requiring a valuation allowance for RIMs tax assets.

We discussed this on past calls and when we wrote down the tax asset in Q3 of fiscal 2003, slightly over two years ago.

There were two main criteria that prevented RIM from previously recognizing the value of these tax benefits.

The first was that RIM was in a three-year cumulative net operating loss position which under accounting rules creates uncertainty with respect to the Company's ability to utilize these tax losses.

Second, the business risk relating to the litigation in the U.S. created uncertainty for accounting purposes of generating sufficient future income to generate the tax losses.

As these factors raise sufficient uncertainty over future profitability GAAP required evaluation allowance against the tax asset.

With the resolution of the litigation the situation has changed.

Now that this business risk in the U.S. has been eliminated the current and forecasted profitability of RIMs business is more than sufficient to utilize these tax assets going forward.

As a result we are required to eliminate the impairment charge against the tax asset, in effect writing up the tax asset on our balance sheet for a gain of 151.6 million.

This offsets a small corporate and minimum tax provision for a total tax recovery of 144.6 million.

This Q4 write-up will be offset by an increase in our near term quarterly tax rates going forward.

Last quarter I said that we were modeling a tax provision of approximately 7% in Q1 and then a steadily increasing provision rate over the year until we reach 25 to 30% in Q1 of next year.

This was based on the assumptions of the litigation continuing and that we would be working through the off balance sheet tax asset with greater profitability each quarter until it was fully used up after this year.

Now that this tax asset has been written up and the gain recorded in Q4 we are required to expense or work down the assets by recording a full 30% tax provision in each quarter of this year.

For next year were we are still starting a range of 25 to 30% as increasing global operations allow us to utilize tax planning strategies.

Let me just summarize all of this again.

GAAP accounting rules previously did not allow the recognition of a tax asset due to previous losses and due to business risks relating to the litigation.

Now the litigation is resolved this tax asset must be written up.

Rather than work down the tax asset off balance sheet by reducing quarterly tax provisions we have recorded a 144.6 million gain in Q4 which will result in higher quarterly tax provisions for this fiscal year with no change to our longer term tax outlook.

GAAP net loss for Q4 was 2.6 million, or $0.01 per share diluted, compared to net income of 90.4 million or $0.46 per share diluted in the prior quarter.

To compare to consensus estimates we must back out the litigation related charge of 294.2 million, and a related tax impact of 151.6 million.

This results in an adjusted or pro forma net income for Q4 of 140.1 million, or $0.71 per share diluted.

This exceeded the guidance for adjusted EPS given on our last call of $0.60 to $0.67.

The main reason for the outperformance was higher than expected gross margin.

GAAP net income for the year was 213.4 million, or $1.09 per share diluted as compared with 51.8 million or $0.31 per share in the prior year.

Excluding the litigation charge of 352.6 million for the year, and net of the related tax impact of 151.6 million, net income for the year adjusted was 414.5 million, or $2.11 per share, an increase of 581% over the prior.

Weighted-average basic and diluted shares used in the GAAP EPS calculation for the quarter were 189.2 million.

Actual shares outstanding at Feb. 26, were were 189.5 million.

Total options outstanding at February 26, were 11.2 million.

RIMs balance sheet continues to be strong with substantial cash reserves, appropriate working capital balances and negligible debt.

At the end of the fourth quarter RIM had 1.7 billion in cash, catch equivalents and investments.

This was up 56 million from the prior quarter.

The 450 million resolution amount has not yet been remitted and is included in the litigation provision in the liability section of RIMs balance sheet.

RIMs cash position net of the liability for the litigation resolution is approximately 1.34 billion, as approximately 90 million of the 450 million liability is already in escrow which is reported as restricted cash on RIMs balance sheet and is therefore not included in RIMs cash balance.

Trade receivables increased in lines with sales timing during the quarter.

Due to the holiday season at the start of the quarter sales were higher in the back half of the quarter resulting in a higher accounts receivable balance at quarter end.

DSOs in Q4 were up to 44 days versus 38 days in Q3.

There are no collection issues and DSOs are expected to normalize lower going forward.

Inventory increased slightly to 92.5 million in the current quarter from 89.1 million in the prior quarter.

This increase is mainly related to raw materials components purchases for new product launches and our projected sales growth.

Net capital assets increased to 210.2 million, up from 174.6 million in the prior quarter.

We currently expect CapEx to be between 30 to 40 million in each of Q1 and Q2.

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

Again a reminder that these forward-looking statements reflect managements 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.

On the December conference call we provided a revenue estimate for the May quarter in the range of 430 to 455 million.

We are maintaining this range.

We are expecting subscriber additions to grow substantially and are currently targeting additions for Q1 in the range of 560 to 590,000.

Given that we ended February with 2.51 million subscribers this means we expect to across the 3 million subscriber milestone in May, only six months after crossing the 2 million subscriber milestone last November.

For the second quarter of fiscal 2006 ending in August we are currently forecasting revenue to be higher than Q1 in the range of 460 to 485 million.

As in prior years we expect the summer holiday season to have an impact on corporate buying particularly as Europe is now a meaningful portion of the revenue mix.

We are substantially increasing guidance for Q1 gross margin from 51 to 54% to the range of 54 to 56%.

This range is slightly below Q4 actual gross margin of 56.8% as we expect software sales to normalize slightly in Q1 from the very high level in Q4 after the initial launch of BES 4.0.

We expect Q2 gross margin to be slightly higher than Q1 due to continuing favorable product mix in the range of 56 to 58%.

Beyond Q2 we are currently gross margins in the mid 50% range.

We are maintaining our previous guidance for Q1 for operating expense increase of approximately 13 to 15% from Q4 levels.

Again this is mainly due to higher seasonal expenditures for industry marketing events in the springtime.

In Q2 we expect to have an increase in total OpEx of approximately 5 to 7% as we continue to focus expenditures on branding and marketing initiatives in North America, Europe, and Asia to support new product launches, increased investment in BlackBerry operations to support the ramp in subscriber growth and headcount increases across most departments particularly research and development and carrier support.

We expect R&D to increase by approximately 15 to 20% in Q1 and by between 3 to 5% in Q2.

R&D is expected to continue to remain at approximately 7 to 8% of revenue in Q1 and Q2.

We continue to hire aggressively into many areas of R&D to support plans for new hardware and software products as well as BlackBerry connect and BlackBerry built -in.

We expect sales, marketing and admin. to increase by 11 to 13% in the first quarter and then a further 5 to 7% in Q2.

We are continuing our focus on new launches, ongoing carrier sales and marketing programs and on increased branding initiatives in developing markets.

We also continue to invest heavily in IT and administration as we expand our facilities and sales offices.

We expect sales, marketing and admin. to continue to be approximately 14% of revenue in Q1 and Q2.

We expect depreciation and amortization to be approximately 10 million in Q1 and Q2.

Total investment income in the first quarter is expected to be approximately 10 -- or 11 to 12 million.

People should factor the pending resolution payment into their investment income calculations going forward.

As I previously mentioned as a result of the write-off of the tax asset we now expect RIM to be fully taxable going forward.

Therefore we expect a tax provision of approximately 30% in Q1 and Q2 and in subsequent quarters in fiscal 2006.

Beyond fiscal 2006 we are forecasting the annual tax rate to be slightly lower in the range of 25 to 30% based on a number of factors including the global expansion and structure of our business.

Based on the guidance given before Q1 EPS is forecasted to be in the range of $0.51 to $0.56 per share.

For Q2 we are expecting EPS to be between $0.57 and $0.63 per share.

And I will now turn the call over to Jim.

Thank you very much, Dennis.

We just completed another strong quarter and another exceptional year.

Last year we more than doubled our subscriber base to over 2.5 million and more than doubled revenue to over 1.3 billion.

We added numerous carrier partners, brought to market a full new generation of handsets, launched BlackBerry connect and BlackBerry built in partners.

Launched new generation BES software and really accelerated the number of third party applications on MDS.

We continued to build our execution capability in Waterloo and around the world in all functional areas.

There is no question that we continue to be very encouraged by the ramp in our subscriber growth.

Net adds of 470,000 were well above our expected range and the target for the first quarter of 560,000 to 590,000 is outstanding.

North America continues to be the biggest base and the biggest contributor of net additions but all of our efforts in Europe and Asia are beginning to pay off.

Over 20% of our subscriber base is outside North America.

I expect that percentage to grow over this year.

The majority of our subscribers are still in large Enterprises and that market continues to be very strong.

Still low in penetration and with little competition.

The BIS solution and the retail market is beginning to grow and I believe that retail will be a large portion of our growth this year in all geographical markets.

We will have over 3 million subscribers in the next few months and our sights continue to be on racing to the 5 million and then the 10 million subscriber milestones.

Dennis just spent quite a bit of time going through the numbers and the accounting for the litigation resolution.

I would like to spend a little while going forward on the different parts of our business and what we're going to be focused on going forward.

I will now provide an update on carrier partners.

I can't imagine being in a better position with respect to the strength of our carrier partnership base.

The broad successes our carriers are having with BlackBerry and the work we are doing together to grow BlackBerry in the markets.

The Fast 100 program which was referenced on the last call is progressing well.

We've either launched or are close to launching 20 carriers since the beginning of the calendar year including Tweeg (ph) in France, TIM in Brazil, Turkcell and Avia in Turkey, Indostat in Indonesia, Maxis in Malaysia, SunCom in the U.S., Vodacom and MTN in South Africa and a number the others throughout Eastern Europe, Russia, and the Middle East.

The demand for BlackBerry around the world remains robust as reflected by the over 100 carriers in our sales funnel and we expect to have many more new launches in the coming months.

RIMs position in the enterprise market continues to strengthen and customer acceptance of BES 4.0 and BES for group wise has been exceptional.

Access to corporate applications and the availability of new applications through MDS continues to cement RIMs leadership in this market segment.

Retail market growth is also impressive and we believe that with our care partners and new relationships such as those with AOL and Yahoo! for instant messaging we will continue to drive retail adoption.

We are excited to be entering fiscal 2006 with such strong momentum.

For an update on the Americas, the North American carriers continue to drive the majority of BlackBerry sales and subscribers additions.

We are asked often who the strongest carriers are for BlackBerry in the U.S. and it really is impossible to answer as all carriers are executing extremely well and growing quickly.

GSM/GPRS carriers have been quick to leverage several new handsets, in particular the new 7100.

T-Mobile was the first out with the new handsets and developed a strong retail presence in addition to continuing to support the enterprise market.

Two successful BlackBerry partners, Cingular and AWS, completed their merger and we have worked very closely with them to maintain their combined momentum in BlackBerry sales.

Already very strong in the enterprise segment we are working on developing the Cingular retail channel and have high expectations for the upcoming year.

In Canada, Rogers has also launched the 7100 and 7290 and is well-positioned to continue growing this year.

Telcel in Mexico continues to ramp up and we see potential in the Latin American market.

The CDMA 1X carriers have come on very strong in the second half of the year and are well-positioned to grow significantly.

Verizon built a solid subscriber base with the 7750 handhed but with the launch of the 7250 handheld is taking it to another level and has seen strong growth recently.

With their high quality, ubiquitous network and strong enterprise presence we are very encouraged by their channel potential.

In Canada that mobility is experiencing a similar trend and for several weeks recently has had the largest subscriber additions of any carrier in Canada.

TELUS has recently launched a 7250 on their CDMA network and also the 7250 on their iDEN network.

Sprint has launched their BlackBerry service and our teams are engaged to bring them up the curve to the level of other nationwide networks.

Nextel continues to execute exceptionally will.

The transition to the new 7520 from the 7510 was managed very smoothly.

The teams are working very closely on targeted marketing programs and product promotions.

Nextel subscriber additions just keep on growing and new product features such as ATPS has excited the developer community.

As further carrier consolidation continues this year our teams are committed to end insuring that we provide all the help we can to maintain their BlackBerry momentum.

For an update on Europe, Middle East and Africa, BlackBerry continues to gain significant traction in the European market.

The most established markets for BlackBerry in Europe continue to be the U K. and Germany but other markets such as Spain, France, Italy, and the Netherlands are showing excellent progress.

Some specific highlights from the region include this past quarter O2 launched the new 7100x with enhanced BIS including the BlackBerry browser.

The new handset is available both through the O2 corporate channel and through all 250 of their retail stores.

In addition O2 also launched the BlackBerry 7290 in corporate SME and selected retail stores.

Orange U.K. is making excellent progress in market and last quarter undertook extensive advertising for BlackBerry with an on line campaign backed by dedicated telemarketing.

In addition an initiative to equip all direct field staff with BlackBerry was completed during quarter.

Orange France has also had an excellent quarter.

Orange's efforts in France were supported by national sales incentives for their salespeople as well as a country wide print advertising campaign.

In addition Orange France recently announced plans to offer the BlackBerry 7290, and 7230 into enterprise and retail channels and the Siemens SK65 with BlackBerry built in to enterprise sales channels.

Last quarter T-Mobile Germany and T-Mobile Austria introduced BlackBerry connect support for the MDA 2 and MDA 3 and other multi-media devices and also support the BlackBerry 7290, BlackBerry 7100t, and BlackBerry enterprise server software 4.0.

A number of T-Mobile affiliates including PTC in Poland, T-Mobile Hungary, and T-Mobile Czech Republic also launched BlackBerry during the quarter.

At the Siebets show in March T-Mobile Germany gave BlackBerry a high profile on their activities.

T-Mobile undertook a major direct mail campaign with a special pricing offer for the BlackBerry 7290 including one month's free BlackBerry service, entrance into Siebet and access to special Siebet information on the device.

At the show itself T-Mobile Germany had a large outside tent entirely devoted to BlackBerry and to support its customers who had taken up the direct mail offer.

Vodafone continues to perform well in the U.K. and other properties around the world.

During the quarter Vodafone Spain launched a TV advertising campaign for the BlackBerry 7100v..

Vodacom in South Africa announced BlackBerry availability in that country and Proximus a Vodafone affiliate in Belgium, Vodafone Netherlands, SFR, which is Vodafones French property, and VodaFone Germany all launched the 7290 handset and the BES 4.0 in their markets.

In addition Vodafone Spain is also conducting four to six BlackBerry events per month focused on beyond detail to promote the MDS capability of BES.

TIM in Italy has had a busy quarter with the launch of the 7290 in the enterprise channel as well as the 7100g.

Other new carriers underway Europe during the quarter included cable and wireless, Gurnsey, BASE in Belgium, and both Turkcell and Avia in Turkey.

We are extremely pleased to be making BlackBerry more broadly available in the Middle East.

In addition to our existing relationship with Vodafone Egypt plans recently announced with a RAS COM (ph) to bring BlackBerry to a number of areas in the region beginning initially in Egypt and Eagle Pakistan.

In South Africa BlackBerry is now available both through Vodacom and MTN.

The launches are going well and a number of successful pilots are underway.

These relationships will also provide further opportunities to expand BlackBerry into additional markets in the region. 7100g made its debut in Hong Kong this quarter with both CSL and 3 Hong Kongs, following the BlackBerry 7100g announcement CSL rolled out a mass scale advertising campaign to target business users and professional individuals.

The BlackBerry, 7100 billboard displays were set up in central business area in the city with full page advertisements in all major publications.

CSL is now offering free Reuters news for trial to all new BlackBerry users.

Also 3 has recently made available access to Dow Jones newswire services for BlackBerry.

The services are downloaded over the air and the user receives a unique icon for each individual new service.

BlackBerry users in Hong Kong can now get access to breaking market news and forecast from stocks, 4X. and bond markets in Asia and the U.S.

In addition CSL and 3 also launched BES server 4 .0 and the BlackBerry 7290 in Q4.

An additional benefit of BES 4.0 in Hong Kong is the ability to access Chinese language E-mail.

In Singapore Singtel and StarHub have launched the BlackBerry 7100g.

StarHub is supporting a launch with press events, road shows, and advertising.

In addition Siemens and RIM held a media and customer event to introduce Siemens 60K SK65 with BlackBerry built-in to Singapore and we anticipate carrier launches of the BlackBerry built-in Siemens SK65 in the near future.

In Malaysia Maxis is RIMs first partner to offer BlackBerry.

They are supporting both BlackBerry enterprise and Internet solutions.

Maxis is off to a great start with only a few months in the market they've already published customer testimonials in local Malaysian newspapers from corporations such as British American Tobacco, RHB Bank, and the Genting Group.

In Australia Optus has launched BIS and their corporate SME and retail channels all offer BIS on the BlackBerry 7100g, 7290 and BlackBerry 7730.

In Australia Telstra launched the BlackBerry 7250 on its GNMA network operated by Telstra Countrywide.

Telstra's CDMA network has twice the geographic coverage of any GSM network in Australia and covers more than 98% of the population or more than 1.6 million square kilometers cross both rural and metropolitan areas.

Making BlackBerry available on its CDMA network enables thousands more of Telstra's customers wherever they are based to keep connected to people and information.

In addition Telstra launched the 7100g on its GSM/GPRS network.

Vodafone Australia continued to actively market and promote the BlackBerry 7100v which was launched in Q3, Vodafone ran several promotion programs during the Christmas season making the BlackBerry 7100v and the BlackBerry 7230 two of the most wanted Christmas presents among professional consumers in Australia.

In addition, Siemens and RIM organized joint media and customer events throughout the month of February in Sydney and Melbourne to introduce Siemens SK65 with BlackBerry built-in to Australia.

In Indonesia, Indosat launched BlackBerry via RIMs partnership with StarHub.

Indosat is offering BlackBerry enterprise solution and BlackBerry Internet solution in all major cities in the country.

Following the October launch of BlackBerry BarT in India continues to invest heavily in making BlackBerry a success in it's market with continued mass and direct marketing efforts including television commercials.

BlackBerry is available through virtually all channels, multinationals, locals, conglomerates, as well as individual uses are taking advantage of the solution.

In India we are seeing strong trends for both our BES and BIS offerings and BarT is undertaking aggressive marketing and pricing to increase adoption in the Indian market.

For the BlackBerry Internet Service, or BIS in the retail channel, BlackBerry continues to excel in the retail channel.

In the past quarter the -- BIS launched with eight new carriers including Optus in Australia, BASE in Belgian, KPN in the Netherlands, Mobistar in Belgium, Vodafone in South Africa, Cable and Wireless Jamaica, Cable and Wireless Jamaica, Cable and Wireless Barbados and SunCom who is previously known as Triton.

We continue to enhance the functionality of BIS for the retail customer.

At CTIA. this March we announced agreements with both Yahoo! and AOL to deliver their instant messenger services on BlackBerry.

With the launch and full color mobile -- with the branded and full color mobile AOL, IM or ICQ instant messaging interface those users will have quick and easy access to their AOL buddy list feature or ICQ contact list to easily see which of their friends and family members are on line and available to chat.

They will also be available to send and receive instant messages over both AIM and ICQ networks.

Mobile IMs will be transmitted to and from the BlackBerry handheld notifying users of new messages quickly and seamlessly.

Similarly the Yahoo! messenger service on the BlackBerry platform will allow consumers to see which friends are on line, send and receive instant messages, have multiple conversations at once, participate in on line conferences and send and view emoticons.

Yahoo! messenger will leverage the BlackBerry Push technology to deliver a premiere instant messaging experience for BIS users.

In addition the BlackBerry Internet browser launched as a new feature of BIS with a number of carriers including O2 U.K., O2 Ireland, Verizon, Bell Mobility, Sprint, and EarthLink.

We expect this feature to be available through additional carriers in the coming months.

RIM has also recently launched its accessory web store, shopblackberry.com.

This site is dedicated to do improving availability of BlackBerry accessories including fashion holsters, batteries, and chargers.

This past quarter we launched the BlackBerry point-of-sale support program in France and expanded its availability in the U.S. market.

The program now supports nine major centers across North America.

North American supported stores reported an average 78% increase in BlackBerry sales.

In Europe stores supported by the program reported 150% more sales of BlackBerry than non supported stores.

Our training program for the retail channel is continuing.

In Q4 the North American program trained over 600 sales reps, created BlackBerry relationships with over 1500 retail personnel and supported over 1,100 carrier retail stores.

This past quarter we supported the recent availability BlackBerry for Max.

We also participated in the Mac world event.

There is an excellent demand for the PocketMac product and has received favorable reviews and sold over 20,000 seats since its launch.

For software and ISP alliance customer adoption of the BES 4.0 is going extremely well as IT managers are eager to experience the benefits of simplified deployment, enhanced handheld asset control, additional wireless security capabilities and enhanced wireless experience and simplified application development.

We are seeing acceleration in the number of applications deployed using MDS with over 60% of the BES now passing MDS traffic.

Development of the next-generation of MDS versus 4.1 is well underway.

MDS 4.1 which will be previewed at WES in April is a new component of the BlackBerry enterprise solution that applies cutting edge technology and standard space integration methods to mobilizing enterprise applications and back end systems including XML Web Services.

In addition we are well into development efforts on BES 4.1 which will offer advanced new features including improved administration, a common administration UI, roll based administration, group based user management and MDS 4.1.

BES 4.0 for Group Wise was also commercially launched this quarter and we are seeing remarkable growth with new customers particularly in Government, healthcare and educations verticals.

RIM also participated as the gold sponsor in Brain Share, the Novell user conference.

This event provided an excellent opportunity to highlight the recent availability of BES 4.0 for Group Wise and generated a significant number of leads and pilot opportunities.

This quarter RIM also participated in Lotusphere where BES 4.0 for Domino was launched.

We had excellent attendance at BES sessions and a significant number of leads were generated.

At 3GSM in February RIM and Converse announced the integration of visual voicemail with BlackBerry.

This solution will allow users to bypass dial-in access and voice prompts and will enable quick and hassle free access to any voicemail message with a simple click of the track wheel on a BlackBerry device.

The visual voicemail application will also integrate with core Blackberry applications enabling users to manage their voicemail together with E-Mail, messaging, and phone applications through a single end box.

Another interesting application deployed this quarter was a financial brokerage application for BlackBerry, launched by Bank Inter and Vodafone Spain.

The application which was supported by an extensive advertising campaign comes preloaded with a BlackBerry 7100v and Blackberry 7230 and offers among other things realtime purchase and sale of financial instruments in 20 domestic and international markets, quotes, quote, account information and news and alerts.

SAP for BlackBerry continues to gain momentum.

SAP CRM for BlackBerry is now available and is being supported by a number of carriers including O2 in Germany where it's supported on both BlackBerry handhelds and the BlackBerry enabled Siemens SK65.

In addition 3,000 customer facing salespeople at SAP North America are now running SAP CRM on their own personal BlackBerry's.

RIM continues to develop its instant messaging strategy meeting with both IT managers and solution vendors who offer realtime communications to the enterprise.

We have come to better understand the increasingly significant role that instant messaging and presence will play in enterprise communications.

As realtime data communication becomes more significant in the workplace an intelligent wireless extension of these applications along with useful presence information on BlackBerry devices will provide significant value for mobile professionals.

Our engineering teams have been leveraging our wireless expertise to create a unique experience for our customers.

Expect to hear more about this in the coming weeks.

As a follow up to the initiatives we announced with the location based services last quarter I would like to provide a brief update.

RIM now has 15 ISVs working with BlackBerry devices to provide both horizontal and vertical location based services to our customers.

We are excited about this focus and the additional usefulness and functionality will drive for our end users.

Discussions with carrier partners are ongoing to understand their location initiatives and to complement them.

There are currently three BlackBerry handhelds that ship with assisted GPS built in them.

We are looking at ways to better integrate location and map information into our devices to make the user experience more intuitive, smooth and natural.

For an update on the BlackBerry, connective BlackBerry built in programs these programs made excellent progress this quarter.

The Siemens SK65 with BlackBerry built-in is doing very well in market and is expected to be available on a pan European basis from Orange in addition to being available from O2 in Germany and BT in the U.K.

The SK65 also now shipping in Germany and supports the SAP CRM application for the enterprise market.

In addition today Siemens and 3 in Hong Kong announced that they would be delivering the SK55 to the Hong Kong market.

We're very pleased with the strategic direction Siemens has taken with BlackBerry built-in and look forward to telling you more about our work with Siemens in the future.

At CTI in March HTC and RIM announced that they were expanding their relationship to extend BlackBerry connect functionality to include a much broader range of ATC manufactured windows mobile devices.

We are looking forward to moving forward with this initiative and bringing these products to market in the coming months.

We continue to work closely with PalmSource and a 3GSM PalmSource demonstrated BlackBerry connect for the Trio 650 featuring enterprise E-mail, global address less look up, wireless reconciliation and BIS E-mail functionality on the Trio 650.

In addition development efforts with Symbian are progressing well and we are working closely with them and the Symbian licensees on a number of new handsets including the Nokia 9300 and 9500, Symbian series 80 devices as well as the Sony Ericsson P 910, a Symbian UIQ device which is expected to be available shortly by Singtel for the Singapore end market.

We look forward to further announcements of BlackBerry enabled Symbian handsets in the future.

The MDA 2 windows mobile based product from T-Mobile is doing very well and we are looking forward to further launches of BlackBerry enabled handsets by T-Mobile including the Siemens SK65, Sony Ericsson P910 and Nokia 6820 handsets. we expect to see additional BlackBerry connect and built in launches in coming quarters with activity expanding beyond Europe into the Asian and U.S. markets.

For an undate on the litigation as we announced in mid March an agreement was reached to resolve the ongoing patent litigation.

As a result of this resolution RIM and its partners and customers will be granted an unfettered right to continue its BlackBerry related wireless business without further interference from these patents.

We announced the signing of a binding term sheet and are currently working on finalizing a definitive agreement.

Dennis spent a lot of time discussing the accounting treatment of the 450 million.

We are restricting from commenting further on the matter due to confidentiality restrictions.

I think it's safe to say we are pleased to put this matter behind us and focus on the business of building BlackBerry.

In closing the fourth quarter was an excellent quarter and we are very pleased with what we have been able to achieve in the fiscal year of 2005.

We look forward to continuing the global expansion of BlackBerry, growing our penetration of the enterprise market, making further progress in the retail market and introducing exciting new third party applications and BlackBerry enabled handsets in the market.

Also we are pleased to once again host the upcoming fourth annual wireless enterprise symposium this April 19, to 21, in Orlando.

This event provides an opportunity for CIOs, carriers, ISVs and other industry players to get together and share ideas and learn about wireless technologies and strategies from industry leading experts.

This concludes our formal comments.

Due to the large number of people on the call we ask that you limit yourselves to one question per person.

We plan to end the call today by 6"30 p.m.

Would the operator please come on to handle questions..

Thank you. [OPERATOR INSTRUCTIONS] Your first question comes from Andrew Lee, from TD Newcrest.

Please go ahead with your question.

Jim, you mentioned that you are not seeing a lot of competition on the corporate end.

Can you give us a sense of what your corporate customers and carrier partners are saying with the existing solutions and pending announcements of future upgrades to other solutions, most notably the Microsoft Magneto buzz that's been going out in the market and whether that's been disruptive at all towards your increased penetrations into the corporate market?

Thanks.

Well, I haven't really been asked specifically by corporate on the Magneto thing because it's really it's really not an announced or launched product yet.

A lot of this rumor.

So it's pretty hard to comment on something that's not launched.

As I understand what Magneto is it's a Service Pack upgrade of MIS that works with Exchange 2003 and 2003 is in approximately, I guess, about 22% of their Exchange environments and it will require an upgrade of the Windows Mobile which is being embedded I think for Windows Mobile devices for 2006.

So there's a fair bit -- I don't know the specifics of the product and I don't know the timing exactly but I think it's going to be awhile.

My experience with the corporates and we are dealing a lot with CIOs and certainly a lot with the carriers it's very important when first when you deal with carriers the solution would have be to be OEM through the carriers.

They tend to be very interested in something that's pan application.

So if you got something that's Notes Exchange group wise prosumer that's very, very interesting.

And if you are hitting 20 to 25% of just Exchange which is 40% of just the enterprise it may or may not a key solution but it is not maybe a big part of the addressable market.

We strategically interface with Microsoft in a ton of ways both in their real time stuff and the ASIC and exchange stuff.

We work very closely with them on the BB connect.

With them and their partners.

We work with them on certainly the MSN and Hot Mail.

So there's a number of -- and also a lot on the Dot Net stuff.

So there's a lot of cooperation there.

I think when you talk to CIOs, I mean, do you look for this to be sort of a single app forward integration of an E-mail store or do you look for it to be a generic wireless middleware for a bunch of carriers, for a bunch of ops and a bunch of devices in a bunch of geographies.

So it's really, I guess I could put it in a nutshell and say do you look this to be a very specific forward integration function or do you look for it to be fairly generalized and fairly buffered from other apps.

And the feedback I'm getting resoundingly -- well, actually overwhelmingly resoundingly from CIOs is they look for it to be pretty generalized and that means CDMA, Mobiteks, iDEN, DSM, bunch of carriers and a bunch of countries, Wi-Fi, and a whole bunch of ops, CRM, ARP, BI, IM, real time, A-Synch, and plus we tend to be sort of installed and paid for and highly manageable.

The big pressure we are getting to be is much more manageable.

So if you notice when I talk about the 4.1 BES stuff it's much more about globalization of administration and roll based administration really to be a corporate utility on a global basis.

So I mean I know the media has had lots of fun with this one but -- and we partner with Microsoft in a ton of ways, it's hard to talk about an unannounced product.

If I may, if you could just then talk about their model of not charging the carrier any monthly service fee for what they provide and would that have any impact on your business model?

We are very small percentage of the income first of all.

Many of the carriers are reporting ARPU well in excess of $100 on BlackBerry.

There's not a huge correlation between the cost of BlackBerry and what they sell it for.

They don't sort of, they don't price it off of cost and so, in fact there's just about no correlation really.

That's kind of a weird comment that people are connecting in there.

In a sense the carrier prices what they can and they are able to price this thing extraordinarily profitably.

Whether they take 2 or $3 out of some access fee, you still have security issues, you have issues of customer care and how are they going to pay for customer care.

So are they going to save a couple bucks a month?

Will they prepare to particularize this for one app, for one vendor?

Will it work for all the different devices that they are generically doing?

I don't know.

This is an '06, '07 kind of trial launch implementation thing.

Our business is very much -- sure there's some good exchange stuff but a lot of notes and group wise, Prosumer, the application extension is huge, I mean over 60% of the BES' are using MDS.

So I mean whether they can save a couple of bucks -- most of these carriers are well north of $100 ARPU on this stuff.

What does that have to do with our relay fee and we do a lot of work for that.

I just think for people to comment I would encourage seriously thinking through the dynamics of the CIO and the dynamics of the carrier and also I mean Microsoft is a wonderful company and we work with them in really six strategic areas, whether they want to forward integrate a little wireless middleware as a Service Pack, is that disruptive?

Is that important?

I don't know.

But I guess it makes for good print media if somebody has got a sensationalized approach.

Thank you.

Your next question comes from Tim Long, from Bank of America Securities.

Please go ahead with your question.

Jeff Walkinghorse for Tim Long.

Thanks for taking my question.

I'm wondering if you might be able to talk on a high level about the impact to both revenue, whether it's ASP and ARPU as well as the cost out of your business as you scale a number of users to your 5 million target and then as you hit 10 million?

Thanks.

Sure, it's Dennis.

We've said in the past we think there's a lot of leverage in our business.

Certainly what we've seen over the last year and a bit on handsets, we've been able to introduce new handsets at lower ASPs and still maintain very strong margins.

So we've tried to pass along a lot of the cost savings to the market to be able to generate sales.

With respect to the service we see the same type of dynamic.

We've had a lot of leverage as we've taken the number up from less than 1 million to over 2.5 now.

We certainly think there's a lot more leverage to go.

There are a lot of incremental expenses you have when you are growing to the scale we are and building out redundancy and disaster recovery planning and a global network.

But there's no doubt that we get to 5, 10 million subscribers, I think the model continues to work very well.

Your next question comes from Pat Chiefalo from Merrill Lynch.

Please go ahead with your question.

Can you guys sort of expand a little bit on what you mentioned about the inventory reduction in the carriers?

Was it something that was industry-wide?

Talk about maybe the reasons behind it and how long do you think this will last in terms of them maybe rationing back their inventory levels.

It's Dennis.

It's a pretty general comment and it was based on feedback that we get from the folks that interface direct with the carriers with us.

I believe as I said it's across all handsets not just BlackBerry.

We have said in past quarters that we think inventory levels are at very reasonable amounts in terms of weeks.

For example if they are at six to eight weeks on average before and the carriers want to bring down those levels maybe they bring them down a week or bring them down two weeks over a couple of quarters it just impacts the number of selling of handsets.

I think that of course there is a point that is too low and when you have a product that's growing very, very quickly.

I think people have to be careful not to go too low on that and risk stock-up situations et cetera.

But we're building a lot of flexibility in our manufacturing capability and doing our best to support them.

So I mean I think it's fairly short term thing.

And If you take a look at the sub adds and how fast that's growing I certainly think that there's a really strong handset opportunity as we get through that into the second half of the year.

Right.

There was a little question on the solid ramp of the sub adds.

I think we were a little bit -- expecting a little bit more on the hardware shipments.

Was more most of that sort of delta driven by this inventory correction or was there anything else going on?

I mean you can see by the GAAP between hardware shipments and net apps being way down around 240,000 down from over 313.

I mean that's at a time when we still have a lot of new carriers launching and taking their initial amounts.

So I think it's directly tied to primarily some of the U.S. carriers adjusting their inventory levels.

Okay.

Thank you.

Your next question comes from Rob Sanderson from American Technology Research.

Please go ahead with your question.

Thanks, good afternoon.

A question on international.

It looks like about 120,000 activations if I'm doing my math right.

Can you -- well, first, can you give us a sense of how many activations may be in Q3 just so we can get a handle on what the international ramp looks like?

And I'm assuming that international skews a little bit more heavily to BIS over BES, first, is that appropriate?

And then what are the thoughts on service pricing trends as we get a mix shifting towards BIS?

Rob, it's Dennis, did you ask what Q3 foreign sales were?

Q4 looks like doing the math looks like about 120,000 adds in international.

I mean I didn't disclose the break out you're starting to be able to do the math based on our overall percentages, et cetera.

It would have been a little less than that probably around 100K mark or so, so it's ramping pretty nicely and as a percentage of our overall sub adds it's just north of 25%.

That's up quite a bit from a few quarters ago.

As for the BIS versus BES thing I don't have a concrete number in front of me and don't want to speculate.

I think the difference in Europe is that BIS and BES launched pretty much at the same time versus North America BES had in the enterprise business had quite a long head start before retail came along.

I think that in a lot of the markets like UK and Germany and really all of the markets that the enterprise solution is being very heavily pushed I just think BIS and the Prosumer retail solution has come out at the exact same time.

On a long-term basis I don't see a real reason for a big difference in mix between BIS and BES in North America or Europe or Asia for that matter, just based on the timing of when they launched.

Obviously we have lower ARPU on the BIS solution.

So if BIS becomes a much bigger percentage you are going to see blended ARPU come down just because of the mix.

Can I ask then, what if -- can you comment on the pricing in BES, just what are the pricing trends and maybe what the outlook in just the BES business are?

If you are just asking what our ARPU trends are on a per month basis we've said for the last four years or so that people should have a seven to ten range in mind when they are modeling and in our established markets we are down near the lower end of that range and in the new markets we're typically up at the typically high-end of the range and we are not seeing any big change from that.

Pretty stable is what you are saying?

Yes.

Okay.

Thanks, guys, hey, congrats on a great year.

Your next question comes from Deepak Chopra from National Bank Financial.

Please go ahead with your question.

I was wondering if you can talk a little bit about corporate penetration and are you seeing greater penetration at the corporate level or is it all -- and also characterize that with the number of companies launching the service and what the penetration rates are off the bat with a lot of these new companies?

It's a good question and I think it really varies depending on how much they've really embraced the business process of re-engineering of having packets to your belt.

Most people in the financial world get what that means for their business, certainly for messaging and for PM and talking and as corporates go beyond that I think it varies a lot.

We have got some exciting European accounts where they are literally going 500 to 1,000 right off the bat and completely transforming their business.

I think we're getting -- made a lot of accounts just going with a trial BES for five.

And they could be the same size a company.

I think what's so exciting to us is the BES 4.0 takes the TCO of administration way down which created sort of an artificial resistance by the IT department of sort of the amount of work that growing BES did to them for managing their business.

As well you throw in the Wi-Fi play which is really meeting with high interest for BES penetration and the application extension as well as the really superlative execution strategies by the carriers, I see deeper and deeper and deeper penetration being inevitable.

In a sense if you are a working person with a cell phone and you are some kind of knowledge worker whatsoever it's just a lay up that you want your data on your device.

And so it's just how does this sort of process strategies evolve with companies and how do they push more applications and push more administrations and evolve their policy.

But all the trends are in the right direct.

The longer we've been with an account the deeper the penetration.

But I think the penetration potential in the accounts we are in, I think our penetration levels are a small percentage of what's there.

So -- but it's all over the map.

That's a big ongoing job for us to drive penetration.

Maybe if I could just slip one more question in.

Could you talk about maybe, Dennis, about enacting, did you see a lot of users this quarter or are you forecasting that in the coming quarters?

Deepak, I missed what you said.

Just on a connect whether you saw sub adds in this quarter and do you forecast it in the coming quarters on the connect side.

I would say, yes, we definitely saw subs in the thousands in this quarter.

I'm still not prepared to disclose the number.

We got a lot of launches from a number of carriers as Jim talked about.

I think it's going to grow over the course of this year at a steady rate with a lot of stuff coming on.

I think that, I think it's going to be a good opportunity over the course of this year.

The one thing that sort of never got picked up by the world, I don't think they quite understand is ATC probably represents about 80% of Windows Mobile sales.

They are the overwhelming Windows Mobile player.

We've really worked hard on a partnership at all sort of levels of the Company and that launching to support virtually all their products which is the Series 2 and we've created an architecture that we will be able to to have made the ATC products certified for all our carriers around the world.

So we took out the carrier specific asset of certification and gave a generic certification and the carrier specific stuff wasn't in the on board ROM.

So we modified it that way.

Well, they are thrilled because we have well over 100 carriers connected on the knock.

And there's 100 in the pipeline.

Well, that whole addressable market is there for them.

So we expect them to be, we expect them to be shipping to two-thirds of those.

And because there's a lot of pent up Windows Mobile interest.

The Symbian stuff with the Series 80, the 9300 the P910, a lot of demand.

The SK65, I know the number of carriers trialing and it's about half the carriers connected to our system are trialing SK65.

So, or I have launched them.

So, you know, we see the pipeline going on in this.

So obviously Dennis has to model carefully.

But it's been such heavy lifting and such heavy pushing and such work to engage the partnerships and that's, you know, I tried to give some color in it but it's, I think when you see the trials going on, you see the launch strategies, you see the POs that these guys are getting from the carriers and you see we have generic certification global and when we meet with the carriers planning this stuff and they are all planning BB Connect out of the gate maybe half to two-thirds of those partnerships, I see something, I see very, I see a very special dynamic happening now both when you combine apps with BB Connects with certified products and new carrier launches and a stronger sort of architecture with MDS and 4.0.

I think we are all ready to be surprised.

Thank you.

Your next question comes from Gus Papageorgiou from Scotia Capital Markets.

Please go ahead with your question.

Thank you.

Hey, Dennis, just on the software revenue can you just help me out here and think about what's driving this revenue.

You had about 6,000 installations of the BES this quarter which was pretty flat to the past two quarters but the software revenue really grew so can just break down for me what exactly is driving software revenue?

Sure, Gus, no problem.

The biggest was the upgrade to BES 4.0.

And we had talked about it in the fall and ahead of the launch and I think the success of the launch and how quickly a lot of our corporate customers snapped it up was a big surprise to a lot of folks here.

And there was an upgrade charge to go to BES 4.0 for a lot of folks as well we've seen a big impact, big increase on a number of people signing up for T support for BES.

And we also, I mean people forget it but we get paid a per seat license, up front license fee as well, a client access license and when the number of subscribers is growing so quickly that's starting to be a real factor as well.

So you are seeing those, CAL, the CAL revenue add on to the BES revenue, add on to more T support, in addition to all the new companies we are signing up.

And we had a bit of a perfect storm in software this quarter.

And I don't know if you read these but how many of the install BES' have upgraded to 4.0?

To be honest I don't know the exact percentage.

It may be something that gets discussed at WES, I just offhand don't know the number.

Your next question comes from Brantley Thompson from Goldman Sachs.

I was wondering if you could give a little bit more color on how you expect the BlackBerry Connects and BlackBerry built-in market to develop and specifically talk about how this might impact prices of your own devices as well as how do you inhibit this from actually cannibalizing some of your own device sales, as -- how do you prevent companies from standardizing standard Motorola device that has BlackBerry built in it, these types of things?

How do you see that landscape really developing for the business?

Thanks.

I think it's indeterminate, really.

What we've seen is that device, carriers want device diversity and corporates wants device diversity and I think we've seen a strong migration to our enterprise application platform because of it sort of DMZ role, if you know what I mean, that Switzerland -- that generalized middleware that it gives.

There's been a lot of standardize on it by corporates and carriers, too, who like it because it hits all the segments and we virtualize the execution gaps.

But there's no way that either one of those constituencies want a proprietary lock -in in any way, shape, or form nor was anything by design for us or intention.

So we have to earn our hardware business honestly every single day and we expect that to be the case.

We never thought any different.

But, yes, I mean we are not seeing a huge down pressure on ASPs for sort of higher end devices.

You're probably seeing a bit of bifurcation really going on.

When you see the prices of the 9300s and the 9500s and the Trio by Nokia and the 6800 pricing and the 650 pricing and by Trio and P910 pricing and razor pricing by Moto those are not inexpensive products.

So will it cannibalize our stuff?

Will it create contention?

Sure.

Will people just -- but I think there will be a lot of diversity in the hardware, more than anything and it will segment, the devices segment a lot.

But it also strengthens the application environment but that's the nature of the beast.

There's tons of competition out there in hardware..

It is with our without our application enabling but goodness gracious if we compromise our application environment by making only our device we loosen all the benefits to our community of CIOs and carriers and application partners and now the device partners --- the device companies have been really, really in demand.

We share all kinds of end market plans.

So it's indeterminate.

It will be what it will be.

It's a big market.

It's a big market and it's a big enabling and we are just at such low penetration rate and it's kind of the future of this whole industry is data enablement and advanced services.

I mean, everywhere you go it's Edge and EVDO and UMTS and Advanced Services and multi-media and this and that.

So you are going to need sophisticated devices and sophisticated middlewares and sophisticated applications to turn in these advanced services.

I think -- you are sort of indicating dynamics of more mature markets and this is a shockingly emerging market.

How would you expect that mix between connect and built-in to develop?

Oh, well, I think the connect percentage is going to grow rapidly.

Now, will it be at the expense of a hardware sale or will it be at the dramatic acceleration of BES BlackBerry subscribers?

I would bet more of the latter.

And plus even if we get some push on our hardware sales there's lots of opportunity you can model in for Wi-Fi, which is single mode.

We are putting so many contingent events on it at the end of the day we enable a lot of key stakeholders certainly the CIO and the carrier and the user, we have got a bunch of key ecosystem partners mainly in applications and hardware guides, there's an incredibly off the chart ROI for the end user and incredibly profitable ARPU churn construct for the carrier and we have very low penetration rates and this is what they are all betting their future on.

So I like the structural aspects of the industry.

Can I scenarioize it perfectly?

No because it's indeterminate.

But if you do some core enabling in a very special way that's highly profitable and highly beneficial and you partner well and thoughtfully you get pulled along with the whole current and it's exact manifestation in a very, very specific way and somebody is giving false certainty if they try and characterize it specifically for you.

But it's going to lead to a lot more subs.

We are going to keep selling hardware because we're emerging in the market and these guys are going to keep selling their high SP -- ISP devices and everyone is going to have to earn their business every day because it's the CIO that approves this stuff and it's the carrier that flows it through.

So there's your two approval points no matter who says what in this business.

The two stakeholders we pay the most attention to are those.

When would you expect to see a more significant ramp of subscribers on this service?

Like could you walk us through how you expect this to develop?

You said you got a couple thousand now with primarily Siemens products.

No.

It's a lot more than that.

Dennis said thousands but I've got -- it's a lot more than that.

It's a five figure number and that's totally popped lately.

So I mean it's totally popping and quite frankly, it's been, a lot of them, I would say the Nokia 6800 has been really good in Europe.

The Windows Mobile has literally doubled sales we've been told by carriers in places in Europe once it's BB Connect.

Those have done very really well, the SK65 is starting to surge big time.

The P910 we had to finish some development stuff with it so it's ready to really go and we are pretty antsy to get it out there.

Obviously you are going to see a lot of Symbian push with the 9500, 9300 Nokia stuff coming and the Series 80.

I think you should -- you know, dynamic-wise I think people have got to understand it's a lot of work for the device company to get it all certified and get it right and get it feature filled and then the carrier runs it through huge paces because they won't put anything on their network that they are not 100% confident with because they are left holding the bag for customer care and reputation.

It's some heavy lifting in this game, it's not just a standard established voice op any more.

We've put literally very substantial teams trying to get it all going and we are absolutely seeing it and are experiencing it surge right now and it's a core aspect of all of our Fast 100 launches, all of our carrier launches, all of our existing carriers are embracing it.

There's barely one that isn't.

But it's a broad array of stages of products and readiness and certification and push.

Some of them like you see the T-Mobile, the MDA was such a proven product for them, two and three and BB Connect and built-in moved in so well because Microsoft is so API interface oriented for third party and HTC was such a concentration point and so committed to it, everything really rocked nicely there.

But you go to some of the products maybe it's a little harder.

It's not easy to generalize.

And plus each carrier gets some special customization, some special exclusivity, or some special interest, or some special corporate that orients them to some certain device or environment.

And it's hard to generalize because it's kind of all over the place.

I mean there's a little bit of generalization.

You tend to see a little more Microsoft and Palm in North America, you tend to see more Symbian and Siemens with a bit of Microsoft in Europe.

Asia is a bit of everything.

But it's all over the place.

Thanks very much.

Next question, Michael Abramsky from RBC Capital Markets.

Yes, I was just wondering, Jim or Dennis, regarding back on the inventory reduction issue again what is the possible impact or might you speculate on that inventory reduction based on the increase of possible competitive product?

We are seeing more Trio 615 the channel, there's other QWERTY handsets using Visto 7 for E-mail?

And also You've had a boost from your Bluetooth products, 7100 to your largest carrier, so how much is that effecting -- do you see that effecting inventory reduction?

And Dennis, I didn't really hear you when you talked about when you saw that stabilizing?

Mike, it's Dennis, let me address the numbers first and Jim can talk about it.

I think that that thesis breaks down when you look at our subscriber adds.

If there was something like a competitive impact and you would see that reflected in our subscriber adds as well as handsets and that's clearly not the case.

I mean I think you can see from the our projections for Q1 that we are seeing those subscribers dramatically increase.

So we are very clearly seeing it directly tied to just an internal inventory management effort by them to have control over those levels.

And I'll say, I mean, there's a bit of a paradox in the industry and you and I have talked about this, Michael, that quite frankly, you know, the carriers are seeing this emerging wireless data with really high profitability on it because that's what it is.

And we see it in the profitability constructs of our products which the carriers are loving it.

And it shows in their financial results.

But, there's a bit part of the carrier that sees voice as commodity and so they run their business on tremendously, tremendously tight operational metrics.

So in a sense there's a bit of a paradox going on in how carriers plan and operate their business and we have some convincing always to do with them, and say hey, don't throw this into the same category of all the rest of the stuff.

And I would also say very clearly with other carrier partners, while our product sells through I think when you talk about competitive handsets, a couple carriers that I spend a particular amount of time with got burned on other handsets where they had to hold a bunch of inventory had to right it down so the decree came on high that they are supposed to be more conservative.

So actually we are sort of being tarred by a broad brush and in fact the purchase levels I think there is going to be some scrambling.

At the end of the day these guys have to account to their CFOs and all that.

So I think there's some very, very -- they got burned on and you've seen some of these dynamics in the press where companies have had to discount and move pricing around and try and below out other products.

So we are not seeing it as sort of reserving space for an opportunity but rather being tarred by a broader brush.

Number one, and two, kind of mismatches in Company operational metrics between the commodity voice business and the rapidly profitable emerging data business.

So what happens is as Dennis said it's a bit of a timing thing the quarter end in March, it's going to reverse itself out.

The thing that we watch, yes, we got to watch hardware and we got other stuff, the thing that I really, really watch is carrier programs and carrier activation rates.

If those are going great everything else flows fine.

And that stuff we've been pretty clear on on this call.

We have very direct conversations because we see the forecast and loading and say like are you sure on these POs and are you sure on this planning because you're going to stock out and we are going to plan to buffer some but we can't respond with two weeks notice to some major thing.

And, but it's, it's an ongoing thing but we've got to have low latency in our business, high integration in planning and fundamentally with different carriers you earn more trust and partnership over time.

It's very, very rare that they have anything but a superlative experience and a very profitable experience moving through our stuff.

So we take that partnership very seriously and we work hard to earn their trust every day and their failure we would view as our failure.

But sometimes you get caught in mismatches and I think that's it.

I don't think it's the optimal thing for them to do.

But nonetheless it's just a short term thing and we will see ourselves through.

Your next question comes from Paul Coster from JP Morgan.

Please go ahead with your question.

I have a couple of quick questions.

On the BlackBerry connect side if we can go back to that for a second it sounds like you are round about somewhere under 5% of your subscriber base at BlackBerry Connect at the moment.

Have there been any impediments to the adoption of BlackBerry Connect not just by the enterprise but by the handset vendors themselves in this concept some thinking of sort of navigation compatibility, security, and I have one follow-up question.

Well, you know, I mean, yes, there has been reliability testing issues on certain devices because we are exercising the fullest aspect of the resources on the devices and the implementation of the (INAUDIBLE) stuff.

Sometimes you'll surface latent issues when you exercise a device to its fullest. so security we got a nail.

But really reliability and testing stuff, that tends to be a big aspect, you have got to remember every handset guy sells virtually all their products to the carriers and the carriers spec the deliverable when they issue the POs.

So they are specing it.

The navigability, sometimes with built-in they inherit the BlackBerry navigation and that's been real successful with the SK65.

A lot of others are real, sort of OS oriented ones, Palm with the Trio and PalmSource, Symbian with the Sony Ericsson and the Nokia and all the Windows Mobile stuff.

I mean you are much more buying into the whole client R&D, client OS, sort of third party OS R&D strategy and we are just a transport and it's expected that them as developers factor in all the navigability aspects.

But people tend to do decide that gee, I want that touch interface or I want that Windows or I love that Palm apps, or I love the Symbian thing all that stuff.

It gets into religious wars, you know, my OS is better your OS, my Gooey's better than you Gooey.

I am just not really interested in that stuff so we stay out of it.

Right.

We enable it as a stack or enable it as a VMF suite and the customers can pick and the carriers spec what they want and the customers buy what they want.

We just make sure that it takes them to all the back end application services they want and we virtualize the execution gaps and the lies the application gaps and the market prevails.

And that's why I sort of said, you know, in the earlier question, is this going to cannibalize our markets?

We really see this as a lot of fragmentation and segmenting on the client but you need to unify on your back end application architectures or the whole thing breaks down.

Right.

The follow-up question is that we've seen a number of RFPs out from some of the tier one carriers both in North America and Europe for private label solutions and also some investment on the part of a couple of those tier ones to have their own direct sales force selling their own private label solution.

How do we?

It doesn't seem like it's completely incompatible with RIM so what's going on there, Jim, and how do we understand that dynamic for the next few quarters?

Well, I mean the private label stuff is, it tends to be in my experience, tends to be something that they are looking for to be a very minimalist browser based, low cost service to put on a low end phone.

That's kind of where the private white label stuff has gone and it tends to be kind of an SME SOHO thing because IT guys got a real architecture they go into and then it goes from there.

It tends to be a SOHO kind of individual thing or a consumer thing, it tends to be browser very limited E-mail thing and they segment it down to different addressable market and that's where we are seeing that play out.

It doesn't really come into our market.

Now it's a very good question.

Will people take -- will people take a strip down thing because they can save a little or do they want to pay a little bit more and we are not a big part of the cost structure or will they pay a little more and get it, the more stuff.

When we launched BlackBerry everyone told us 90% of the sales plan 90% of the sales black and white and 10% color because it's all about cost and black and white was so much cheaper than color.

From day one of sales 90% were color.

So there are certain things where people will compromise and certain things where people won't compromise and it's a good question.

It hasn't bumped into us.

It's been much more consumer retail low cost browser based mass type things, very low dollars but very iffy adoption and I don't think it's really torqued the profitability and structural aspects and quite frankly, we've seen the carriers evolve more and more to more sophisticated IM and more sophisticated LBS and portal services and corporate work flow and all this kind of stuff so, you know, I'm not sure if it's penny wise, pound foolish, whether or not it's penny wise, pound foolish to just buy something lightened up to the point where -- I mean it's only -- it's not that much money, right?

I mean people spend a lot of money on a lot of things including their cellular bill and we are not that big a part of the equation.

Is it really where they want to strip it out?

Do you really address that much market and does it bring that much success?

I don't know but I mean I just, it will be what it will be but they all are doing different RFPs but it's much more consumer browser based stuff and I'm just not seeing a whole lot personally but who knows.

Okay.

Thank you.

Operator, given that it has been a long call and we are bumping up against 6:30 I think we are going to end the Q&A period there.

And we will be speaking to just about everyone and Webcasting our analyst day on April 18.

It will be just ahead of the WES conference so you can save a few questions for that.

I would like to remind everyone there's a post view service available at (416)640-1917.

Reservation number is 21041227 pound or you can also listen to the call which has been recorded and is available on our website at the RIM.com investors site.

So thanks very much and we will see you at WES.

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

Thank you for participating.

Please disconnects your lines.