BlackBerry Ltd (BB) 2008 Q3 法說會逐字稿

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

Welcome to the Research in Motion third quarter fiscal 2008 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.

(OPERATOR INSTRUCTIONS) I would like to remind everyone that this conference is being recorded today, Thursday, December 20, 2007 at 5:00 pm Eastern time.

I would now like to turn the conference over to Adele Ebbs, Vice President, Investor Relations.

Please go ahead.

Thank you.

Welcome to RIM's fiscal 2008 third quarter results conference call.

I'm Adele Ebbs, RIM's Vice President of Investor Relations.

With me on the call today is Jim Balsillie, RIM's co-CEO, and Brian Bidulka, RIM's Chief Accounting Officer.

After I read the required forward-looking statements disclaimer, Jim will provide his business and strategic update.

Brian will then review third quarter results and I will discuss our outlook for the fourth quarter of fiscal 2008.

We will then open 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 plan to wrap up the call by 600 p.m.

eastern this evening.

Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, and applicable Canadian securities law.

These includes statement about our expectations and estimates with respect to revenue, gross margin, operating expenses, CapEx, depreciation and amortization, investment income, earnings, earnings per share and ASPs for Q4 and beyond, our expectations regarding RIM's near and long-term tax rates, our estimates of the number of BlackBerry subscriber accounts, subscriber account additions, replacement device sales and other non-financial estimates, our product development initiatives and timing, developments relating to our carrier partners, new and expanding markets for our products and other statements regarding our plans and objectives.

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

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

Many factors could cause our actual results, performance, or achievement to be materially different than those expressed or implied by our forward-looking statements, including risks relating to the restatement of our previously filed financial statement as a result of our internal review of historical stock option granting practices and regulatory investigations or litigation relating to those matters, risks relating to intellectual property, the efficient and uninterrupted operation of RIM's network operation center, restrictions on import and/or use of RIM's products in some countries due to the encryption of our product, the occurrence or perception of a breach of RIM's security measures, our reliance on suppliers and third party manufacturers, general economic conditions, our ability to enhance our current products and develop and bring to market new products and services, our reliance on carrier partners, risks related to competition, risks relating to possible product defects and product liability, our ability to effectively manage our growth, risk associated with our expanding foreign operations, foreign exchange risks and other factors set forth in the forward-looking statements section of today's news release and the risk factors in MDNA sections in 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 except as required by law.

I will now turn the call over to Jim.

Thank you, Adele.

We are pleased to report a solid third quarter with revenue growing 100% over the same quarter last year, and earnings more than doubling year-over-year.

We continue to see strong growth in the enterprise segment and are making in roads into new markets as well.

This performance is a testament to the hard work of our employees and partners and we look forward to continuing our strong record of growth in coming quarters.

Demand for BlackBerry products and services in Q3 was strong with approximately 1.65 million BlackBerry net subscriber account additions, which was in line with our September forecast and was 14% higher than the approximately 1.45 million subscriber accounts added in Q2.

New products such as the BlackBerry Pearl 8130 for CDMA and heavy promotion by our carrier partners heading into the holiday season drove strength, especially in the latter part of the quarter.

We saw our recent efforts in channel expansion retail programs and carrier support bear fruit with Black Friday being our strongest date ever in terms of net subscriber account additions.

The success of these programs is further evidenced by the notable increase in weekend net subscriber account additions we have seen since Black Friday.

This is in contrast to prior years where we had traditionally seen a slowdown on Black Friday and the weekends following.

While there was also strong growth in the enterprise business in Q3, it is clear from the results in this quarter that BlackBerry smart phones have crossed over from being viewed as a primarily enterprise product to be marketed as a strong main stream offering by our partners.

At the end of Q3 approximately 34% of our subscriber base was non-enterprise.

In North America, we saw continued commitment and support for the BlackBerry solution from our partners.

BlackBerry products were included in numerous AT&T back-to-school promotions in September and were heavily promoted and advertised by our partners leading up to and as part of their Thanksgiving holiday promotions.

In particular, we saw strength at T-Mobile, with their launch of a WiFi enabled 8320 combined with their Hot Spot at Home offering and the new $9.99 BIS e-mail pricing plan.

Our CDMA partners had an excellent quarter with continued success with the 8830 World phone and the launch of the next generation BlackBerry Pearl 8130 for CDMA.

At Verizon Wireless, in addition to a dedicated BlackBerry Pearl national print and online advertising campaign, Pearl was one of four devices featured in Verizon's next-phones-now fall lineup campaign which was supported by print and online advertising as well as in-store merchandising.

In conjunction with the launch of the BlackBerry Pearl, Verizon Wireless introduced a $29.99 monthly BlackBerry service plan.

This plan which offers customers unlimited access to BIS e-mail and unlimited browser use has shown excellent results since launch.

At Sprint there was continued success with the BlackBerry 8830 world addition across all channels driven by ongoing promotion and support.

In late November, Sprint launched the BlackBerry Pearl 8130 and supported the launch with over 1,500 in store training events and channel facing launch events in cities across the country.

For the first time ever, Sprint owned retail stores merchandised around the BlackBerry Pearl 8130 allowing floor stands, counter stands, window clings and other promotional elements into their store.

Sprint also introduced a new pricing plan which includes unlimited BIS e-mail, unlimited browsing, unlimited instant messaging, as well as other attractive features for only $30.00 per month.

In Canada, the CDMA carriers also stepped up their marketing efforts for both the 8830 World phone and Pearl.

Telus has focused on data and made BlackBerry Pearl one of their holiday hero products for 2007 with Pearl being featured in most of their TV ads, radio, print, online and outdoor advertising for the holiday season.

They have further supported these efforts by offering a $15.00 a month BlackBerry BIS pricing plan.

At Bell, the CDMA Pearl was launched into all channels and for the first time ever BlackBerry smart phones were featured in Bell's consumer ad campaign along with their other top consumer devices.

This launch combined with the continued strong momentum of the 8830 led Bell to reach their highest level of BlackBerry service activation ever.

Bell supplements these programs also by offering a $15.00 unlimited e-mail and instant messaging plan.

These efforts have resulted in extremely strong market share performance by these carriers in the quarter.

Channel development continues to be a primary area of focus for RIM with all four major U.S.

carriers launching BlackBerry smart phones in Q3.

There's a great deal of energy put into ensuring product was on the shelves of our thousands of retail locations across the United States.

The T-Mobile master dealer specifically put a strong effort into ensuring both Curve and Pearl were at the forefront for both Black Friday and throughout the holiday season.

Partner advertising for the Thanksgiving holiday exceeded our expectations in both online and print ads reaching millions of households heading into the busy retail season.

Continued focus on national retailers and training programs for an expansive network of in-store staff in Best Buy, Sam's Club, Costco, Radio Shack and others has resulted in strong performance improvements in these channels.

For example, Sam's Club committed to making the BlackBerry Pearl a holiday feature product and so far has seen 400% increase in weekly BlackBerry sell-through.

While North America was a big driver this quarter with the holiday selling season starting in November, we are also seeing good growth outside North America, particularly in Latin America and Southern Europe.

Over 33% of our subscriber base is now outside of North America.

In Europe, Carphone Warehouse continues to build on the success of their launch of BlackBerry products and is now expanding their offering to include the Pearl 8120 in a Sunset Red finish, and the Curve 8310 with their proprietary navigator service supported by TeleNav being preloaded.

Heading into new year we expect to see even more contribution from this channel.

Throughout Europe, we're seeing strong adoption and brand recognition of our products, particularly in central and southern regions.

Carrier partner contributions have been significant with Mobile Com in Austria placing ads for the Curve 8310 with GPS Navigation on city busses, bus stops and street lights.

Vodafone coupled numerous device launches with aggressive advertising campaigns online, at airports and in print and TV media.

In Spain we saw Telefonica launch a new lower BIS pricing plan which they supported with an aggressive advertising program, and Vodafone Spain launched the 8310 with a hero advertising campaign in airports and through print and outdoor ads.

Additionally, we have been working with carriers on less traditional marketing efforts by hosting events at clubs or arranging networking business gatherings to further grow our BES and BIS followings in Europe.

One example of this is a series of master class events we held in Spain where over 1,500 BlackBerry users attended workshops dedicated to teaching them how to get more out of their device.

RIM's success in emerging markets continued in Q3.

The BlackBerry Curve 8310 with GPS was announced in Latin America at Future Com Brazil held in October.

Major advertising campaigns ran in Brazil featuring the 8310 by CLARO and TIM .

CLARO used their VIP customer program, CLARO A, to announce the 8310 to their top accounts in Brazil, and put 8310 displays in their retail stores with very aggressive pricing.

TIM Brazil also announced a new pay-as-you-go BlackBerry service plan with their advertising campaign.

A number of other carriers throughout the region launched the BlackBerry Curve this quarter including Telcel Mexico, Mobistar Venezuela, Mobistar Argentina and we're seeing a strong commitment from our partners in the region to advertising and promoting BlackBerry in their markets.

We were also pleased at our progress that Latin America was recognized with the BlackBerry Pearl winning product of the year by PC World Latin America in October.

Elsewhere in emerging markets we made meaningful progress in bringing the BlackBerry solution to Russia through agreements with both MTS and [V-line] Vimpelcom.

In Asia-Pacific the BlackBerry Pearl 8120, Curve 8310 and 8320 were all launched successfully throughout the region with strong interest from corporate, small business and consumer segments.

In India, BPL Mobile, a Mumbai based GSM operator launched the BlackBerry solution and the BlackBerry Curve in late September.

In addition, Reliance Telecom launched BlackBerry service in early September across its AND and CDMA network with the BlackBerry 8830 World edition.

Following on our partnership announcement with Alcatel/Lucent, RIM and China Mobile continued to increase awareness of the BlackBerry solution in the mainland of China and are finalizing preparations to step up sales for the upcoming 8700 availability.

As part of this strong partnership, RIM was a top sponsor and participant in the inaugural China Mobile user enterprise forum held last week in Guangzhou.

In Japan, the introduction of the Japanese text entry and user interface in the quarter is expanding the market opportunity beyond foreign multi-nationals to include large and medium sized Japanese firms.

In addition, NTD DoCoMo expanded their distribution of the BlackBerry solution beyond the major urban centers to now include all regions in the country, and just this month lowered the monthly service by 40% to JPY3,400 which is approximately $30.00

We continue to increase the use of our BIS platform.

This quarter BIS e-mail version 2.4 which simplifies the initial setup procedure for new customers was successfully rolled out.

Instead of having to first create a BlackBerry e-mail account, new subscribers will now simply input their pre-existing e-mail address and password to connect their BlackBerry smart phones to their source e-mail account.

We also added three new premium BIS e-mail partners in the quarter, Verizon.net, Cincinnati [Bow] and GoDaddy.

Around the world, we're starting to see growing support across the carrier community for low cost BIS data plan.

Carriers continue to adopt tiered and pay-as-you-go service pricing tailored to the growing prosumer and consumer market.

This quarter has been especially notable as carriers like NTT DoCoMo, Verizon, Rogers and others have introduced some type of introductory or inexpensive plan.

At Verizon and Sprint, we've seen the price for data plan drop 25%, at DoCoMo, we've seen it drop by 45%, and the three largest Canadian carriers have all introduced an unlimited e-mail and BlackBerry messenger plan for $15.00.

The U.K.

has some of the most aggressive pricing opportunities where plans start at low as 2.5 pounds per data plan.

In France, Bouygues Telecom launched both the BlackBerry Pearl and Curve into 1,200 direct and indirect stores and started offering unlimited e-mail and browsing for as low as EUR9.

And Telefonica in Spain launched a new BIS plan for EUR5 a month for up to three megabytes of data.

These changes are significant in that they demonstrate a real commitment by the carriers to work with us to drive greater growth outside the enterprise market.

We have seen evidence that these types of programs drive increased data demand and in many cases carriers see upgrades to higher end data plans over time.

This quarter, we launched the Face Book application for BlackBerry smart phones that enables fast and easy mobile access to Face Book features that have previously only been available with a web browser.

The integration between Face Book and the BlackBerry solution allow subscribers to leverage our push face architecture to enhance their social networking experience.

The rich native application goes beyond browser access, automatically pushing notification to the user's BlackBerry handset.

Since the launch of this product in late October, we have seen hundreds of thousands of downloads and within the last month a number of carriers have added a virtual pre-load of the application to the BlackBerry smart phones that they sell.

So there are many opportunities in the prosumer and consumer space.

We continue to be very focused on growing our enterprise business.

We believe that the enterprise market remains underpenetrated and that there are many opportunities for growth both in North America and markets around the world.

Demand for the BlackBerry platform in large enterprises remained robust in Q3 and we continue to see diversification of our customer base across many industry verticals.

In particular, government continues to be a high growth vertical for the BlackBerry solution, and this past quarter BlackBerry devices on Verizon's wireless network were selected by the FBI to be rolled out to approximately 18,000 agents, analysts and other professionals within the organization by the end of the calendar year.

The FBI is using the BlackBerry solution not only for communication and messaging but also for taking advantage of the MDS capabilities of the solution to enable a large number of existing applications.

This deployment is the single largest deployment we have won to date in the government sector and we look forward to building on the success.

This quarter, we introduced the BlackBerry professional software which is aimed at medium to small businesses with 30 or fewer users.

At a cost of $499 for five users.

This product provides an inexpensive way for small businesses to get much of the functionality of BES without the need for specialized IT staff.

Small and medium sized companies can install this software directly on their e-mail server with no extra hardware necessary.

Customers have the option of upgrading to BES as their organization grows and MDS software is also available with the software to allow the extension of internal applications to employees.

The BlackBerry WiFi products continue to generate significant carrier and customer interest.

There are now WiFi versions of three BlackBerry handsets, the 8820, the Pearl 8120 and Curve 8320.

The new BlackBerry Curve 8320 with WiFi UMA was included in T-Mobile's Hot Spot at Home TV advertising this quarter and is being heavily promoted in print media.

Orange France also introduced the 8320 with UMA support this quarter and supported the launch with a national advertising campaign.

The WiFi enabled BlackBerry devices are gaining traction due to the cost savings and coverage benefits achieved through WiFi UMA service.

We are also seeing strong interest in WiFi from enterprise customers and look forward to leveraging this in the coming quarters.

Interest in BlackBerry Connect continues to grow with BlackBerry Connect now launched in over 65 countries with over 100 carriers.

Customers can now choose BlackBerry Connect from over 45 different devices.

Three new devices were added in the third quarter, the HTC Tilt, the Motorola Q9H, and the Nokia E51.

Product demonstrations of BlackBerry Connect on both the HTC Tilt and the Motorola Q9H were provided throughout the quarter at events including Gartner IT Expo, CTIA and Microsoft Exchange Connection, and both devices are now available with BlackBerry Connect through AT&T retail and enterprise channels.

There were several BlackBerry Connect launches in the EMEA region during Q3 with particular emphasis around the HTC Touch and HTC Touch Duo, as well as Nokia E51.

In addition, the new BlackBerry application suite for Windows Mobile 6 is being trialed by several enterprise customers in the U.K.

and in Germany.

In summary, we are pleased with our performance in the third quarter and in particular with the success we have seen since the beginning of the holiday buying season in the late November.

As we head into Q4 and the new calendar year, we are optimistic about the opportunities ahead for us as we execute on our plans in markets around the world.

I will now turn the call over to Brian to update you on Q3

Thank you, Jim.

Revenue for the third quarter ended December 1st was $1.67 billion, up 22% from $1.37 billion in the previous quarter.

Handheld devices represented $1.34 billion or 80% of RIM's revenue during the quarter, up from 78% of total revenue in the previous quarter.

Total devices shipped in the quarter of approximately 3.9 million were up from 3.1 million in the prior quarter.

Approximately 3.1 million new devices were activated in Q3 either for new customers or for replacements and upgrades not including phone only sales.

As expected, channel inventory on a forward weeks basis increased in Q3 due to the launce of the CDMA Pearl 8130 in the latter part of the quarter, carrier stocking up for ongoing holiday promotions and the continued expansion of downstream distribution channels.

Device ASPs were slightly higher than expected at approximately $342.00.

This was due to the mix of handsets shipped in the quarter.

We expect ASPs in Q4 to be higher than Q3 at approximately $350.00.

This increase is due to the mix of devices expected to be shipped in the quarter.

Service revenue was $232 million or 14% of revenue for the quarter, up $31 million from Q2.

With respect to monthly ARPU, it remained approximately flat with the prior quarter.

Software revenue was $60 million or 4% of revenue.

Other revenue such as repairs and accessories was $37 million or 2% of revenue.

Gross margin for the quarter was approximately 51% in line with our expectations.

Operating expensing increased by 15%, slightly more than we had forecast last quarter.

R&D spending was $92 million or 6% of revenue for the quarter and selling marketing and administrative expenses increased to $238 million and were 14% of revenue.

Included in operating expenses is stock option expense of approximately $9 million.

The tax rate for the quarter was approximately 28%, slightly lower than our forecast due to a tax recovery of $10.7 million arising from the favorable resolution of an outstanding issue with respect to RIM's investment tax credits relating to prior years.

Net income for Q3 was $370 million or $0.65 per share diluted.

Weighted average diluted shares used in EPS calculation for the quarter were 573.7 million.

Actual shares outstanding at December 1st were 561 million.

Total options outstanding at December 1st were 17.8 million.

RIM's balance sheet continues to be strong with substantial cash reserves and appropriate working capital balances.

At the end of the third quarter, RIM had approximately $2.1 billion in cash, cash equivalents and investments.

This was up $405 million from the prior quarter.

During the quarter, RIM generated approximately $521 million in cash from operations.

Primary use of cash in the quarter was capital expenditures, approximately $97 million which was slightly lower than expected due to the delay of certain expenditures to future quarters.

From a working capital perspective, trade receivables were up from the prior quarter, in line with top line growth, and DSOs remained flat with the prior quarter at 52 days.

Inventory on hand was approximately $340 million versus $301 million in the prior quarter.

Inventories continue to be primarily semi-finished goods and raw materials to support demand for current and upcoming product launches.

I will now turn the call over to Adele to discuss our outlook for Q4.

Thank you, Brian.

Before I discuss our outlook for Q4 I would like to remind everyone that these forward-looking statements reflect management's best current estimates and should be taken in the context of the risk factors outlined at the beginning of the call and outlined in our public filings.

We are forecasting revenue for the fourth quarter of fiscal 2008 to be higher than Q3 in the range of $1.8 billion to $1.87 billion.

We expect hardware ship machines to be over 4 million units, at an average ASP of approximately $350.00.

The expected increase in volume of shipments is due to ongoing carrier ramp plans, a modest channel inventory increase and the continuing strong replacement cycle.

Over 40% of our subscriber base remains on devices launched two years or more ago which we expect will continue to fuel a strong upgrade cycle going forward.

Software revenue in Q4 is expected to increase slightly.

We are targeting net subscriber account additions for Q4 of approximately 1.82 million.

In the first two weeks of this quarter we have seen a very high average weekly run rate of over 150,000.

We believe that this strong performance is due to seasonal strength and the continuation of holiday promotions by our partners.

We expect run rates to normalize in the new year.

In the past, we have typically seen a meaningful slowdown in the period between Christmas and new year with a pickup occurring later in January as carriers begin winter promotions and enterprises begin their new budget year.

While we expect continued strength from enterprise in the new year and there are multiple aggressive programs and promotions planned by our carrier partners in January and February, we are cautious in our expectations of their impact on net subscriber account additions.

This is due primarily to the uncertainty surrounding the changes in seasonality we might see, given how the mix between enterprise and consumer has shifted dramatically over the past year.

In Q3 of this year, almost half of net subscriber account additions were non-enterprise versus just over 30% coming from non-enterprise in the third quarter of last year.

We expect gross margin for Q4 to be flat with Q3 at approximately 51%.

We expect a total operating expense increase for Q4 of approximately 8% to 10% from Q3 levels with R&D increasing by approximately 15% to 17% and sales and marketing administration increasing by approximately 5% to 7%.

We expect depreciation and amortization to be approximately $29.5 million to $30.5 million in Q4, higher than Q3 due to ongoing CapEx.

We expect CapEx to be approximately $140 million in both Q4 and Q1.

Investment income is expected to be in the range of $25 million to $26 million in Q4.

We expect the tax rate to remain around 30% to 31% for Q4 and to decrease slightly in fiscal 2009.

Also please note that the rate could move outside this range depending on foreign exchange fluctuations.

We expect Q4 EPS to be in the range of $0.66 to $0.70 per share.

I will now turn the call back to Jim.

Thank you, Adele.

In summary, we are pleased with the performance of the business in the third quarter and the success we are seeing in new market segments and channels.

The enterprise business continues to grow and we see many opportunities in these new segments that we are well positioned to capitalize on.

We look forward to working with our carrier partners on executing our business plan in the coming year to drive further revenue and earnings growth.

This concludes our formal comment.

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

We plan to end the call today by approximately 6:00 p.m.

Would the operator please come on to handle questions?

Thank you.

Ladies and gentlemen, we will now conduct the question-and-answer session.

(OPERATOR INSTRUCTIONS)

Your first question comes from Michael Ounjian of Credit Suisse.

Please go ahead.

Great, thanks for taking the question.

Clearly strong consumer adoption in the quarter and it looks like that's continuing and seeing some success internationally.

Jim, how much are you seeing the impact with the international carriers of these more entry level pricing plans and was international a big contributor to the consumer strength yet or is that still mostly--is that still mostly coming in the U.S.?

And just a follow-up clarification for--on the balance sheet side, in terms of the inventory turns, looked like some good progress there in the quarter.

How should we think about that going forward in February?

I'll answer the first one.

The pricing was--it mainly moved the ball down the field kind of where we set it, and that's mainly North America and Western Europe.

The rest of the markets are in different stages of evolution, but you know, where we really--where the entry plans really made a difference is kind of where we articulated it, North America, U.K., some of the French ones, some of the German ones, a lot of Southern Europe.

So disproportionately it was North America and Western Europe.

On the inventory turns--

We're just going to take a look at that for you, Mike, so just give us a minute here.

Why don't we go on to to next question, when you have it, we'll give an answer.

Great.

Thank you.

Your next question comes from Maynard Um of UBS Securities.

Please go ahead.

Hi, thanks.

Just a question on your hardware guidance.

Typically, your guidance for hardware has been great.

Can you just talk about the visibility you have into the hardware orders, looking--as you're looking forward one quarter, how far in advance do operators place these committed orders, and is that what gives you that visibility to the number, and any update on a Unite release?

Thanks.

The hardware, yes, you get pretty good visibility into a quarter.

We're three weeks into the quarter, pretty much, and there is some lead time in bookings, just the natural of that, but then there's stuff that flows in the quarter so you get pretty good visibility into this quarter and then thereafter--so you're kind of rolling one quarter ahead once you're three weeks into that quarter.

So we do have pretty good visibility in the quarter.

There's lot of risks detailed in this that you have to manage adroitly that can affect it, but sort of having the booking tends not to--in the quarter you're in tends not to be the biggest element of that.

So we got pretty good visibility on that in this quarter and that's why we think--we try to give the best guidance we can, of course.

The Unite stuff is imminent.

It's deep in a bunch of data stuff and I think you're going to see a fair bit of that not too far into the new year and it's really quite meaningful in how it extends the whole BlackBerry convergence thing so now you really have the spectrum from the BES to the professional software to the Unite on a Windows box to the BIS in the cloud and you can mix and match those convergence pieces so it just fills a wonderful spot in the small SMEs and the Sohos and the individual consumers and the families.

So and it complements the BIS and you can use it concurrent with the BES, so--and that's been sort of hard to get at market for a lot of carriers for a long time so every indication we're getting is that people are interested in engaging at an even more exciting level when that part of the equation is so comprehensively filled in with Unite.

So early--not too far into the new year is the plan.

We just got to--I mean it's a BES, really it's a BES according to Windows with some unique features and it's really got to be reliable or it really comes back at you pretty hard.

I just--I can comment now on the inventory turns, Mike, just wanted to pull the numbers.

Yes, they have have been improving, around eight times in Q2 and we're up to about 8.5 in Q3.

I can't give you a forecast for Q4 but we do have ongoing efforts to try and improve that.

We're expected to improve somewhat from here, and we do have a lot of programs underway to try to manage our supply chain and increase the efficiency there.

I hope that helps.

Operator, can we have the next question, please?

Your next question comes from Mike Abramsky of RBC Capital Markets.

Please go ahead.

Yes, thanks very much.

Just wanted to clarify before I ask a question.

Adele, you said that your guidance--you're cautious in your expectations regarding uncertainty and seasonality changes as opposed to any macro related caution, is that correct?

Yes, exactly, just given some of the commentary that Jim made about what we've seen around Black Friday, it's obvious that the composition of our net adds in a given quarter is changing fairly significantly so the real wild card is what does that mean when you go into a January and February with half your net adds coming from non-enterprise.

I mean, I think we're pretty good at predicting what happens with enterprise, and in terms of macro stuff, I mean, Jim can probably comment a bit more, but I don't think that was a big factor.

Okay, well, I guess my question primarily is that you've come through a year of 100% growth, some strong products, Curve, Pearl, World phone.

What do you see as some of the big drivers of growth next year from a product or macro or technology like 3G perspective and then alternatively, what are some of the maybe special growth challenges you'll be focussed?

I would say the big growth items are going to be really taking the broader distribution channel in North America and continue to drive demand and continue to drive execution and that's why--you can be assured, I think we launched 12 pieces of hardware this year, 12 devices I think, depends how you count it, but I think that was the count, and so you can count on some pretty exciting device strategies in the upcoming year.

But I think the element of the Unite platform and all of that coupled with really driving the retail channels deeper and driving demand in North America continues to be a big play.

I think we have a lot more opportunity to drive the channel and the retail channels in Europe like we drove them in North America and I think that begins to really move the ball in that respect.

I think we--we have a lot of the emerging carriers, all throughout the world and we'd take up the whole call talking about them, that just have to keep up the miracle of compounding and keep up the execution and the iteration of maturing, and I'm particularly excited about the new the Argon BES, or the next release of BES and the service packs that we're releasing on the enhanced telephony function.

Those seem to really drive the B to B deeper.

So B to B with a new BES and some telephony seeing broader retail, particularly in North America and Western Europe and just carrying on the gestated iterations in all the other parts of the world, yes, and within the new devices you're certainly going to see faster air links and (inaudible) packaging and fixed mobile WiFi stuff and that--will those be the game changers?

Yes, I think they'll all help a lot, yes.

So I think there's--it's sort of being enabled in a bunch of different ways and they all just come together in a way that they're new facts, so you don't want to get too far ahead of yourself but it's hard not to be pretty excited about the business right now.

Your next question comes from Paul Coster of JP Morgan.

Please go ahead.

Thank you.

Adele, you've partly answered my question, I think, but I just want to make sure I understand it.

You believe that the season--the risk of seasonality associated with the twist towards consumer is more skewed towards the February quarter than the May quarter; is that correct, and with May quarter I know that you won't comment specifically on it, but are you seeing any risk in financial services subscriber growth in that quarter?

I mean, we don't--we haven't guided May so I mean, so the comments on seasonality, I mean, certainly apply to February.

But I think the fact is, is that we just have a lot more non-enterprise contributing every quarter so I think that's going to affect the type of seasonality we see in quarters going forward as well.

In terms of the financial services there's always--you're never going to be completely insulated but we're not really seeing much impact right now.

Okay.

Thank you.

Your next question comes from Chris Umiastowski of TD Newcrest.

Please go ahead.

Hi, thanks.

I guess Jim, I'd really like to know if you can tell us a little bit about the ratio of hardware shipments to device activations.

So if I take a look at that ratio over the last several quarters, it looks like it's been somewhere around 1.1 to 1.16 and this quarter it's around 1.25 and just curious if that's a function of more phone only sales or what do you thing is going to happen to that ratio as time goes on?

Are we going to just continue to see it rise as more and more of these devices are perhaps not activated on the BES and just sold as a phone, what's your thinking there?

Well, the very precise answer I have for that is I don't really know.

It's a very fair question and it's kind of like driving so many different sort of veins that are so promising, and sort of wondering which will go farther and which will go longer, and it's a hard one to answer precisely because when you--you know there is a lot of gosh I love this as a phone only going on, and the positioning is pretty amazing, and then when you throw in the UMA kind of WiFi stuff, that's just--that's going to torque up a level even higher there and--and so that just spells phone, phone, phone.

But then you see, as soon at it's a phone--then also you see the hot products, then people are--there's an upgrade cycle and occasionally people break a unit.

So that sort of keeps that ratio above one, but then, counter acting it, is the fact that once it's sold as a phone, there are ideal candidates for the carriers to upgrade them to a data plan and as well, we're seeing lots of activity and will see more in the BlackBerry connect side.

So at the end of the day, it's a fair question, it's hard to speculate.

If I had to guess, you're just going to see the ratio pop up a little bit, if I had to guess, just because--but then again it becomes a candidate to sell data plans for and the carriers are saying look, they're a sell plan, get them on a data plan, it's wonderful ARPU, it's a big antidote to churn so there's a lot of economics on it and they sort of know who those people are.

So, the best I could say is the ratios probably going to say right around where it is, but it can move very quickly with special promos and hot new devices or--and all that kind of stuff, but it's very--at the end of the day you want to drive all cylinders, you want to drive the BlackBerry connect, you want to drive the new hardware, you want to drive the subs, you want to drive upgrades.

You want to drive--because it's all success and revenue and profit for the channel and for the carrier and success begets success and we sort of push all fronts and occasionally some push farther faster than the others and shift the ratio on sector specific or product specific or geographic specific or timing specific things and when you put it all together in an amalgam it's just not that easy to characterize with great precision.

Okay.

Is it safe to say that you know internally what pin numbers you've shipped out to carriers and at some point in time, you either see that pin number activated on the BES or you get a report back from the carrier that that pin number was sold and it was never activated so you assume it was a phone only sale?

How have you been able to track that in the past and what has the data told you?

We get a pin first seen, so you know--and that allows you to track which devices are activating.

So you know they're activating, and you know which devices are coming through.

If you get no pin first seen, do you know whether it's still in the channel or do you get a report ever from a carrier that that pin number was sold but never activated?

Well, the pin first seen is the number that's--we don't count it.

When it's activated.

We work with the carrier.

So you're really asking--are you asking what phone only is?

I guess I'm trying to figure out of the 3.9 that you ship, you got, I think you said 3.1 activations, right?

So is the 800 really channel, or do you know how much is phone only I guess is my question?

Right, so the 3.1 number we give--that we just gave was pretty much pin first seen and then you have to add to that phone only sales and that is a bit of an estimate.

I mean, it's tough, I mean, like we said before, I think we've said before, I think we said it's somewhere around 25% at carriers who sell it that way.

Okay.

Which would primarily be T-Mobile would be the biggest one.

It's in the 100,000 plus, but it's really hard to get a read on the exact number.

Okay, that's helpful.

That helps a lot.

I appreciate the clarity.

Your next question comes from James Faucette of Pacific Crest.

Please go ahead.

Thank you very much.

I just wanted to look back a little bit at the November quarter.

Based on your commentary last call on how the month of September had been and then coupled with your commentary on November, it looks like October got a little bit weak at least from a net adds perspective.

Can you talk a little bit about what you think was going on there and if there's anything that we should read through from what happened in October to your outlook for the February quarter?

Thank you.

Do you want to?

Well, I mean, I think the fact that we had such strong performance in November with the holiday season and with the CDMA carrier launches of the Pearl would speak to the fact that November was a fair bit stronger than October, and I think that would be normal, to be expected.

And again, I think some of the uncertainty we have in terms of the seasonality impact out into January and February, I mean, are really talking to the same points that you're--how are our months and quarters going to be affected now that we have such a big proportion coming from non-enterprise and the answer is we just don't know yet.

That's clear.

I guess I'm just wondering why you think October was a little bit weaker than September, which seems to have been the case based on your commentary coming out of last quarter--out of the month of September and then coupled with the November commentary?

Jim, do you want to try that?

I think a lot of times carrier programs are not happening until they're getting ready for the holiday season and we can see a pretty strong relationship between weekly net adds and what programs are going on.

Yes and there is--some of the other things that happened are there is a real heartbeat to when the channels really kick into gear and they really kick in on a monthly basis.

So if you're not 100% ready to go at the end of the previous month, you can miss a whole month if you miss it by a week and you're hardening products and they're just getting ready to go and so little bits of slips can really just cost you a month, and that's probably--that's probably a big part of it.

The whole UMA thing was just getting hardened in a new way.

There was a lot of stuff on the CDMA that was coming in mid-channel.

The special promotions and special prices really hit a little later in that.

So it's--it's kind of a momentum construct.

I mean, every week was a lot stronger than the previous week and there comes a point where it tips and I think that's what we're trying to communicate.

I mean the sort of exclamation mark on the year, if you have to anything, is Black Friday was a record day and it used to be an unusually slow day and that's a culmination kind of thing, that's a building of momentum and Adele indicated that we're seeing some very positive things in the first few weeks of this quarter, but you're now--there tends to be a bit of a lull in that kind of stuff in the calendar new year but then the B to B kind of can counter cycle it.

So we're into just a little bit of newness herr for us.

It's kind of good newness but it's a lot of newness and that's the best explanation that we have of it.

Your next question comes from Vivek Arya of Merrill Lynch.

Please go ahead.

Thank you.

Jim, my question is when I look at the guidance you've given and you're expressing some caution, I just want to understand whether that caution is based on conservatism, or is it really based on your--some bottoms up weakness in any verticals.

Are you just being conservative, or are you being prudent, I guess that's my first question?

And then the second question is when can we expect a touch screen BlackBerry?

On the second question, we don't really talk about future products or potential future products or rumors.

It just gets you into a place where you really can't get yourself out of, so probably today's not a good day to change that policy.

On the guidance thing, it's a little bit of the newness thing that I was trying to sort of indicate to--I mean, we have--we're experiencing a lot of 100% growth years and 100% quarter stuff and that's something we're really proud of and pleased of and we're heading into some things but there's a lot of positive optionality into it, but it's a little bit unknown for us.

So, it's how much do you have booked in the hardware, but you also get surprising upside in our world, and we have some positive things happening in a lot of programs, so, I mean, I tend to--you asked is it prudence or is it conservatism, I often put those words--if those aren't the same words, they're close siblings and given how well things are going it's--and given all we know, we're trying to sort of say okay, this I something that we can put a pretty confident stake in the ground.

We're not trying to sandbag but we're also not trying to hang ourselves out there because that doesn't help anybody.

But again we are in sort of a challenging era in these kinds of communications because there's so much positive optionality and there's lots of balls to juggle--it's kind of like lots of scenarios and the probability, on average you can pick one--you can pick some kind of average, but when you've got to pick one that people can bank on within a range, how far do you play the distribution curve, and especially when you're not--there's a lot of newness, you don't know how positive the upside optionality is because it's kind of new.

There are some positive things happening in the first part of December and if that carries through in ways that--that are possible, then we're into an upside situation.

But that's not how retail tends to go, but then we got some strong B to B and we're sort of charting new ground for everybody right here and so we struggled a little bit on this number, Vivek, it's a fair question, but we still want to give you guidance and now we're in a time when guidance is a little more challenging for us, just because of the optionality and the newness that's happening and the opportunity and the growth, and we don't want to just get into a self-fulfilling math calculation.

So there's an element of bottom up, there's an element of regional planning, we have to do that for supply chain and for our business and for marketing, but there's an element of prudent conservatism to it and then we've just got to keep our heads down and get the activations and the sales and the development and the channels going every day and at the end of the quarter, the number drops out.

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

Please go ahead.

Good evening, Jim.

I was wondering if you could talk what you think will happen with gross margins as your prosumer business continues to ramp up over the next several years and just what do you think the impact of that business will be to your ASPs?

You've obviously done very well over the last two years.

Well,that's the--I think, you're in a--we're in a revolution where the converged supply is expected to do more and more, and now that we've had the great good fortune that the strategic articulation of the leading MP3 player is that this should be converged into a cell phone drives more sort of feature expectation and more value into this and we're driving a lot more into the convergence space and that.

And so what that does is it sort of counter--ASPs have--it sort of counters ASPs because people want bigger screens, they want to do more video, they want to do pictures, they want to do (inaudible) cameras, they want to do more interaction better browsing, better phone, long battery life, sleek and stylish, and so we've seen it, the kind of commoditization get counteracted by the innovation and value-added which sort of counteracts the sort of ASP erosion, and concurrent with that sort of protects gross margin with a little bit of pinching on our part just to drive much stronger penetration because you put something on the table for a special program and then if the products mature, you get a fair bit of efficiencies and cost savings and then you still maintain the margin but it--the ASP goes down.

So you kind of have this one step forward, one step back on the ASP, based on maturing but new innovation and nice gross margin but offering co-op and stuff like that for special programs and special prices which really drives way better acceleration and way better programs by the carriers which becomes a very, very profitable thing for them and for us.

So, I think it's smart for us to tactically price for adoption where it makes sense, because it feeds the whole platform which is a big lifetime value and there is positive accretion from each sale, but you do sort of erode your overall margin thing and as long as we have a strong innovation cycle, the ASPs hold up and as far as I can see on the innovation side, that's still going on, but I can sort of see out 18 months, but lots of things can happen in this space and what's the long-term play, gosh, that's--let's let the industry pundits talk about that.

Your final question comes from Gus Papageorgiou of Scotia Capital.

Please go ahead.

Thanks, just a quick one.

I know you don't give out this number but based on your sub-add numbers of the quarter and that 32% of subs are outside of North America, is it fair to say that about 40% of the subs added in the quarter came from outside North America, is that roughly accurate?

As you know, we don't give that number.

I would say this quarter was maybe a bit disproportionately North America just because you have lot more of that holiday selling phenomenon happen in North America, but I'm not going to give you the exact number.

I think the thin we learned this year is the retail programs are really good, and we've got to do more of that in more places, really fast, because that--that was the real exclamation mark, the Black Friday.

We knew everything that was going on well in the Company, what with the exclamation mark was the Black Friday, and it is interesting because you're growing in a lot of place, but then you just get a nice little gapping experience like that in North America, Canada and the U.S.

and it sort of shifts your ratios back a little bit.

Ms.

Ebbs, this concludes the question-and-answer session, please continue.

Great, thank you.

In closing, I would like to remind everyone that there's a post use service available at 416-640-1917, pass code 21221692#, or you can listen to the call which has been recorded and is available in the investor events section of the RIM.com website.

Thanks everybody for dialing in and have a good holiday season.

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

Thank you for participating, please disconnect your lines.