BlackBerry Ltd (BB) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, welcome to the Research In Motion fourth quarter and year end fiscal 2010 conference call.

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

Following the presentation there will be a question-and-answer session with instructions provided.

(Operator Instructions) I would like to remind everyone that this conference is being recorded today on Wednesday, March 31st, at 5:00 PM Eastern time.

I'd now like to turn the call over to Edel Ebbs, Vice President Investor Relations.

Please go ahead.

Thank you.

Welcome to RIM's fiscal 2010 fourth quarter results and year end conference call.

With me on the call today is Jim Balsillie, Co-CEO and Brian Bidulka, CFO.

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

Brian will then review the fourth quarter results and I will discuss our outlook for the first quarter of fiscal 2011.

We will then open the call up for questions.

I would like to note that this call is available to the general public by a 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 before 6:00 PM Eastern time 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 laws.

These include statements about our expectations and estimates with respect to product shipments, revenues, gross margins, operating expenses, CapEx, depreciation and amortization, earnings and ASPs for Q1, fiscal 2011 and beyond.

Our expectations regarding RIM's near long-term tax rates as well as the effective changes in Canadian tax laws.

Our estimates of the number of net subscriber account additions and other non-financial estimates, our product development initiatives and timing, developments relating to our carrier partners and other statements regarding our plans and objectives.

We will indicate forward-looking statements by using words such as expect, plan, 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 can 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 rights, our ability to enhance our current products and develop new products and services, risks relating to competition, our reliance on carrier partners, third party manufacturers, third party network developers and suppliers, risks relating to network disruptions and other business interruptions, our ability to manage our productions facilities, security risks, risks associated with our international operations, our ability to manage growth and other factors set forth in the risk factors and MD&A's 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, Edel.

We are pleased to be reporting record results for the fourth quarter and full fiscal year 2010.

Year-over-year shipments of BlackBerry SmartPhones increased over 40% to 37 million units.

The BlackBerry subscriber base grew 65% to over 41 million, with approximately 17 net new subscriber accounts added during the year.

Revenue grew 35% and net earnings increased 30% over the prior year.

During fiscal Q4 we made great strides in penetrating international markets and growing market share while maintaining our leadership position in the hotly US SmartPhone market.

We are pleased that BlackBerry continued to be the number one selling SmartPhone brand in the United States and accounted for five of the top ten individual SmartPhone models shipped in calendar Q4 according to an industry analyst recent survey of the top 10 converged devices in North America.

Demand for BlackBerry SmartPhones in the fourth quarter was strong with record net new subscriber account additions of 4.9 million, which is above the high end of the range we forecasted in December, up over 10% quarter-over-quarter and almost double the number added in the same quarter last year.

Units shipped in the fourth quarter were slightly below the range we forecasted back in December and ASP was approximately $311.

Lower than expected unit shipments were primarily due to a customer change in inventory policy which led to a reduction in inventory levels of certain products in the quarter -- this quarter.

This inventory adjustment, when coupled with the success of the BlackBerry 8520 at the lower ASP, caused revenue to land slightly below the range we expected at the time of our last earnings call.

Gross margin was higher than anticipated due to a product mix that includes the higher than expected percentage of Bold 9700s and Curve 8520s.

EPS were in the forecasted range.

As we head into the first quarter of fiscal 2011 we expect BlackBerry SmartPhone shipment of between 11.2 million to 11.8 million to drive strong revenue and earnings performance and we expect to add between 4.9 million and 5.2 million net new BlackBerry subscriber accounts.

Global demand for BlackBerry SmartPhones is robust and leading to some tightness in our supply chain with respect to certain components, particularly the Curve 8520.

However, these risks are already reflected in the shipment guidance for the first quarter and the supply chain and product teams are working hard to alleviate any tightness going forward.

ASPs continues to be primarily mix driven and in Q4 the BlackBerry Curve 8520 was particularly successful in markets around the world.

We expect this success to continue in the first quarter and, therefore, expect ASP in the range of $305 to $310 for the first quarter.

As we have mentioned on prior conference calls, there is not a direct relationship between ASP and gross margin percentage.

In fact, they can often go in opposite directions as we saw in the fourth quarter.

Looking out to the full-year fiscal 2011 we are currently expecting ASPs in Q2 to be similar to Q1 and then increase somewhat in the second half of the year due to new higher ASP product introductions and expected product mix.

In addition to the Curve 8520 and the BlackBerry Bold 9700 has also had strong momentum in markets around the world and contributed positively to the high gross margin percentage in Q4 and the outlook of 44.5% gross margin in Q1.

Beyond Q1 gross margin will continue to be primarily mix-driven and we expect quarterly gross margin percentage to moderate somewhat to the low 40s throughout the fiscal year due to product mix and new product introduction cycles.

We have a number of exciting new hardware and software products planned for launch in fiscal 2011 -- fiscal 2011, several of which are anticipated to drive strong growth in shipments in the second half of the year.

Efforts to drive operating efficiency across the business are ongoing and we expect to continue to benefit from these activities with strong earnings growth in fiscal 2011.

The globalization of RIM's business was a huge driver of growth in the fourth quarter and we expect this trend to continue.

The success in international markets is being driven by the growing appeal of BlackBerry products to new demographics, particularly the tax centric youth segment who are drawn to BlackBerry SmartPhones by a number of factors, including ease of typing on a QWERTY keyboard, the viral effect of BlackBerry messenger, and attractive pricing particularly as more carriers offer prepaid pricing packages targeted at this market segment.

Additionally the BlackBerry brand continues to grow both in terms of overall value and appeal to these new market segments.

In Q4 approximately 48% of revenue came from outside of North America and approximately 38% of BlackBerry subscriber base is now from international markets.

The tremendous success of attracting entry level SmartPhone customers to BlackBerry is an important strategic development for RIM and the percentage of non-enterprise subscribers in our account base continues to grow at a rapid pace.

As more and more customers from new market segments, including students, young working adults and other first time SmartPhone buyers choose a BlackBerry model as their very first SmartPhone, we create new opportunities to generate long-term loyalty to the BlackBerry platform throughout their lives.

This puts us in a position to market incremental value-added products and services based on the BlackBerry platform to these customers as well as to upgrade them to other BlackBerry SmartPhones in the future.

In the United States, Sprint had a strong quarter with significant promotion of both the BlackBerry Tour and BlackBerry Curve SmartPhones.

The BlackBerry Tour achieved the highest customer satisfaction rating of any device in RIM's portfolio and the BlackBerry Curve became the most successful device in their history following a $49 BOGO promotion on the 8330 and the launch of the 8530 in an exclusive purple color at an attractive price point.

AT&T continues to build on their momentum from last quarter in both consumer and B2B channels offering pricing throughout Christmas offering 50% off of their entire BlackBerry SmartPhone portfolio as well as featuring the BlackBerry Bold 9700 in their Valentine's Day promotion.

At Verizon, BlackBerry Curve and BlackBerry Storm continue to benefit from steady sell through trends and during the quarter Verizon focused on expanding their enterprise focus with BlackBerry through a new streamlined ordering portal for BEV that enables easier activation for new enterprise users.

In February, Best Buy and Radio Shack featured the 8500 series for multiple carriers during their Valentine's Day promotion and led to our best ever quarter at Radio Shack and throughout national retail channels in general.

Boost Mobile's Curve 8330 successfully launched at Best Buy and was the hero prepaid device for February at Radio Shack and was included in national TV, in-store, on line and print placements throughout the month.

All three Canadian carriers ran BlackBerry promotions throughout the quarter and Telus in particular has been successful with their tiered BlackBerry pricing program, including the student 35 plan which offers unlimited social networking on BlackBerry SmartPhones.

In Europe, the strong momentum from Q3 continued with many of our carrier partners hitting new record sell-through levels again in Q4.

In the UK, Orange included BlackBerry as your pay as you go Christmas gift campaign leading to record results during the holidays and propelled the Curve 8520 to finish the quarter as the number one pay as you go device in that portfolio.

Bold 9700 also did very well at Orange consistently ranking in the top three selling post-paid devices.

O2 also set a record in terms of BlackBerry SmartPhone sales with strong performance of the Curve 8520 and Bold 9700 which benefited from specialized promotions.

Vodafone UK continued to show support for BlackBerry and offered a special promotion for public sector employees that resulted in an increase in adoption than local government and healthcare verticals in the region.

France continues to be a high growth market for BlackBerry with all three major carriers running promotions on BlackBerry products and driving record sell-through.

As far as leverage, the Storm 2 and Curve 8520 is part of a four product hero campaign over the Christmas holidays combining promotion of BlackBerry messenger and social networking applications with an attractive capped data plan.

Orange, meanwhile, launched a large outdoor marketing campaign with thousands of [built] billboards and [Blee] focused its marketing efforts on the Curve 8900 for January and the Bold 9700 for February.

We also aggressively grew presence with distributors in Europe and this last quarter BlackBerry Curve SmartPhones became the number one selling SmartPhone product at Car Phone Warehouse and Phones For You, closely followed by the BlackBerry Bold 9700.

In France, the Phone House also had its best quarter ever with BlackBerry SmartPhone and they are currently featuring the Bold 9700 on the cover of the buyers' guide.

Latin America continues to be a high growth market for BlackBerry products with double-digit increases in Q4 solidifying our leading position in SmartPhones in the region.

Both the Bold 9700 and the Curve 8520 were launched by additional channels throughout the region and were supported by carrier marketing activities, as well as integrated marketing efforts focusing on BlackBerry Messenger 5.0, App World, social networking plans, and the love what you do campaign.

Throughout the region, Telefonica Venezuela, Telcel Mexico and CLARO Brazil, among others, ran Christmas and Valentine's campaigns highlighting the 8520 and 9700.

Telcel Mexico also promoted BlackBerry SmartPhones during their Super Bowl commercials and CLARO Brazil ran strategic product placement programs on primetime TV.

We continue to build on our success in the Middle East with availability of a variety of tiered data plans and significant carrier advertising campaigns and incentives that are driving record growth.

Carrier partners including Etisalat and [Do], as well as as a number of each Egyptian carriers that launched in the quarter, continue to promote BlackBerry product and are contributing substantially to the strong market position we have in the region.

BlackBerry SmartPhone adoption in Asia continues to grow as we diversify the product offering with new Bold, Storm and Curve products, expand our tiered and prepaid price offerings and benefit from the viral nature of BlackBerry messenger.

Thailand and Indonesia have seen exceptional sequential growth over the past three quarters and since the launch of BlackBerry Messenger 5.0 in Q3 we have enjoyed an increase in carrier support and consumer adoption in these markets.

Analytic expansion in the region is a key area of focus to further extend our success in the region and we're working closely with price points to increase our points of presence and expand our range of distributors.

China represents an exciting market opportunity for BlackBerry and we have been moving forward with our plans to expand in the region.

In mid-March BlackBerry was selected as the official SmartPhone sponsor of the Shanghai World Expo 2010 and BlackBerry products and services will be used by expo managers and staff to communicate and access key applications and data while on the go.

Additionally an application to provide news feeds from the Shanghai Daily was launched as a free download in BlackBerry App World, concurrent with the show.

We continue to build our relationship with China Mobile and increase penetration across a broad range of verticals including financial, legal, banking, professional service and manufacturing.

We look forward to announcing more details of our plans in China in the coming months.

Prepaid subscribers continue to increase as a percentage of subscriber base, with Asia-Pacific, Middle East and Latin America leading the way.

While overall prepaid subscriber base is still small, the growth rate is quite substantial with a number of prepaid subscribers in Q4 growing by 30% sequentially over Q3.

We also are beginning to go see prepaid BlackBerry SmartPhone offerings make their way to North America with T-Mobile offering BlackBerry as their only prepaid SmartPhone offering and Sprint offering BlackBerry SmartPhone through their subsidiary, Boost Mobile.

We're continuing to explore opportunities to offer even more segmented pricing tiers to drive adoption of BlackBerry SmartPhones across broader market segments including prepaid.

Last month we announced BES Express to address small and medium sized businesses as well as consumers who wanted to receive corporate e-mail on their BlackBerry SmartPhone.

BES Express, which is available as a free download, allows SMBs and consumers to cost effectively and securely synchronize data between Microsoft Exchange and BlackBerry SmartPhones.

The solution delivers a low cost, but secure easy managed way for SMBs to wirelessly enable exchange for consumers who have a personal BlackBerry SmartPhone to connect to their corporate e-mail at no incremental expense to the enterprise.

This solution further expands the market opportunities of BlackBerry and provides a cost effective way to extend the BlackBerry solution to all employees within companies in our existing large enterprise base, as well as to appeal to cost types of small and medium sized businesses.

BES Express software has been available for download from our website and through select channel partners ever since the beginning of March.

And we are pleased with the very high number of downloads to date.

We look forward to updating you further on the results of this new initiative in the coming months.

Lotusphere 2010 we announced the BlackBerry client for IBM Lotus Quicker and a new version of IBM Lotus Connections and further solidified that RIM and IBM have had in supporting enterprise customers for more than a decade.

This agreement expands distribution channels for BlackBerry and enterprise market and helps us meet the growing market demand for enterprise social networking and collaborations solutions that allow workers to more easily and effectively participate in team projects while outside of the office or away from their desk.

The BlackBerry Mobile Voice System, which synchronizes BlackBerry SmartPhones with the corporate PBX, continues to generate significant interest from enterprise and carriers.

During Q4 in North America, T-Mobile ran a marketing campaign to provide MVS to enterprise customers at no charge when the customer purchased a minimum number of BlackBerry SmartPhones.

This program led to an increased -- adoption of MVS by T-Mobile customers in the quarter and we look forward to working with T-Mobile and other partners on programs like this in the future.

Mobile World Congress was a great show for RIM again this year.

During the conference BES 5.0 was awarded the GFMA best enterprise product and service award.

RIM hosted the first ever European based BlackBerry developer day with over 700 delegates in attendance.

During the developer day we previewed the upcoming web kit browser and unveiled our version for super apps, a new breed of mobile applications that leverage the unique capabilities of the BlackBerry platform to deliver an always-on contextually relevant experience that is tightly integrated with the native in box, phone, [pim] and other applications.

Response from the developer community has been overwhelmingly positive and we are running our first super app developer challenge this year leading up to the 2010 BlackBerry developer conference in September.

App World continues to grow both in the number of apps available for download as well as the number of countries and languages it supports.

The App World store front is available in close to 50 countries, in six languages and the diversity of applications for businesses and consumers continues to grow with more and more regional specific application developers using BlackBerry APIs to produce apps that customers download and use everyday.

We are also pleased to announce that last week RIM acquired Viigo, a leader in up to the minute content and service for SmartPhones.

Prior to being acquired by RIM, Viigo was a highly respected company within the BlackBerry partnering ecosystem and we're excited to welcome the RIM family.

The Viigo employees will work with existing teams to further enhance the BlackBerry platform and bring their knowledge of our application environment and their real time content expertise to the BlackBerry platform.

BlackBerry brand value continues to grow and was recently recognized by a UK based super brand as the third most influential brand in the region, up from 43rd last year.

The love what you do campaign has been expanded to Australia and parts of Latin America and has led to positive increases in all of the consumer metrics we track.

In Q1 we will be launching extension of this campaign focused on BlackBerry Messenger as a way to help carriers and retail channel partners capitalize on increased interest in the viral effect of BBS.

Earlier this month we announced the expansion of our manufacturing capabilities for BlackBerry SmartPhones to include a facility in Sao Paulo Brazil, in partnership with Flextronics this facility will expand RIM's production capacity and enable us to better meet the needs of our carrier partners and end users in Brazil throughout -- and throughout Latin America.

This will also provide more than 300 new jobs in Brazil and deepen RIM's commitment to the Brazilian market.

We're pleased with our record performance in fiscal 2010 with strong growth and market share both in the United States and globally.

The addressable market for BlackBerry has expanded substantially over the past year and we have a tremendous opportunity for sustained growth in fiscal 2011 through the launch of new products and services, continued expansion of our distribution capabilities, ongoing constructive alignment with our partners and focused execution of our plans.

I will now turn the call over to Brian to review Q4 results.

Thank you, Jim.

Revenue for the fourth quarter ended February 27th, was $4.08 billion which was slightly higher than the $3.92 billion reported in the previous quarter, slightly below the guidance we provided on the December conference call.

As Jim mentioned, this is primarily due to carrier inventory reduction and a lower than expected ASP due to product mix.

Handheld devices represented $3.3 billion or 80% of revenue during the quarter, as compared to $3.2 billion or 82% in the previous quarter.

Total devices shipped in the quarter were higher than Q3 at approximately 10.5 million units.

Approximately 10 million new devices were activated in Q4, by new customers or for replacements and upgrades not including phone-only sales.

We estimate the four weeks of channel inventory at the end of Q4 were lower than Q3 and the absolute level of inventory came down significantly and was lower than our expectation at the time of the last earnings call.

We expect channel inventory in Q1 to come down again slightly both on a four-week and absolute basis.

Device ASPs in the quarter were approximately $311, which was slightly lower than expected due to product mix.

Service revenue was $641 million, or 16% of revenue for the quarter, up $74 million from Q3.

Monthly ARPU was similar to the prior quarter.

Software revenue and other revenue accounted for the remaining 4% of sales in the quarter.

Gross margins for the fourth quarter was 45.7%, higher than the guidance we provided in December due to mix in handsets shipped in the quarter leading to a higher -- leading to higher hardware gross margin as well as service revenue being slightly higher as a percentage of overall sales.

As Jim mentioned earlier, there is not a direct relationship between ASP and gross margin percentage as we saw in Q4.

Operating expenses in the fourth quarter were $851 million or 8% of over -- up 8% over the comparable Q3 level.

R&D spending was $267 million or 6.5% of revenue in the quarter in line with our forecast.

Sales, marketing and administration expenses were approximately $500 million, up approximately 7% over Q3.

Operating expenses include stock-based compensation expense of approximately $16 million.

Tax rate for the quarter was approximately 30% in line with our forecast, net income for the fourth quarter was $710 million or $1.27 per share diluted.

Weighted average diluted shares used in the EPS calculation for the quarter were 561 million, actual shares outstanding at February 27, were 557 million.

Total options outstanding at February 27th were approximately 9 million.

RIM did not repurchase any shares during the quarter.

The total of cash, cash equivalence, short-term and long-term investments increased by approximately $461 million to $2.87 billion at the end of Q4 as compared to $2.41 billion at the end of the previous quarter.

During the quarter RIM generated approximately $776 million in cash from operating activities, offset by capital asset additions of approximately $258 million.

In Q4 accounts receivable were approximately $2.6 billion and DSOs decreased to 58 days from 63 days in the prior quarter primarily due to timing of sales in the quarter.

Inventory on hand at Q4 was approximately $622 million versus $613 million in the prior quarter.

Inventories continue to be primarily raw materials and semi-finished goods to support demand for BlackBerry products.

I'll now turn the call over to Edel to discuss our outlook for Q1.

Thanks, Brian.

Before I discuss our outlook for Q1 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 listed at the beginning of the call and disclosed in our public filings.

We expect to ship between 11.2 million to 11.8 million units in the first quarter of fiscal 2011 and for revenue to be in the range of $4.25 billion to $4.45 billion.

ASPs in Q1 is expected to be lower than Q4 at approximately $305 to $310.

As Jim mentioned, product mix is the primary factor affecting device ASP.

Beyond Q1, we expect ASP to remain at a similar level in Q2 with an increase expected in the second half of the year as new higher priced products are launched and become larger parts of the product mix.

ASP continues to be mix driven and can be challenging forecasts as the slight change in the forecast of mix of shipments of one BlackBerry SmartPhone versus another can have a meaningful impact on the ASP in the quarter.

This same dynamic also applies to gross margin as slight shifts in mix can also move this metric around.

We're targeting gross margin for the first quarter to be approximately 44.5%.

As we look out beyond the first quarter of fiscal 2011, we expect quarterly gross margin percentage to remain strong in the low 40s throughout the fiscal year.

This moderation from Q1 levels is primarily due to expected shift in product mix and new product introduction cycles.

We are targeting net subscriber account additions for Q1 in the range of 4.9 million to 5.2 million.

Total operating expenses are expected to increase in Q1 by approximately 3% to 6% from Q4 levels.

We expect R&D to increase by approximately 6% to 10% and sales, marketing and administration expense to increase by approximately 2% to 4%.

In the first quarter we expect depreciation and amortization to be approximately $90 million and we expect CapEx to be approximately $250 million.

In the second quarter we expect CapEx to be similar to, or just slightly above, Q1 levels.

The primary areas of spending are expansion of network infrastructure and facilities for R&D and IT operations.

We expect a tax rate to be approximately 28% in Q1 and we expect a similar rate throughout fiscal 2011.

This is lower than fiscal 2010 due to reduction in the Canadian corporate tax rate that has come into effect and that we've mentioned on previous earnings calls.

We expect Q1 EPS to be in the range of $1.31 to $1.38 per share diluted.

This does not include the impact of any share repurchases under RIM's share repurchase program that may occur during the quarter.

I'll now turn the call back to Jim.

Thank you, Edel.

We're pleased with our strong performance in fiscal 2010 with record results and continued strong execution in North America and international markets.

We are excited about our growth prospects in fiscal 2010 and look forward to reporting back to you on our progress throughout the year.

This concludes our formal comments and we would like to open the call up for questions.

Please limit yourself to one question per person.

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

Will 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 today comes from Tavis McCourt of Morgan Keegan.

Please go ahead.

Thanks for taking my question.

First a clarification, Brian, can you repeat the devices activated?

Secondly, Jim, I wonder if you could talk about right now the mix is heavily skewed toward the Curve form factor.

How long do you think you can keep growth going without a significant contribution from various touch screens and when would you expect that to happen?

Thanks.

Just to repeat that, that was 10 million new devices that were activated excluding phone only sales.

Yes, the -- there's just a great product road map for the year.

Obviously we can't talk about products that haven't been launched, but Edel talked about the ASPs are mix-related, and that there is going to be new products that are going to change mix.

And if you saw what we were doing with the platform and you saw our road map, and you saw our carrier channel programs, and you saw our international engagements, you will just -- I can't talk about what is not announced.

I love our road map for this year.

We guided a really strong Q1 based on just what is going on now.

And you'll just have to stay tuned.

We brought on a lot of development capability, a lot of platform extension.

This is a -- this is a really -- quite frankly, enhancing gain in what you can do with the specialized devices and enhanced platform capabilities B2B and B2C.

Our alignment with the carriers has never been better.

Our ecosystem has never been better and all I can say is stay tuned.

You're going to see some stuff by the call this time next quarter, you will see some stuff in the Fall.

If you saw the road map you would be blown away.

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

Please go ahead.

Thanks very much.

Can you talk a little bit about North America, your -- I think net was -- net momentum was actually down this quarter, and what you plan to do to increase momentum there?

North America, North America is a very important marketplace, and again, you get changes in different carriers, and different products, and different inventory management styles.

You have different ASP and promotion-type stuff.

It can -- if you -- if you looked at the mix and you saw the details, you would be very pleased.

If you saw the road map and the launch plans that these different carriers have with us, you would be very pleased.

And so -- a lot of it can be put down to mix on the revenue side.

There could be inventory management.

You have got to remember, the subs is something that I pay close attention to.

The subs are fine.

And that's a very good measure of health and, obviously, margins and EPS, if that matters, and if you saw the plans these guys had and you saw the platform extension stuff we've got going, you would love it.

Be careful that when there is sort of one-time things or mixed things or inventory adjustment things, that you don't misconstrue it because look how strong the nets were.

We've got a really strong Q1, and Edel guided some good stuff in growth and through the year despite quiet summers, and the market is expanding, we're doing very, well.

If somebody wants to misconstrue something, they can.

But North America is doing very well.

Occasionally you get a tweak by a carrier here and there or a shift by here and there, but I like how everything is aligned.

I love our road map.

I love our engagement and plans.

And you're going to see it all in play very soon and we have a lot of reason to feel -- we guided some growth in Q1 and Edel has signaled some things for the rest of the year.

Business is really strong.

Don't over-- don't over-- don't misconstrue something that shouldn't be misconstrued.

Thanks.

Your next question comes from Jim Suva from Citi, please go ahead.

Thanks very much.

Maybe can you just help us quickly understand a little bit about the customer inventory change.

How much of an impact that was for this quarter, and is it now behind us, or is it going to impact next quarter?

Is there a reversal of it, exactly how it flowed the sales and any impact on the EPS.

And, Jim, a question for you, Mike gave us a nice demo at Mobile World Congress with your new browser and web kit and it looks pretty strong there, any commentary around is that going to be backward-compatible, any timing on it?

It seems like the competitive nature, specifically for the consumer, where you're seeing a lot of growth is starting to increase and I think people are kind of looking forward to unleashing that item which Mike brought out at Mobile World Congress.

Yes, the couple questions there.

So I'll try to make sure I hit everything.

The -- no, the inventory is one-time.

And then you've got some shifts in policies there, and then you've got some changes in mix and that -- and that took it down a bit.

On the top line.

But other things did better, and the nets did better than we expected.

So you look at the leverage in the model, you look at margin and you look at the nets, we did fine.

So it is a one-time thing and you're seeing a lot of these programs -- everyone one of them has great programs they're unleashing.

I'm talking in North America.

The level of engagement around the world is amazing.

It is a one-time thing and that's the way it goes.

But it's not something structural.

It's not something that you can do twice, because somebody else may do it, but it's possible.

But things are pretty lean, because you got to remember we get daily activation numbers by -- by everything.

So there is no channel games.

It just doesn't happen, because you get your daily flow by activations and by device and by carriers.

It is a very real time feedback loop.

And so, the programs look great.

The devices are strong.

And, again, North America is hotly contended, but we're in a great spot and it's still doing fine.

The activations and the nets are great and the road map and the products are great.

On -- what Mike showed at Mobile World Congress, stay tuned.

I mean, we got the WES in late April.

You're going to see a lot there on all aspects of the just sort of the whole element of the BlackBerry experience, we've got all of these design slots around the world that we've invested in.

These people have been very busy.

All of the carriers are really aligning in all kinds of excellent promotions.

And programs to launch these and quite frankly, we have these -- we launched a lot of things at DevCon, super apps, gaming, open GLES-type stuff, concierge, media capabilities.

What you're going to see is really quite amazing and what is so exciting is how well aligned we are with the carriers, that they're strengthening in this in a constructive way and the ecosystem of application and content guides B2B and B2C are happy with this because it is not a disintermediation model.

So to answer your question, you're going to see all these capabilities come out, just stay tuned for WES.

You'll see a lot of stuff at WES and on the inventory stuff and flow stuff, it is very strong, it's one-time adjustment stuff and the other part is compensated yet the mix changes, but the margin stayed the same and the margins were better than expected and these are elements that can move around in our game.

But to interpret it as any kind of weakness from my point of view is misconstruing it, but people are free to interpret it as you wish.

Thanks very much and I'll see you in April at your event.

Your next question is from Peter Misek of Canaccord Adams.

Please go ahead.

Good afternoon Jim, Edel.

Couple questions on currency, to what extent did currency impact ASPs and what sort currency impact do you see in your guidance?

Yes, there was really no major currency impacts on ASPs in the quarter.

We have a fairly extensive hedging program as well, in fact increasing the amount of hedging we've been doing in terms of managing FX exposures.

In Q1 I think we're in a good to position to weather any normal kind of moves in the currencies.

In terms of guidance (Inaudible) hedged as well?

Sorry?

In terms of the guidance, the assumption is that you continue to remain fully hedged, correct?

No, it wouldn't be fully hedged.

Reasonably hedged.

Yes, that's correct.

Okay.

Thank you.

And your next question comes from Ittai Kidron of Oppenheimer.

Please go ahead.

I want to do dig in a little bit more into your international traction.

You've done a very good job in the last few quarters of diversifying your revenue and your revenues were around 30% international and now 43% if I got the number right.

Can you give us more color though, Brian, maybe on breakdown on net ad or a shipment standpoint, how should we view that?

And should I interpret, Edel, your guidance for the second half meaning with gross margins somewhat declining, in ASPs improving given the change in mix, should I interpret that to mean you expect North America to be somewhat stronger as you go into the second half of the year?

Sure.

So just on the last question, on the gross margin side of things, as Jim said, there is a lot of activity going on with our US carriers and a lot of new product launches planned both in the US and around the world.

So there is definitely quite a broad number of geographies that are participating there.

In terms of what is contemplated in terms of new products in the gross margin, definitely we have a lot of stuff planned later in the year.

And as we've talked about before, when you launch new products there will be some initial growth margins activity there, and that is built into the expectations that we talked about earlier on the call.

In terms of the geographic mix that you were asking about, I believe the actual number, it wasn't quite as high as what you said, 40-something.

I think it was 38%.

Let me just confirm that.

But I think it was 38% international revenue.

And in terms of subscribers, again, it was up very strong outside of North America.

Actually -- let me just pull the exact number for you, because I think it was 38% of the base.

Give me two seconds, Ittai.

I guess as you dig that number, how should I interpret then what sounds to be, and also a strong decline then, in net ads for North America.

Correct me if I'm wrong, I'm trying to tie a few data points around -- it seems a lot of traction internationally is with your low end -- low ASP devices, it sounds like traction internationally is extremely strong, and so when I look into the second half I'm just trying to understand sort of the working assumptions here.

It sounds like you're expecting a replacement cycle here in the US, not as much as a net add activity and a lot of net add activity outside of the US -- outside of North America.

Is that the right way to think about your business as we move through the year?

I wouldn't say so, no.

We think there is still a lot of room for growth in North America as well.

And to clarify the numbers here, before I finish your question there.

It was 48% of revenue outside of America and 38% of the base outside North America.

We didn't give a net add break-out.

But I think your assumption that low ASP products, is what's driving international, certainly 8520 has been successful has helped as a catalyst in some of those markets.

But Bold 9700 is also doing extremely well.

That has also been a big factor here and that has been one of the things we pointed out as to why the gross margin has been so strong and 8520 also had a great gross margin.

But 9700 has been also a big part of the mix.

I would not say what we're expecting later in the year is solely depend on international and what you would call lower ASP penetration.

Good luck.

And your next question comes from Vivek Arya of Bank of America-Merrill Lynch, please go ahead.

Thank you.

Jim, what kind of -- what new kinds of users do you think your new portfolio will appeal to?

How do you see the expansion of your addressable market because as I look back when RIM launched the Pearl a few years ago, that was a substantial expansion of your addressable market.

When you think about your new portfolio, do you think it can have a similar impact in your addressable market?

And secondly, do you think RIM is prepared to handle the potential entry of Apple's iPhone into Verizon?

The -- to answer the first one -- the sector we're in is expanding rapidly, so, yes, there is no new users on all fronts.

I think the social and prepaid and the Curve model has really just nailed entry markets and international markets, and they just grow up to more and more capabilities over time.

So that's just a phenomenal place to start and it just -- and it's developing great use, and quite frankly it's also for entry levels respecting network scarcity, which is a big issue in a lot of these markets.

So, you've got entry level users, we've got great B2B plans.

We've got -- and these higher ASP are clearly -- they're strong media strategies and sophisticated user strategies in these higher end products and you have heavy, major carrier alignment in these strategies.

So I think you're going to see that happen.

I'm not going to speculate on what other companies are going to done what other carriers.

We have 530 odd carriers in 170 countries, 175 countries and it's growing.

Channel programs B2B and B2C are super intimate.

These companies -- carriers have different programs, but our whole thing is very strong alignment with their strategic -- being a platform to their customers, very high respect of their network scarcity, highly profitable customers, both on the revenue and the costs.

And a rich interface with the ecosystem, and it's working.

And carriers like that, and they like it around the world and the ecosystem of content and application guys like it and that's why you're seeing the growth that we're representing and that's why we're signaling continued growth.

But we've definitely had competitors come and go and you have to remember whenever one thing happens, there is always a reverberation effect.

So you just can't examine these things in isolation.

You can say the same about any carrier in any circumstances, but our brand and our value and benefit to the carriers and users is -- has been demonstrated in all of these elements that we've signaled, and I see everyone of those elements only strengthening going forward.

Both in an absolute market growth and the new and existing kind of users, and I think our competitive hand on a relative basis is strengthening.

And if you saw what was going on in the devices and the platforms and the deliverables, that you will see throughout this fiscal year, you would realize not only are we the strongest competitor, but really in the established player, but we're strengthening.

Thanks, good luck.

Thank you.

Your next question comes from Chris Umiastowski of TD Newcrest.

Please go ahead.

Thanks very much for taking my question.

I'll try this and see if it works.

I think a lot of people are asking and wondering about the net adds in North America and the math seems to suggest that net adds did go down sequentially.

I know, Jim, you said you are satisfied with the way net adds are shaping up.

So if we can keep the discussion to net adds, which I think is a leading indicator for your business in North America, and obviously international is going very well.

What's going on in North America in terms of net adds?

I think North -- I don't have -- North America is fine.

North America is doing really well.

And the net adds have done really good.

So I don't know kind of how you're thinking that.

And the other thing is that sometimes you have different carriers doing different things, so if you have -- if you have a certain number of carriers hitting on all cylinders, and then extending to extend it, and then you have a -- one or two that said, okay, we want to crank it up to a whole different level or to take it back to where it was, and those are all imminent plans, that's cause to feel very good.

And, clearly, when you sort of model out your quarters and all that, you don't count on everybody doing 100% of everything that they're saying they're doing, so you go that adds up to something pretty good so let's just give it the best estimate we can.

So North America is fine on a net basis and quite frankly strengthening.

I think we guided that in what Edel said.

I think you're misconstruing it that something --

I guess the math that I did, that I think a lot of people will be doing, last quarter you said 35% of your base was outside of North America, this quarter you said 38%.

So it's just the delta math.

A lot of that is rounding, Chris.

When we say 35 -- we do round those percentages and it is pretty sensitive.

Net adds were up in North America last quarter.

Okay.

That's exactly what I'm looking for, confirmation of.

I appreciate that.

And if I could -- if I could ask on international, is -- what are you doing in terms of manufacturing in South America, and tapping the Brazilian market?

It looks like that seems to be the stand out market where there is a huge population and a huge opportunity but the retail prices are really high.

Well, the -- [Lovands] is doing very well.

And we mentioned that.

Probably the highest growth area in the world for us in sort of a larger type of area by a fair bit.

So it's really doing well.

And other parts have done really well, and Brazil has done okay.

And, you're right, they have tariff structures.

So we have this new manufacturing plant that -- that gets around -- that supports the local manufacturing price points.

So we expect the pricing to be much stronger in the very big Brazilian market, and one could count on that to be one of many growth drivers that we've got going on, and also in that region that manufacturing can service other markets like Argentina and so on and Chile, and so on.

So, yes, there is a lot of reasons to feel very excited and good about Brazil, and the whole Latin region.

Thanks very much.

That answer helps a lot.

Your next question comes from Maynard Um of UBS, please go ahead.

Hi.

Thanks, can you help us to understand how we should think about the August quarter and seasonality given the growing international mix.

Your gross margin guidance of moderation seems to imply that the mix of hardware won't change through the August quarter.

I'm just wondering if that is the right assumption.

If I could just follow up on the inventory question.

There was a view I think out there that inventory in the channels were really low and that there should be a rebound quarter, but you kind of guided inventory down again next quarter.

So I'm just wondering if these are reasonable levels of inventory to kind of fill the demand that you're seeing, or if you think the channel will actually have to replenish it at some point to more reasonable levels?

Thanks.

Hi, Maynard.

The channel inventories are at an extremely low level.

I think that when we launch a new product, there is definitely going to be channel spill and that kind of stuff.

I do think that lean inventories are here to stay.

I don't think that you're going to see them returning to where they would have been a year ago or anything like that.

So I wouldn't suggest that you build anything like that into your expectations.

And in terms of seasonality, Q2 is always a difficult quarter because of the summer in terms of predicting it and then if you throw new product launch into the mix, it does give tough.

That is why we only give full guidance one quarter out.

We have typically not seen a ton of summer seasonality.

We do see it in certain geographies, but we have had some quite strong Q2s and then we've had some where you've seen more of a seasonal effect.

It is a little early to predict at this point as to what we're going to see in Q2.

We've kind of given you about as much as we can on that quarter.

To the question of visibility, you talked about the ASPs in the back half, I guess how firm is your pricing for your road map in the back half?

I'm just trying to understand how to think about new product ASP in the context of competition in industry pressures.

In many cases, when you're doing a new product for a partner, there is pricing contemplated already.

That would be set in up front.

What the overall pricing scenario in the market looks like six or eight months from now, you could always be surprised, but given the visibility that we have today and the indications that we have in our expectations for the market, we have given you the best view that we can.

Okay.

Thanks.

Your next question comes from Jeff Kvaal of Barclays.

Please go ahead.

Yes, thanks very much.

I was wondering if you could comment a little bit on the ARPU trajectory.

Sounded as though you're talking about growth in the prepaid market, what should we think about in terms of, A, the ARPUs and obviously down is what we suspect in any quantitative comment there would be helpful.

And, secondarily, what kind of impact does that have on your margin structure?

Thank you.

Are you talking ARPU for carriers or for our (Inaudible)?

For your own -- for your own --

There is segmentation but they tend to grow up into higher levels.

So it can change around based on segmenting for lower users, but it is a mix.

I don't know what -- do you guide the numbers?

No, we don't.

We did say it was flat in Q4, but we don't provide guidance.

So there is a mix to it and it's growing.

But once people enter in lower, they often upgrade to a greater level over time.

So that will just undertake its natural evolution.

And there is a lot of rich new services that quite frankly you're going to see some of them unleashed this year.

A really positive potential on the value-added side beyond that.

It is one of those mix kind of things.

You get a mix segment down and you get new services and upgrades to bring it up, and Edel has guided it stable and that is a pretty good place to go and the most important thing is to continue to expand the subscriber base, and then enriching the platform experience, and that's exactly what we're doing in a global basis.

Is there a margin implication for the lower -- lower tier plans?

Not in any material way, because they tend to be based on use, and so if somebody is on a BES social plan that you're just doing messaging and Facebook, that is a pretty light consumption on the network and it is a lighter kind of infrastructure load.

The whole infrastructure is growing pretty substantially because people are using it a lot.

BlackBerrys are pretty light load on the networks and they also compressed and efficient on even heavier load apps.

So scarcity matters.

No, they're light load on our infrastructure, too.

Does that suggest that even that -- in established pricing tiers there is pricing pressure or not pricing pressure or how should we think about that?

Nothing of any materiality that is worth disclosing, beyond any normal commercial interplay.

Everybody has commercial interplay where people want that, in other parts of the business, sort of a normal thing.

But there is nothing -- nothing beyond guidance or nothing beyond the normal dynamic at play here.

Okay.

Thanks very much.

Ladies and gentlemen, this concludes the question-and-answer session.

Ms Ebbs, please continue.

Thank you operator.

I'd just like to thank everybody for joining us on the conference call today and remind everyone that there is a replay available on our website at rim.com/investors.

Thank you.

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

Thank you for your participation and you may now disconnect your lines.