BlackBerry Ltd (BB) 2011 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Research in Motion first quarter fiscal 2011 results conference call.

(Operator Instructions) I would like to remind everyone that this conference is being recorded today, Thursday, June 24, 2010 at 5 PM Eastern Time. And I will now turn the conference over to Edel Ebbs, VP Investor Relations. Please go ahead.

Thank you. Welcome to RIM's fiscal 2011 first quarter results conference call. With me on the call today is Jim Balsillie, Co-CEO, and Brian Bidulka, CFO. After I read the required cautionary note regarding forward looking statements, Jim will provide a business and strategic update. Brian will then review the first quarter results and I will discuss our outlook for the second quarter of fiscal 2011, we will then open the call up to questions.

I would like to note that this call is available to the general public via a call in number and webcast. The replay of the webcast will also be available on the RIM.com website. We plan to wrap up the call before 6 PM Eastern this evening.

Some of the statements we'll 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, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings, and ASP for Q2 fiscal 2011 and beyond. Our expectations regarding RIM's near and long-term tax rates as well as the effect of changes to 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, well, 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 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 production facilities, security risks, risks associated with our international operations, our ability to manage growth, and other factors set forth in the risk factors in the MD&A 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 kicking off fiscal 2011 with a strong footing with unit shipments for the first quarter of approximately 11.2 million and the shipment of RIM's 100 millionth BlackBerry smartphone.

Earnings per sharing on the quarter were at the high end of our expectations and grew more than 40% over adjusted earnings per share the same quarter last year. We added 4.9 million net new BlackBerry subscriber accounts for the subscriber base of approximately 46 million at the end of the quarter. Unit shipments in Q1 were impacted by later-than-anticipated shipment of certain new products scheduled for the latter part of the quarter.

Revenue for Q1 was at the low end of the range we forecasted in March primarily due to the slightly lower than expected shipments and the resulting product mix that favored lower ASP products. Product mix also led to the higher-than-expected gross margin in the quarter. Channel inventories remained relatively flat in Q1 and we are not anticipating a significant increase in weeks of channel inventory in Q2.

BlackBerry smartphones are available through over 550 carrier and distribution partners in over 175 countries and international markets continue to be a strong driver of growth. We saw ongoing success in our efforts to increase BlackBerry penetration in enterprise, consumer, and prepaid markets around the world during the first quarter.

Net subscriber account additions outside North America were particularly strong in Q1 and approximately 40% of the subscriber account base is now outside of North America. We are expecting second quarter BlackBerry smartphone shipments in the range of 11.6 million to 12.1 million and to add between 4.9 million and 5.2 million net new subscriber accounts.

Forecasting the second quarter is challenging given that we are planning two significant new product introductions that will likely bridge the end of Q2 and into Q3. The specific time of these launches will have an impact on how much of these products ship in Q2 versus Q3. These products also have higher ASPs, so a shift in the percentage of these products in the mix for Q2 also has a meaningful impact on our revenue and earnings forecast.

We have an exciting lineup of products, services, and promotions expected to be introduced between now and the end of the fiscal year and we believe that these together with the introduction of new tiered service pricing in the US and around the world are setting the stage for an acceleration of growth in Q3 and beyond.

We believe that this will lead to a meaningful increase in run rate of shipments and sell through in the second half of the fiscal year versus what we have seen in recent quarters. In the first quarter we launched two new smartphones, the BlackBerry Pearl 3G and the BlackBerry Bold 9650 for CDMA.

The 9650 is the newest edition to the award-winning Bold family, and it's the first Bold world phone to operate on CDMA networks in North America and roam internationally on GSM networks. The 9650 also offers premium features including Wi-Fi, GPS, an optical trackpad, and a fast 528 megahertz processing speed.

We are pleased with the initial sell-through at both Sprint and Verizon where the Bold 9650 has been in market for a few weeks now. Reviews of the Bold 9650 have been outstanding with strong acknowledgement of the device's features, design, and build quality. The BlackBerry Pearl 3G is the smallest and lightest BlackBerry smartphone ever, weighing just 3.3 ounces in an elegant candy bar form factor.

This smartphone is targeted at the large percentage of the global phone market that is accustomed to messaging from a traditional alphanumeric keypad and offers a very attractive [on ram] for those users as well as providing an upgrade opportunity for the large base of existing BlackBerry customers who favor the SureType keyboard and Pearl designs.

The premium 3G Pearl experience allows users to benefit from the high speed 3G UMTS/HSDPA networks while they also benefit from a Wi-Fi [BG and N support], one of the highest pixel density screens on a BlackBerry smartphone, support for up to a 32 gigabyte microSD card and many more of the features that users expect from a fully-loaded smartphone.

In April, we hosted the 9th annual Wireless Enterprise Symposium in Orlando with over 5000 attendees, over 100 breakout sessions, and very positive feedback from customers and partners who attended.

At WES this year, we also previewed BlackBerry 6, the next generation of the BlackBerry user experience featuring crisp graphics, seamless animation, and deep customization capabilities. With redesigned core applications and new enhanced multimedia experience, this new UI will change and enhance the way BlackBerry users interact with their smartphone.

BlackBerry 6 will also incorporate the new BlackBerry WebKit browser with best in class efficiency, Fidelity, and ease of navigation. We expect BlackBerry 6 to be available before the end of September.

During Q2, Verizon continued to promote BlackBerry smartphones through a BOGO promotion with attractive pricing on Storm, Curve and Tour devices. The new CDMA Bold 650 was also recently launched at Verizon and starting in July, Verizon will be running a campaign to support the launch, which includes a tour of major US cities where subscribers who are eligible for upgrades will be invited to participate in special discounts and will be offered promotional credits and discounts from application partners such as Skype and Flickr.

Verizon also targeted the enterprise segment of the BlackBerry solution through a new initiative that allows the purchase of BES software license on their [MyBes] and Verizon enterprise center web portals and featuring these offerings in their quarterly software promotions.

Sprint continued to increase their BlackBerry subscriber base in Q1 through initiatives such as the BOGO program on Curve 8530 and the launch of new Bold 9650 across all channels. Sprint also introduced BlackBerry service through its Virgin prepaid brand in addition to the existing availability of BlackBerry on its Boost prepaid platform.

At T-Mobile, the Bold 9700 continues to do well, supported by a mix of print and online media campaigns that compliment the advertising and marketing programs we recently launched promoting BlackBerry messenger. BlackBerry mobile voice system also continues to be a part of the T-Mobile offering and is being supported by -- with various training initiatives throughout the different sales channels to push awareness of the new MBS capabilities that were launched at WES in April.

An exciting development in North America this quarter was the industry leading data pricing move by AT&T with the replacement of all-you-can-eat data plans with new usage base plans that better reflect the true costs of network usage and reward customers for using the network more efficiently.

The BlackBerry platform has been proven to be more efficient in terms of network usage than most other platforms and we expect this move to be positive for our BlackBerry smartphone adoption. The majority of BlackBerry smartphone users will be able to subscribe to the lower-priced $15.00 per month plan, while many customers on competing platforms may need to subscribe to the higher-priced $25.00 dollar plan. In the UK, O2 also launched a similar plan where they have eliminated unlimited data options and replaced those plans with usage-based pricing tiers.

The enterprise market continues to be an important segment and at the end of the quarter, the BlackBerry solution was deployed in over 90% of the Fortune 500 with approximately 80% having an install base of 500 or more devices. The BlackBerry platform continues to be the platform of choice for corporate deployment and this position has been reiterated recently by a number of corporate customers across multiple industries that have evaluated and undertaken trials of alternative solutions but abandoned these and reaffirmed their commitment to BlackBerry.

In addition, there's a new opportunity evolving in the corporate market where enterprises are choosing to support user-purchased personal devices for access to corporate data. As the adoption of these personal-liable devices accelerates in the enterprise and the SMB, we continue to build on the flexible BlackBerry platform to fit the growing needs of the workplace. Later this year, we expect to introduce a solution to allow enterprises and end users to manage BlackBerry smartphone more effectively as corporate assets.

This extended functionality for the BlackBerry platform will allow organizations running a BES or BES Express to secure and control the enterprise portion of the BlackBerry smartphone and simultaneously allow the end user to have an independent control of the rest of the device when used for personal reasons.

This solution would extend to many of the core BES capabilities such as remote, enterprise [white], corporate data access controls, access to third party applications and features, such as blocking of copy and paste from the corporate side of the device to the personal side.

Demand in the UK remained strong this quarter with multiple carriers choosing BlackBerry smartphones as their hero device for both pre and post-paid offerings. These and other efforts during the quarter culminated in BlackBerry achieving the largest share of smartphones sold in the UK during calender Q1, with the Curve 8520 being the most popular pre-paid device and the second most popular on post-paid.

This success was largely attributable to the strong support of our carrier partners including O2, who targeted customers with numerous promotions on BlackBerry smartphones, BES Express, BBM, and the prominent position of BlackBerry in the O2 buyer's guide.

T-Mobile UK also dedicated a large marketing budget to BlackBerry with prominent in-store displays, a dedicated BlackBerry zone on their website, and hero status in May across major channels. EMEA continued to perform well in Q1 with the Netherlands, the UAE, and South Africa showing particularly strong growth.

In the Netherlands, we continue to increase our marketshare with the Bold 9700, attaining the highest volume post-paid handset in the nation thanks in part to promotions from all three carriers in the region.

In the UAE, BlackBerry continued to lead the market with Etisalat introducing an aggressively-priced social networking plan and du launching BlackBerry smartphones into their prepaid plan -- channels. This success was mirrored in Kuwait following the introduction of the Curve 8520 during the quarter.

In South Africa, the Curve 8520 was strong with both MTN and Vodacom setting new records for BlackBerry subscriber growth through creative marketing programs such as Do you speak BlackBerry? campaign targeted to South Africa students. In Latin America, the BlackBerry Bold 9700 was launched during the quarter, further solidifying the BlackBerry platforms leading position in the region and complimenting the already successful Curve 8520. Many carriers in the region featured BlackBerry smartphones in Mother's Day campaigns with special bundle devices and rate plans.

Telcel in Mexico ran a hero campaign around the Bold 9700 and featured different colors of the Curve 8520 in their Mother's Day promotion. RIM's BlackBerry Messenger branding campaigns have been well received in many of these markets and carriers in Brazil, Columbia, Mexico and other countries are leveraging this campaign with window displays and other promotional activities.

We are pleased with the continued strong growth we are seeing in Asia Pacific and especially southeast Asia, where BlackBerry devices are the smartphone of choice in many markets. This is being driven by strong carrier adoption of tiered and prepaid pricing plans, the prominent and viral nature of BBM and the wide portfolio of BlackBerry smartphones available in the region.

We're also expanding our channel reach and retail focus in India in partnership with Brightpoint in order to expand the number of retail points of presence throughout the country and are also working closely with them in neighboring markets such as Malaysia, Thailand, and the Philippines.

Over the past few months, we launched several new products and partners in India including the Pearl 3G, the white Bold 9700, Storm 9520, and Curve 8530. Additionally, we launched BES Express and worked with Vodafone on a try-and-buy offer to further incent voice-only customers to upgrade to a data plan.

We believe there are tremendous opportunities in the Indian market and are beginning to see strong adoption of BlackBerry Messenger among certain market segments, which we plan to capitalize on to further drive growth in this region.

In China we recently made our first step into retail markets with the introduction of the BlackBerry Curve 8910 through Digital China's nationwide retail network with over 300 points of presence. The Curve 8910 will be optimized to enable access to popular services like Sina Weibo, QQ, and Fetion, in addition to multimedia and messaging capabilities.

In May, we also introduced our first device offering on China Telecom's EV-DO 3G network and started offering the BlackBerry Storm through Chinese enterprise channels. The BlackBerry solution would be marketed through China Telecom's Tianyi surfing 3G service and will initially be launched in 16 provinces.

Additionally, we expanded our mobile applications initiative in the region by announcing RIM's participation in $100 million affiliate BlackBerry Partners Fund in China, which is a joint effort between BlackBerry Partners Fund China, China Broadband Capital Partners, and North American BlackBerry Partners Fund.

We continue to drive penetration of the BlackBerry platform in the prepaid segment. In Asia Pacific and EMEA, prepaid growth remains strong, as we have seen for the last few quarters, but we are seeing increased penetration of prepaid in many other markets including North America.

BlackBerry is now available through both of Sprint's prepaid channels and in Canada, TELUS launched BlackBerry smartphones in their Koodo prepaid channel with an attractive $10.00 and $15.00 per month rate plan and Bell launched new BlackBerry grab and go bundles that allow their customer to buy a sealed package and activate the device on their own.

Social networking usage continues to grow in BlackBerry smartphones and BlackBerry subscribers are the most active with popular social networking sites. We recently released the native Twitter for BlackBerry App into BETA and within a few months has become the most prevalent platform for tweeting in any smartphone brand.

The application allows for seamless integration between other native BlackBerry applications and Twitter to offer real-time messaging and notifications as well as the ability to quote tweets, utilize friend picker, post tweets, forward, and retweet as well as many other features.

The Facebook App also continues to grow on BlackBerry with millions of users added each quarter and over half of our carry partners preloading the application on BlackBerry smartphones. In the upcoming months, we expect to further integrate social networking applications into the BlackBerry platform to bring an even better user experience.

BlackBerry Messenger continues to be a unique and valuable application for attracting new users to the BlackBerry platform. To leverage this success, we recently launched a new BlackBerry Messenger advertising campaign in North America, the UK, and major markets in LatAm and are experiencing a dramatic uplift in our BBM penetration in these markets as measured by incremental usage as well as activation by new users.

In Q2, we plan to continue our focus on driving awareness and adoption of BBM in all of our major markets and are planning a significant advertising media campaign in our top 12 markets in North America.

April was the first anniversary of the launch of the BlackBerry App World, which is now available in over 60 countries and six languages around the world and has been downloaded by over 20 million subscribers with approximately a million apps downloaded every day. We expect this success to accelerate with the upcoming launch of App World 2.0, which is expected to incorporate key features to support -- including support for carrier and credit card billing, barcode scanning, a top new application view and many other features.

In addition to improvements in the App, App World 2.0 users will also enjoy more functionality in the App World website enabling them to create an App World account, purchase content from the store, and sync content with their BlackBerry smartphone via a side-loaded connection.

The concept of BlackBerry Super Apps continues to drive excitement in the BlackBerry developer community. We have been working closely with the developer community to help them understand how they can take advantage of the unique BlackBerry APIs and services and to challenge them to create innovative, addictive, and highly engaging Apps that can become an important part of their users' lives.

One way we are doing this is through the Super Apps Developer Challenge that was launched this quarter to reward developers that demonstrate true innovation through apps that are designed to change the way people work and play.

Developers are being rewarded through prizes valued at over $1.5 million that include funding for go-to-market services and application promotion. The first round of recognition will happen at the BlackBerry developer conference in September.

We're pleased that RIM has been recently ranked 9th in the annual Gartner AMR Top 25 Supply Chain Award rankings, which recognizes supply chain management excellence. We've worked diligently over the past few years to improve our value chain and this award is validation of our strategy and our ability to scale on par with some of the best companies in the world.

During the quarter we also completed the remaining portion of the $1.2 billion common share repurchase plan authorized by RIM's Board of Directors last November. The total number of shares repurchased since November was 18.2 million with an aggregate cost of approximately $1.2 billion. Today, RIM's Board of Directors approved a new repurchase program authorizing the company to buy back approximately 31 million shares over the next 12 months.

We are pleased with the ongoing strength of BlackBerry adoption around the world. We're heading into an exciting new product cycle beginning in late Q2, which we expect to leverage through focused execution and ongoing constructive alignment with our partners to drive an acceleration of growth in the second half of the fiscal year.

I will now turn the call over to Brian to review Q1 results.

Thank you, Jim. Revenue for the first quarter ended May 29 was $4.24 billion, which was slightly higher than the $4.08 billion reported in the previous quarter and in line with the guidance we provided on the April conference call.

As Jim mentioned, shipments in the quarter were impacted by the slightly later than expected shipment of the new Bold 9650 and Pearl 3G as well as a lower than expected ASP of $300 due to product mix that included less of these new, higher ASP products.

Handheld devices represented $3.35 billion or 79% of revenue during the quarter as compared to $3.3 billion or 80% in the previous quarter. Total devices shipped in the quarter were higher than Q1 at approximately 11.2 million units. Approximately 10.5 million new devices were activated in Q1, either for new customers or for replacements and upgrades not including phone only sales. We estimate that both four weeks and the absolute level of channel inventory at the end of Q1 were similar to Q4. We expect channel inventory in Q2 to remain similar to Q1 both on a four weeks and absolute basis.

Device ASPs in the quarter were approximately $300, which was slightly lower than expected due to product mix, reflecting delays in shipment of certain new higher ASP products. Service revenue was $693 million or 16% of revenue for the quarter, up $53 million from Q4. Monthly ARPU was down from the prior quarter due to growth in the adoption of bids and the success of certain lower price service plans. Software revenue and other revenue accounted for the remaining 5% of sales in the quarter.

Gross margin for the first quarter was 45.4% higher than the guidance we provided in March due to mix of handsets shipped in the quarter, leading to a higher hardware gross margin as well as service revenue being slightly higher as a percentage of sales. Operating expenses in the first quarter were $865 million, up slightly over the comparable Q4 levels.

R&D spending was $288 million or 6.8% of revenue for the quarter, in line with our forecast. Sales marketing and administration expenses approximately $483 million, down slightly over Q4. Operating expenses include stock-based compensation expense of approximately $16 million.

Tax rate for the quarter was approximately 28% in line with our forecast. Net income for the fourth quarter(Sic-see press release) was $769 million or $1.38 per share diluted. The impact of shares repurchased in the quarter were approximately $0.01 per share. Weighted average diluted shares used in the EPS calculation for the quarter were 558 million. Actual shares outstanding at May 29 were 552 million.

Total options outstanding at May 29 were approximately 8 million. During the quarter RIM repurchased 5.9 million shares. Total of cash, cash equivalents short-term and long-term investments increased by approximately $400 million to $3.27 billion at the end of Q1 as compared to $2.87 billion at the end of the previous quarter. During the quarter, RIM generated approximately $1.12 billion in cash from operating activities, which was offset by capital asset additions of approximately $226 million and the repurchase of common shares of approximately $410 million.

In Q1, accounts receivable were approximately $2.6 billion and DSOs decreased to 57 days from 58 days in the prior quarter primarily due to timing of sales in the quarter. Inventory on hand in Q1 was approximately $555 million versus $660 million in the prior quarter. Inventories continue to be primarily raw materials and the semi-finished goods to support demand for BlackBerry products.

RIM reports in US dollars, but has a portion of its expenses in revenue in currencies other than the US dollar. Volatility in foreign exchange markets can have an impact on both revenues and operating expenses. To mitigate this risk, we have a hedging program in place to hedge a portion of the foreign exchange exposures.

As a result of our hedging program in Q1, we did not see a significant impact on revenues or expenses from foreign exchange fluctuations. Given the current forecasted mix for Q2, we do not expect a significant impact on revenue or net income from foreign exchange with a plus or minus 10% move in the US dollar having a negligible impact on revenue or expenses.

I will now turn the call over to Edel to discuss our outlook for Q2.

Thanks, Brian. Before I discuss our outlook for Q2, I'd 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 11.6 million and 12.1 million units in the second quarter and for revenue to be in the range of $4.4 billion to $4.6 billion. ASP in Q2 is expected to be similar to or slightly above Q1 levels.

As Jim mentioned, product mix is the primarily factor affecting device ASP and forecasting ASP for Q2 is particularly challenging, given the variability that can result from shifts in the mix due to the timing of new product launches in the quarter. We continue to expect ASP to increase in the second half of the year as new, higher-priced products become a larger part of the total product mix.

We are targeting gross margin for the second quarter to be approximately 44%. As we said on the last call, we expect quarterly gross margin percentage to remain strong in the low 40s throughout the second half of the fiscal year.

We are targeting net subscriber account additions for Q2 in the range of 4.9 million to 5.2 million. This reflects the potential for a decrease in activity in European markets throughout the seasonally slower summer months as well as the timing of scheduled new product launches in the quarter. These new products are anticipated to drive an increase in net new subscriber account addition run rates once they are in market, but timing differences between sell-in and sell-through may shift more of this benefit into the third quarter.

Total operating expenses are expected to increase in Q2 by approximately 7% to 10% from Q1 levels. We expect R&D to increase by approximately 6% to 10% and sales and marketing and administration expense to increase by approximately 7% to 10%.

In the second quarter, we expect depreciation and amortization to be approximately $100 million and we expect CapEx to be approximately $350 million. In the third quarter, we expect CapEx to be slightly lower than Q2 levels.

The primary areas of spending continue to be expansion in network infrastructure and facilities for R&D and IT operations. We expect the tax rate to be approximately 28% in Q2 and throughout the remainder of fiscal 2011. We expect Q2 EPS to be in the range of $1.33 to $1.40 per share diluted. This excludes the impact of any share repurchases that may occur during the quarter.

I'll now turn the call back to Jim.

Thank you, Edel. Adoption of the BlackBerry platform in markets around the world continues to drive strong results and open up new opportunities. We are looking forward to the introduction of innovative new products later this quarter and throughout the remainder of the fiscal year and plan to continue to focus on building strong partnerships, delivering quality products, and leveraging the unique capabilities of the BlackBerry platform to drive profitable fiscal growth -- profitable growth in fiscal 2011.

This concludes our formal comments. 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 by approximately 6 PM.

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 today comes from Ittai Kidron of Oppenheimer. Please go ahead.

Thank you. I wanted to dig in into your expectation of, as you mentioned, acceleration of growth in the second half. Can you give us a little bit more color as to what you expect really to drive this? Is it mainly international markets that you expect some big step up? A big recovery here in the US? Some hero campaigns? If you can give us a little more color on what do you mean by that?

And also, how should that be measured? Is that year over year growth in devices should accelerate as a percent, or, when you mean acceleration, can you be more specific in what is the financial item we need -- or performance item we need to look at when you say acceleration?

Well, we have specific hero campaigns, certainly in the United States. Major as big of campaigns -- bigger campaigns than we've ever had before. And we certainly have launches throughout the world.

So, yes, they are just -- they're major hero campaigns. They're committed (inaudible) it's [booked], the products, the shipments, the promotion campaign. They're very substantial. And we also are rolling these out around the world.

So, we have normal execution issues to ensure we manage those in terms of timing and all of that. But, we would like to get a certain amount of certain products in this quarter and if the cut off between this quarter and next is always an issue of timing, but the commitment, the scale, the strategic positioning, the innovation is fantastic. And there's global plans in these products.

Some of them -- throughout the world, you're seeing constructive alignment's got a renewed value, efficiency's got renewed value and these are the kind of products that allow you to have your cake and eat it too. They offer premium performance, the ability to have enterprise and consumer on the same device, high efficiency, and yet carrier platform extensions, so, the commitment is -- and we might have a couple surprises up our sleeves in addition to that this autumn.

So, yes, we feel fantastic about the business, we feel fantastic about the product set, the hero campaigns are great, tremendous imperative on execution, of course.

And, these are all measured in degrees of acceleration and degrees of new levels of performance and sales. But we feel very, very strong and optimistic about what you're going to see coming out of us throughout the rest of the fiscal year.

Can you give us a sense of magnitude on new products? How much are they impacting the August quarter? How much of that is taken into the guidance?

Well, part of it is, and I think was mentioned in the comments that some of these are high ASP and we're now two months -- just shy of two months into this quarter -- so --- right -- sorry, one month into this quarter -- and so we've got two months left in the quarter and so, how much of that -- sorry, I was miscounting, but how much of that you can get in this quarter is an important question and how much does that change the mix. And it's a quiet summer season, but there's all kinds of back to school.

So, definitely some of this stuff is planned for this quarter, you bet, you bet.

Good luck.

Thank you.

Your next question comes from Maynard Um of UBS Securities. Please go ahead.

Hello, thanks. Can you hear me?

Yes.

I just want actually a clarification just on the ASP trends and then a question.

Just on the ASPs, with a full quarter of the 9650 in the August quarter, shipments of new higher ASP products later part of this quarter, and then seasonality presumably slowing the 8520, I'm just curious why your mix actually wouldn't help your ASPs up sequentially?

And then just the question just on the competition. You used to have BlackBerry built in to allow non BlackBerry devices to hook into the BES. I'm just curious if you might have plans to create something like a sandbox application for other platforms, other OSs and I guess what the challenges in doing something like that might be?

Thanks.

Maynard, it's Edel. I'll take your first question. I really wish forecasting ASPs was that simple.

But there's really a lot of moving parts in there. And I did say that it could be slightly higher in Q2. And it's really going to be a function of how much of the new products are shipped in the quarter and then what the mix of the remaining products are.

And even though we talked about the potential for somewhat of a slow down in parts of Europe. That's not the only place where the 8520 sells well. Or the 8530, for that matter.

I think it's a lot more complicated formula than just that. But we have -- in the guidance, we did say that it could be slightly higher than this quarter and we're just going to have to wait and see how much of some of these other products ship.

Yes, on the competition, I mean, the enterprise side is just going through a tremendous set of opportunities. I think they're rethinking a lot of architectures, cloud and mobility, and unified communications and companions and tablets. And I think there is a lot of that going on right now.

We did the built-in program. You know, the BES is, gosh, there's several hundred thousand BESs out there when you consider BES Express and BESs also. They're not really coming at me for BlackBerry built-in. There used to be a time they were.

The security issues are still important, but the consumerzation of IT is also important. They're much more interested in things like sandboxing, of dual profile, as we say, personal and corporate, so that you can still have your control, but you can have your-non enterprise part. The unified communications MBS is huge with Wi-Fi.

How one works tablets and companions into this is super strategic to them. Push-based application architectures, like with widgets and also, being able to have enterprise app stores and consumerization of elements of what users want and then, making sure you support cloud services.

So, to answer your question, it hasn't been something that has been pushed and a lot of our stuff we like interrogate the BootROM. Its not had any security compromises and I think they're aware of that. But, I wouldn't strategically be super averse to it if somebody --- if you know it became something that the markets were pushing for.

But if it's a half measure, it's a no measure in terms of enterprise requirements. And I can't say that they've come at me with that as a request. They come out with lots of requests. But, I can't say that that's one that's been, you know CIOs -- they've been basically saying, we love what you got, we love what you're doing. Let's get it deployed.

If its MBS, let's get it working on all the different IP PBX platforms. If it's dual profile, let's get 6.0 out of its new form factors. Let them get it and going. If it's other kinds of companions or things that may work with it, how are you going to architect that?

So, it just hasn't been on the agenda, you know?

And your next question comes from the line of Ehud Gelblum of Morgan Stanley. Please go ahead.

Hello, thank you very much. Just a couple quick questions. If you can go a little bit more into the detail on the delay in the new Pearl 9650. What caused the delay?

The phone did come out at Sprint at the time when it appeared to be after you announced it at your analyst day, so that seemed to be on time. Verizon followed up a little bit afterwards, so if you can go into a little bit -- when you were expecting them to come out versus when they did and why?

And then, Edel, on international units, can you just confirm for us that international actually grew? The only number we have sort for international North America is that 40% number of subscribers you gave. When you try and back into -- I know there's a lot of rounding going on, but when you try and back into the number of actual devices, I sort of get that possibly international devices may have been relatively flattish.

If you can give us a sense as to how much international devices grew and how much US -- North America, I mean, devices grew. And then, the last thing is just again just to follow-up on a previous question. The guidance of 11.6 million to 12 million units, what exactly does that presume with respect to the launch of these new products? Because, presumably they are on -- they'll both have BlackBerry 6 and the new WebKit browser. So does that -- does your 11.6 million to 12.1 million assume that they come out August 20 or does that assume that they come out September 10 or 15?

So, if I were to pick a date, what would I assume therefore, with respect to that range?

Well, that's a lot of questions, Ehud. Okay, the last one is freshest. In terms of -- I can't give you that kind of detail. It's a combination of a couple of products, like I said.

There's timing issues for one of them. It's set for a certain date. And that means, if the other one goes on time, it may not have any impact at all. So, it's a really hard question to answer. And I'm not going to give a whole lot more detail than that.

Obviously, as Jim said, we are expecting these products to launch this quarter, but I'm not going to give you any more in terms of what dates we're expecting or how many units or anything like that.

I think the other question -- your first question was on the product delays. I mean some of it's just different certification cycle.

Like you said, the 9650 launched at Sprint and then at Verizon, I mean, they just have -- if you're certifying on one carrier, it doesn't necessarily mean you certify at the same time on the other one. It's really just the normal stuff in getting through certification. And I missed your middle question.

The growth in international?

Yes, I have to look up that data.

International is growing very, very well.

Yes, I don't have the --.

We feel great on the international -- the international and the carriers are planning major, major extensions in international. They're doing tiering plans and deeper channel and, quite frankly, the constructive alignment strategy is working fantastic throughout the world.

And you throw in these hero campaigns for new product launches in key carriers in the US and I think you're going to see -- if you saw -- if you saw what we were coming along with for the back half of this calendar year, what's lined up and queued up, there's always lots of execution. We have to execute well.

International looks -- continues to be fantastic. I think you're going to see a real swing in the United States. There's obviously little timing things. But, none of these are what I would put in the category of long-term strategic.

They're just operational execution timing things and they're issues we've passed before. Sometimes you get a little more, sometimes you get a little less. You'll always take more than less. You'll always take early over later. But, it doesn't change anything in the strategic point of view.

Your next question comes from the line of Matt Thornton of Avian Securities. Please go ahead.

Good evening. Thanks for taking my question. Just one point of clarification. I think this was alluded to on the previous question. The two devices that we're talking about that are straddling the end of the August quarter, I assume those are both OS 6.0 and these are both higher ASP products? Did I understand that correctly?

We haven't commented on the software on the products or given any detail on the features. But, we did say that they are higher ASP products, yes.

Okay, then just a couple of quick follow-ups, if I could. I guess one for Edel, on the ASP was there any impact there from the FX? I know it netted out to no impact at revenue. But, did we see any impact on FX that that was off set through the other revenue line?

No, there was nothing material there.

Your next question comes from the line of Phil Cusick of Macquarie Capital. Please go ahead.

Hi, guys, thanks for taking this call. Can we focus on OpEx a little bit? I've seen the ad campaign around the city and it looks good. But, should we be looking for a gradual increase in sales and marketing?

And then on the R&D line as well, that's been creeping up as a percentage of revenue. Is that things that are getting ready for this whole new product launch cycle and is that going to drop back down as revenue ramps up or is that something that should really be -- we should think about this as the new level?

Thanks.

On the -- I mean, definitely on sales and marketing and R&D, you have your plans in place to execute over a longer period of time and you know -- so it's not necessarily reflective of what is going on in the top line in a particular quarter. I think, as Jim alluded to, we're expecting a pretty strong back half of the year. And while we continue to plan to spend on some of these sales and marketing activities that are doing so well and continue to spend on R&D as a percentage of sale, it's really going to be a function of this top line growth that Jim's talking about and how well we execute on that.

Your next question comes from the line of Jeff Kvaal of Barclays Capital. Please go ahead.

Yes, thanks very much and to follow-up on Phil, should we assume that there would be some operating margin pressure commensurate with the gross margin tick-downs in the second half of the year?

Well, that's a tough one. I mean, because --- I mean the guidance we're giving on gross margin. We're saying -- giving a pretty vague number there because it's just so dependent on mix.

And it really does follow onto the question that Phil just asked because it's going to -- what the top line looks like is going to be a big factor there. So, that's a hard thing for me to give a whole lot of certainty on right now. Certainly, we're targeting to improve operating margin but it's really going to be a function of top line.

Your next question comes from the line of Jim Suva of CITI. Please go ahead.

Thank you very much. On the acceleration that Jim talked about of new products in the second half of the year, just to make sure I'm clear, I assume it is fair then to assume also a corresponding increase in SG&A and marketing? I think that's pretty logical if you have some pretty wow products coming out.

And then just a clarification, I assume the EPS guidance does not have stock buy-back built in, because the timing of that will be subject to market conditions and your discretion?

Thank you.

Yes, the EPS guidance does not have any buy-back built into it. In terms of the sales and marketing, yes, I think that obviously, you want to back up big product launches and big plans in the market with support from sales and marketing but we're also expecting a lot of support from our partners on these products. While we're going to be out in the media and doing something on the marketing around, BlackBerry concurrent with this stuff, we're also expecting, and our carrier partners have plans to do a lot of marketing around these products as well. So, there's sort of a compounding effect there in terms of the bang we get into the market.

Your next question from Vivek Arya with Bank of America Merrill Lynch. Please go ahead.

Thank you. Jim, I think the fundamental question that a lot of us and investors are grappling with is what will help RIM regain US market share? It seems the AT&T channel is very strongly aligned with Apple and Verizon and Sprint seems to be aligning with Android.

So, where does that leave RIM? So, the specific question I have is what will motivate customers to buy a BlackBerry 6 product instead of, say, the new iPhone 4 or new Android products. Other than network efficiency, what kind of differentiators should we focus on?

Be careful about your implicit assumptions in your question, or shall I say your explicit assumptions in your question. Yes, I think you guys just have to watch and see what the plans are. I think there's a lot of implicit and explicit assumptions that may be should be examined. Part of that is the question of how much does -- how powerful is their innovation, is a good question. What's the timing of it, is a good question.

I think an important question to ask is how much does constructive alignment matter to a carrier? Because that's has been just an enormous issue throughout Europe and Asia and definitely coming on in Europe.

And I think, how much does efficiency matter and when you look at these pricing plans, I think that that should tell you something. So, you know, I mean, watch and see. We have unprecedented campaigns and device programs and commitments in our history and I'm just not going to talk anything more about our products and our launches until their time.

And your next question comes from Gus Papageorgiou of Scotia Capital. Please go ahead.

Thanks. Jim, I know in the past you said you spent a lot of your time on media. Are we going to see an evolution in your media strategy in the second half of this year?

Yeah, the media -- wait til you see the media strategy. The media -- like it's great, everybody -- the ops side is going to really torque in a beautiful way with the -- once you see the new App World, we talked about it, and once you see the new platforms. You'll be all very surprised. And I said this on the last call. You'll be really surprised by it and I think you'll just be amazed at how it's a quantum leap over anything that's out there. Point number one.

Point number two, how this both leverages media that's out there and I also know that constructive alignment with media matters. Because, if you think this intermediation by carriers has got them scared, go talk to media companies who are concerned about commoditization. I think focusing on beautiful innovation.

Focusing on efficiency in a world -- where innovation is valued and designed. Focusing on efficiency when there's scarce resources and focusing on constructive alignment where you have very powerful stakeholders who have a decision, do they basically allow their business to be eroded or do they invest heavily in those that have highly aligned strategies?

And I don't think you'll have to wait too, too long to see tangible and powerful manifestations of this. And you bet, I think the media consumption side of this in different form factors, in very tangible, commercial, and technical ways is poised for redefinition here. And I think we have some credibility because we played redefining roles in this mobile computing in the past.

And so I couldn't be more -- I just wish I could wind the clock forward a few weeks because you'll see it. I think I said it on the call -- was it the last call and you would all say, I get it now. I think we talked a little bit about, back then, I say when you see the pieces come together, you'll say, now I see what they were doing. It is really powerful and we are still sustaining very, very well.

I mean, the international stuff is great. There is some timing stuff as there is always. And there is some powerful extension and reengagement stuff happening in the United States and you guys just -- all I can say -- I wish -- I can't say much more. But, I couldn't feel better.

And your next question comes from Mike Abramsky of RBC Capital Markets. Please go ahead.

Yes, thank you. How would you characterize the potential for the upgrade cycle from existing BlackBerry users on some of these new products you are expecting? Do you think that intentions to upgrade have changed now that there's a number of competitors in the market that obviously have been out there going very strongly? And do you think that could be any headwinds to the uptakes of (technical difficulty)?

Well, no, we've got -- I mean, our BlackBerry user world is pretty tight and I think from the BES side and from the BBM and from the form factor and from the brand and the capabilities and we talked about that -- I think it's pretty --- I think that's bright. The other thing is, you have to remember that [the eyes] talk a lot about the competition. That's all fair.

But, you do realize the whole feature phone market is evolving to a smartphone market. And, you're having some shifting in consumer electronics into sort of consolidated architecture of a smartphone.

So, you know, I mean, yes, you definitely want to say what's happening with the divying up of the pie, but you also got to ask how big is the pie and how valuable is the pie. And so, are there more users and is a platform user more valuable and what share of those are you getting?

So, it's very dynamic, very turbulent an ecosystem. We have a very -- and so, I think our upgrade position's extremely strong.

We're still growing net subs -- you saw what we're growing, we're still adding 5 million subs a quarter. You got to remember that. Those are net. Those aren't gross. We're still -- you know, 11 million going to 12 million devices. And I know this range isn't all that Edel's guided.

But, I also think there are turbochargers in the wings here both in organizational transformation for business productivity but also in how people are consuming media and how are the content players going to avail rich media for those that work with them versus don't work with them. There's lots of forces at play. But I don't see any --- you know, I think the upgrade thing is pretty strong.

But I think, like I said before, this is much more of a land grab, where you want to sort of, you know the customers are so valuable, the space is growing so fast. You want to -- of course you want to keep the customers you want and upgrade them. But this is much more about the feature phone coming into the smartphone and the smartphone being consolidated a lot more consumer electronics and are you seeing is that place to go.

And I think that's much more where our thinking's at. But I don't -- I think we're in very good shape on the upgrade side. But, I think the issues are -- the opportunities and the contention is really much beyond that.

Ladies and gentlemen, this concludes the question and answer session. Miss Ebbs, please continue.

Thank you. In closing, I'd like to remind everyone there is a replay of this call available at (416) 640-1917, pass code 4310298#. Or you can listen to the call, which has been recorded and is available on the Investor Events Section of our website. Thank you.

Ladies and gentlemen, this concludes the conference call for today. Thank you for your participation and you may now disconnect your lines.