BlackBerry Ltd (BB) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Research In Motion third quarter fiscal 2011 results conference call.

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

Following the presentation, we will conduct a question and answer session with instructions provided.

(Operator Instructions) I would like to remind everyone that this conference is being recorded today, Thursday, December 16, 2010.

And I will now turn the conference over to Edel Ebbs, Vice President of Investor Relations.

Please go ahead.

Thank you.

Welcome to RIM's fiscal 2011 third quarter results conference call.

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

After I read the required cautionary note regarding forward-looking statements, Jim is going to provide a business and strategic update.

Brian will then review the third quarter results and I'll discuss our outlook for the fourth quarter of fiscal '11.

We'll then open the call up for questions.

I would like to note that this call is available to the general public via call-in number and webcast.

A replay of the webcast will also be available on the RIM.com website.

We plan to wrap up the call before 6.00 p.m.

Eastern this evening.

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

These exclude statements about our expectations and estimates with respect to product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings, channel inventory, and seasonality for Q4, fiscal 2012, and beyond.

Our expectations regarding RIM's near and long-term tax rates, our expectations regarding the impact of foreign exchange on our revenue and net income in Q4, our product development, and marketing initiatives and timing, including our expectations relating to the BlackBerry PlayBook, 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 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 and risks relating to encryption technology; risks associated with our international operations; our ability to manage growth; and other factors set forth in the risk factors and MD&A sections in RIM's filings with 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.

RIM is pleased to report a record third quarter with strong unit shipments, net adds, and financial performance, and a strong outlook for the fourth quarter.

This is the sixth consecutive quarter that RIM has reported record shipments.

International markets continue to adopt BlackBerry in record numbers and BlackBerry is the number one smartphone in several markets in Western Europe, including the UK.

And BlackBerry was the number one smartphone for the third consecutive quarter in Latin America.

In North America, BlackBerry was included in a number of exciting Black Friday and holiday promotions that are continuing throughout December.

The smartphone market is rapidly evolving, highly segmented, and growing quickly.

For example, the prepaid smartphone market in the UK alone grew 245% year-over-year versus post paid at only 65% growth.

And RIM is taking advantage of these dynamics to leverage our unique position and grow the business to record levels.

The BlackBerry Torch was launched in over 75 new markets during Q3 and we saw our weekly sell-through run rates increasing substantially quarter over quarter.

Torch and BlackBerry 6 are receiving strong support from our partners, including substantial marketing campaigns and hero status with many of our European carrier partners.

The campaigns are driving excellent results, which we expect to continue throughout the holiday season.

The Torch has also been a resounding success in the Middle East, where it was launched at GITEX with both Du and Etisalat launching aggressive pricing bundles and media campaigns to promote the product.

Torch is currently rolling out in Latin America and we expect to see the initial excitement around the product extend as we add additional partners in Asia and other international markets in Q4.

In the United States, Torch was launched in two new colors, red and white, to coincide with the $99 pricing from AT&T and sell-through run rates have increased as a result of these programs.

Torch is currently featured in AT&T's holiday marketing campaign, which is scheduled to have high visibility through to the end of the year.

We are also expecting good visibility throughout Q4 in the United States through participation in New Year's and Valentine's Day promotional activity.

The BlackBerry Style was launched with Sprint in time for the holidays, with a sizable marketing program and positive reviews.

The product is currently featured in a number of Sprint holiday promotions, including a BOGO offer, and Style is now one of Sprint's most popular smartphones representing over one-third of Sprint's total BlackBerry sell-through.

This promotion is scheduled to run into the new year.

Verizon continues to be a strong partner and is one of the most aggressive carriers to promote BlackBerry in the United States.

BlackBerry products are featured in most of Verizon's holiday promotions across various media, including TV and print advertising, which is coupled with some of the most attractive pricing on BlackBerry products in the US market.

Verizon also appreciates the value of efficiency in the BlackBerry platform and is promoting BlackBerry smartphones as the lead device in its new tiered pricing offers.

Our relationship with Verizon remains strong and we look forward to rolling out a number of exciting new products and services with this partner over the coming year, including the availability of BlackBerry 6 for Verizon's Curve 3G and Bold users early in the new year.

The BlackBerry Curve 3G launched with 118 carriers in 48 countries during the quarter.

Curve 3G is gaining traction with partners in Europe and Canada, as well as the US with AT&T, which is promoting the product in its B2B channel.

In Q4, we expect to see continued momentum from the Curve 3G as it rolls out in Latin America with significant carrier support and promotion.

BlackBerry service adoption in the prepaid market continues to take off around the world.

And BlackBerry smartphones are the number one prepaid smartphone in several countries, including the Netherlands, Indonesia and the UK, where RIM is the dominant player with 40% market share.

This adoption is exciting, as the segments driving this growth are primarily youth, who are attracted to the flexibility of prepaid plans and ease of messaging and social networking through applications such as BlackBerry Messenger and new customers upgrading to a smartphone for the first time.

This success is also extended to prepaid markets in the US and Canada and we look forward to continuing to grow this segment.

China Mobile and RIM recently introduced BIS for small to medium sized businesses and consumers in China, through China Mobile's retail stores.

The service starts at the equivalent of $14 per month and is now available in Beijing, with launches throughout the rest of China to follow.

The BlackBerry service for SMBs and consumers expands the opportunity for RIM in China and represents the first time individual users can subscribe to BlackBerry services, including BBM, and access a rich set of BlackBerry features and third party software.

In September, RIM hosted the third annual BlackBerry developer conference and made a number of application development platform announcements that generated excitement in the mobile application developer community.

Enhancements to the developer platform included the launch of the BlackBerry advertising service and WebWorks platform, as well as the introduction of the BlackBerry payment service and the BBM social platform for applications.

The launch of WebWorks is an important step in the evolution of the BlackBerry development platform, as it allows content and app developers to design apps for BlackBerry smartphones using industry-standard web technologies without any requirement to learn proprietary languages or programming models.

The BlackBerry payment service is currently in beta and there's been positive feedback from developers on the capabilities and simplicity of the APIs.

We are also seeing huge interest for the developer community around the BBM social platform and look forward to applications becoming available that leverage these services early next year.

Momentum in BlackBerry App World continues to build, and since the end of the second quarter, the number of applications grew 60% and there are now more than 16,000 applications available, with over 2 million downloads daily.

This growth is being driven by increased penetration of BlackBerry 6 into the customer base, the launch of App World 2.0, and improved payment capabilities such as the adoption of integrated carrier billing.

We were excited to announce the BlackBerry Tablet OS and the BlackBerry PlayBook at DEVCON in late September.

The PlayBook is expected to begin shipping in the United States in the first calendar of 2011, with rollouts in other international markets following thereafter.

Initial versions will be Wi-Fi only and will be available through retail outlets and other channels.

PlayBook tablets incorporating wide area radios are expected to follow the Wi-Fi launch.

There are a number of go-to-market strategies underway for PlayBook and the excitement for customers, partners, developers and wireless calendars has been overwhelming.

The BlackBerry PlayBook is powered by the BlackBerry Tablet OS, which is based on technology from the QNX acquisition we made earlier this year.

The PlayBook, which combines the multicord BlackBerry Tablet OS with a fast powerful dual core processor and full support for HTML 5, JavaScript, WebWorks, Flash, and Adobe AIR, delivers an uncompromised web experience for end users in a powerful, easy-to-use development environment based on open web standards.

Initial feedback from our customers and partners is overwhelmingly positive and we look forward to updating you more on rollout plans and product specifications as we get closer to launch.

At Adobe Max in October, we launched the Adobe AIR STK for BlackBerry Tablet OS and are already seeing tremendous uptake by developers and customers around the world.

We began accepting PlayBook application submissions for App World last week, and since opening the doors, we already have over 1,000 new vendors registered in App World.

We will continue to provide updates to our development tools for PlayBook in the coming months, as we lead up to the launch of the device to provide a rich application and content library for customers.

We recently held the BlackBerry North American CIO Summit and BlackBerry Innovation Forum, where enterprise customers shared with RIM their ideas for improving the enterprise experience on BlackBerry smartphones and their issues and concerns around enterprise mobilization.

The importance of enterprise requirements, such as security, efficiency, and manageability as they plan for the next wave of mobile productivity in their organization, continues to be an area of focus for CIOs, especially with the opening up of their messaging architecture to access by personal employee smartphones.

Many of these key customers are excited about the upcoming availability of the dual persona software for BlackBerry smartphones, which will offer best in class abilities to segregate the personal side of the device from the secure corporate side of the device within their existing and trusted BES infrastructure and management environment.

This device software is currently in carrier testing and we expect to make it available in the United States early in the new year.

CIOs understand and trust the BES security model and are pleased that security will be extended to the BlackBerry PlayBook.

We're committed to ensuring that the BlackBerry PlayBook is enterprise ready for launch by delivering on key customer requirements, including pairing between BlackBerry smartphones and BlackBerry PlayBook, secure enterprise VPN, true multitasking, document viewing and editing, and a best-in-class web browsing experience to ensure that the web-based line of business applications are functional, right out of the box.

PlayBook offers numerous opportunities to transform businesses and our partners are eager to explore how BlackBerry PlayBook can help transform their business operations and customer engagements, with some customers delaying their plans to deploy other tablets in anticipation of the PlayBook launch.

Over the past few quarters, RIM has added substantially to its platform and product capabilities.

In the last year, we acquired a number of companies, including Cellmania, Torch, QNX, and most recently, The Astonishing Tribe.

RIM has become adept at integrating these acquisitions quickly into the product development cycle, as evidenced by the speed of integration of the Torch web kit browser into the BlackBerry smartphone products, and the encouraging pace of development of PlayBook with the BlackBerry Tablet OS based on QNX.

You've all likely seen the videos on YouTube showing the PlayBook in action.

These are live demos and I think you'll agree that it's impressive what the RIM and QNX development teams have been able to achieve.

The Astonishing Tribe will also be an important part of the future evolution of the look and feel of BlackBerry products and the teams are already working together on future implementations.

We look forward to rolling out products over the next year, reflecting the addition of expertise from QNX and TAT to RIM's already strong software and UI capabilities.

I will now turn the call over to Brian to review Q3 results.

Thanks, Jim.

During the third quarter, RIM shipped 14.2 million devices at an ASP of approximately $315, where 50% of the total quarterly shipments occurred in the last month of the quarter as our partners prepared for the holiday buying season and new products rolled out in markets around the world.

Revenue in the quarter was approximately $5.5 billion, with sales outside of the US, UK, and Canada comprising approximately 44% of total revenue.

Revenue in the US represented approximately 34% of total revenue, UK represented approximately 12%, and Canada represented the remainder.

RIM's revenue base is increasingly diversified and no one country represented significantly more than 5% of the 44% of the sales outside of these three regions.

Net subscriber account additions in Q3 were approximately 5.1 million, in line with guidance.

Estimated sell-through in the quarter was approximately $12.3 million, including phone-only sales.

Channel inventory increased at the end of Q3, both on an absolute and a weeks basis, due to the timing of shipments in the quarter.

Channel build ahead of the strong sell-through with what we are experiencing in December, rollout of Torch, Bold 9780 and Curve 3G in markets around the world.

And the increasing proportion of sales from international markets, where carriers and distributors manage their channels with a higher number of weeks of inventory than is normal in North America.

Based on this, we are comfortable with the inventory levels across most channels, given the demand outlook, and inventory risk is less concentrated than it typically has been in the past, given the diversification of channels across multiple carriers, regions, and products.

For example, last quarter, RIM's top three customers represented 12%, 9%, and 9% of revenue versus the same quarter a year ago, when a single customer represented 25%, with two others representing 13% and 10%, and a single country represented 57% of revenue.

Service revenue in Q3 was approximately $835 million, up slightly from the last quarter.

And ARPU is down slightly due to the growth in BIS and prepaid service plans.

Software revenue was approximately $78 million in the quarter and is comprised of revenue from BlackBerry Enterprise server sales and access licenses, as well as revenue from QNX lines of business.

Gross margin in the quarter was 43.6%, slightly higher than anticipated due to product mix.

Sales, marketing, and administration expense increased 22% over the second quarter, which was slightly higher than what we expected at the time of the last call, due to early marketing and channel development activities for BlackBerry PlayBook that are now underway.

Accounts receivable increased from $3.2 billion to $4.1 billion in Q3, and DSOs increased from 63 days to 68 days.

These increases are primarily due to the increasing international mix of the business, where payment terms tend to be longer, and the timing of shipments in the quarter.

RIM's cash balance at the end of the quarter increased by $446 million, to approximately $2.5 billion after capital expenditures of approximately $300 million, and share repurchases of approximately $133 million.

RIM repurchased the remaining 2.9 million shares available under its currently authorized share repurchase program at an average price of approximately $46.

This completes the maximum allowable percentage of shares outstanding that RIM is allowed to repurchase under its share repurchase program within a 12-month period under applicable securities laws, and the next window to launch a new share repurchase program to purchase up to another 10% of RIM's public float could begin in mid-July 2011.

During the quarter, RIM recorded a charge of approximately $17 million relating to the impairment of certain investments.

This was comprised of approximately $11 million relating to Lehman Brothers International trust assets that were held at the time of the Lehman bankruptcy and $6 million relating to the continuing lack of liquidity in certain auction rate securities.

The impact of this charge was recorded against investment income and had the impact of reducing reported EPS by approximately $0.03 per share.

Fully diluted earnings per share in Q3 were $1.74.

The impact of the completion of the remainder of the share repurchase program in the quarter was less than $0.01 per share.

I'll now turn the call over to Edel to discuss our outlook for Q4.

Thanks, Brian.

Before I discuss the outlook for Q4, I just want to remind everyone that the forward-looking statements reflect management's best current estimates which 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 14.5 million and 15 million units in the fourth quarter of fiscal '11 and for revenue to be in the range of $5.5 billion to $5.7 billion.

This growth is attributable to ongoing strong shipments in December to support demand throughout the holiday season, new product launches of Torch, Bold 9780, and Curve 3G in markets around the world, and ongoing strong demand for existing products, such as Curve 8520.

There are no PlayBook revenues included in our Q4 guidance and we expect the first revenue impact from PlayBook to be in RIM's first quarter.

We expect gross margin for the fourth quarter to be similar to Q3 levels.

And we continue to target gross margins in the low 40s as we head into fiscal '12.

Total operating expenses are expected to increase in Q4 by approximately 6% to 7%, from Q3 levels, due to ongoing promotion of BlackBerry smartphone products, launches of new products around the world, and preparation for the upcoming launch of the BlackBerry PlayBook.

We expect R&D to increase by approximately 13% to 15%, and sales, marketing, and administration expense to increase by approximately 3%.

While there are no revenues in PlayBook for the Q4 guidance, the OpEx guidance for both R&D and sales and marketing include an expectation that we will begin spending on incremental development, marketing, and launch preparation activities this quarter.

In the fourth quarter, we expect depreciation and amortization to be approximately $120 million and we expect CapEx to be approximately $300 million.

We expect CapEx levels in fiscal 2012 to be similar to the levels in fiscal 2011.

Primary areas of spending continue to be expansion of network infrastructure and facilities.

We expect the tax rate to be approximately 27% in Q4, and slightly lower than 27% throughout fiscal '12.

We expect Q4 EPS to be in the range of $1.74 to $1.80 per share, based on a fully diluted share count of approximately 526 million.

I will now turn the call back to Jim.

Thank you, Edel.

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 just before 6.00 p.m.

Would the operator please come on to handle the questions.

(Operator Instructions) Your first question comes Jim Suva of Citi.

Please go ahead.

Thank you and congratulations to you and your team for great results and outlook.

Can you talk a little bit about the marketing and SG&A spend?

This quarter you mentioned it was up, I believe it was due to accelerated PlayBook expenditures in the next quarter.

Is it pretty common for you to spend six months ahead of time in that area or is there, more importantly, something going on with the carrier subsidy market of the shifting of the way things go or more of a timing factor?

If you can just focus on the SG&A and the OpEx that you guys are seeing.

Thank you.

It's not six months, because we said it would be out in Q1, so it's just ahead of launch.

So it's just a timing thing.

Yes.

We've done this kind of thing before with other products as well.

There are channel development activities going on.

You've probably seen some of the activities we've been doing with developers and meet the PlayBook sessions and those kinds of things.

Those are happening today, and are expected to continue ahead of the launch.

Sorry, I guess I meant six months from the time you gave us guidance three months ago.

If PlayBook's coming out in fiscal Q1 I guess I'm a little bit surprised to see the SG&A this quarter up so much compared to your guidance of up 7% to 14% and I think it was up 22%.

Some of this is at the time, when you look back, it was like three months ago.

So we weren't sure exactly of the timing, how things were going to fall into the quarter.

But it's, the PlayBook is coming fairly quickly and I think that a lot of the spend, we just didn't have the visibility into what some of the activities were going to be at the time, last time we gave guidance.

Okay.

That is very fair.

And should we expect QNX and BB6 to be two operating systems or will their road maps merge at one point down in the future?

And thank you very much for your answers.

Yes, you're going to see BB6 work on QNX.

That, we've already talked about BlackBerry working on the QNX environment.

We haven't given any specific timing or commitments as to just how we're going to -- what we're going to be doing in future environments.

But obviously there's a certain set of performance capabilities in the PlayBook which are really quite remarkable and you'll see more at CES.

And, so how we plan to, and that's got really leapfrogging capabilities, so your question is a fair one.

Are we going to put that kind of stuff in the smartphones and we're just not in a position to make specific commitments about what we're going to do there at this time.

But you'll just have to stay tuned.

We're just not talking about our product platform road maps for the smartphones ahead of their launches.

And your next question comes from the line of Maynard Um of UBS.

Please go ahead.

Hi, thank you.

I think one of the benefits of having your own OS and software is you've got your own destiny in your own hands and it allows you to own the differentiation.

But if you look at your R&D and sales and marketing over the past three years, that's been rising as a percentage of your sales and resulting in a lack of operating margin expansion, and in fact, margins have been declining somewhat.

I'm curious if you feel like we're at the right levels of spend as a percentage of sales, just given the competitive ecosystems that are out there?

And where are you spending your R&D?

Is it more on the hardware side?

Obviously you have a pickup in QNX and development there and obviously PlayBook.

And then lastly, related to that, when we should start to see more of the leverage to the operating line.

It sounds like you're accelerating the spend, but as the PlayBook comes out, should we then anticipate some of the leverage to start to flow through as you have some cost on the OpEx side?

Thanks.

At the core, there's a tremendous expansion of the market happening, and turbulence in the ecosystem.

Just about everything you do seems to be turning to a packet.

And it always needs a radio because you want it with you.

And so the core thing is, is to be a leading wireless services platform with appropriate economics.

And so, yes, we have real differentiation and we have real opportunities for expansion of the business in a whole bunch of ways.

Just the pent-up interest in the PlayBook is really overwhelming.

And then the whole aspect of carrier billing and value-added services, you're just going to see a litany of things happening in that area, both for the BlackBerry Tablet and the BlackBerry smartphones -- BlackBerry PlayBook and BlackBerry smartphones over the year.

And so I think we've really had a really good operating model.

I think we've grown profit like 40% this year or something like that.

I don't know what the exact number is.

And also we're hugely investing for the future.

Not only for growth in a whole bunch of markets, but growth in new categories and growth in value-added services.

I think we're laying in the pieces here to sustain really exciting growth for a long, long, long time.

And I think we've said on the calls before, this is not a time to be penny wise, pound foolish when you're really grabbing position in this rapidly expanding space, because it's not just competition between players in this space.

It's expanding to do things that you normally didn't used to do in mobility.

And so you need these kind of capabilities that we're putting in there, that we get to ride for a long, long time.

But business models are changing, and I think we'll have some pretty pleasant surprises in what we're doing throughout the calendar 2011.

Your next question comes from Tim Long of BMO Capital Markets.

Please go ahead.

Thank you.

You talked a little about the Curve 3G being much more broadly adopted.

Could you just talk to us a little bit about, was that transition maybe some 8520 to 9300 part of the positive ASP in the quarter?

And also related to that, could you just talk to us about how you expect, if you will, that lower end mix of your portfolio to shift as we look out over the next year or so?

Are you expecting that the 9300 will start to take over a lot of those sales and therefore have a little bit more positive impact on your financials?

Thank you.

Thanks, Tim.

I think definitely the mix of the handsets shipped in the quarter is a big part of the ASPs being higher.

I would say that Torch and the success of a lot of those launches internationally, we rolled out with 75 carriers and I think when we talked on the last earnings call, we were shooting for a little over 50.

So that definitely had an impact.

Curve 3G is a factor, as well.

Also, the Bold 9780.

So there's a number of products in there that impacted it.

It's really hard, as we talked about the last quarter, when we talked about not guiding ASP, it's just tough to predict that mix every quarter and so that's definitely part of it.

If you look at what's going to happen over time with 8520, that product -- there's still a lot of demand for that product in a lot of markets around the world.

A lot of carriers really like that it attracts the entry level smartphone user and so I think you're still going to continue to see that product strong.

But there's definitely a role for the 3G Curve to play there as well.

It's really tough to predict what that's going to do on a blended basis.

Okay.

If I could just follow up, would you expect the BlackBerry 6 being more broadly available on the product portfolio to be a positive indicator for the mix going forward?

And then I'm done.

Thank you.

Yes.

I think BB6 -- I don't know if it will change mix, it will just be a plain positive for the Company.

Because we'll be able to field upgrade units and it will be on -- yes, it will only be available, you need a certain amount of memory for it to work, so, yes, it should have an upward nudging on mix.

But, boy, there's a lot of different markets.

Like you heard, the prepaid and the tiering.

It is nice to be able to work in these different segments and it is nice to be so well aligned with the carriers, but still have a platform extension going forward.

So probably would have an upward nudge, but that's speculative.

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

Please go ahead.

Yes, thanks very much.

I was wondering if you could discuss North America.

Could you talk a little bit about the trajectory of net adds.

I don't think you broke it out this quarter.

And then secondly, what are the things that -- I think we'd all agree that 2010 wasn't the strongest for you in North America, as much as we hoped.

What are the things that lead you to the view that 2011 will be a bit better?

Thank you.

Before I let Jim answer that, we don't normally break out the net adds, but we do talk about the base.

I think it was over 48% of the subscriber base at the end of the quarter was international.

Yes.

North America still performed very, very well.

And at the end of the day, there's different dynamics in North America than there is around the world.

But it gets very, very interesting with two or three things that are happening in 2011.

Number one, obviously, we're very close with the carriers and there's just very strong plans that we're making with them on the product road map that really incorporate leapfrog capabilities, and also very strong engagement on tablet strategies and lots of exciting platform extensions.

You're going to see some very interesting things with our advertising strategies with them, the open add strategy, the carrier billing, the open tools so that there's no proprietary tool environment, higher performance smartphone, but also tiered smartphones, to be in different categories, tablet strategies in different shapes and forms.

So, yes, I feel -- different things ebb and tide, but the space is expanding rapidly.

We're selling a lot.

The plans are good.

And will the US be a harbinger of the design around the world?

Will the US shift in a different manner or continue its basis or will the rest of the world bring indicators to the US?

It's hard to know.

But the space is expanding rapidly.

We have good products.

Our engagement is good.

I feel very, very good about US.

We're meeting with the guys that run all the carriers.

We've got plans.

Our carrier partner's in place.

There's a real desire to do a lot of things and a lot of these things are locked in and new things are being planned, but it's a very turbulent sector.

The ecosystem is changing a lot and changing fast and business models are changing fast and things can shift.

But I feel great about where we're sitting for 2011 in the carriers, in North America, and we've held our base and we've had growth in shipments.

We've had okay net adds, but we're positioned to go very, very strong.

And we've really knocked the cover off the ball in so many other markets around the world and yet our penetration in those are still very, very modest.

And obviously with PlayBook and stuff like that and the whole B2B transformation, as well as non-B2B, there's a lot of positive forces at hand.

It's hard to isolate them.

It's hard to put it down to how are these all going to interact together.

But we feel very, very good about the future and -- but it's never been busier.

Should we worry about a product lull ahead of QNX-based phones later in the year?

No, if you saw the road map and the launches, there's a great road map and there's a whole series of stuff, and lot of those really locked in with launches and huge desire for it.

So the product road map looks great and the application extension, B2B and B2C is so strong, I've indicated some of it.

What PlayBook does in such a complementary fashion, and even picture App World on that, with carrier billing, and the mirroring for the B2B, you're going to see a lot of this stuff in some of the performance-type stuff, and the tooling stuff.

You're going to see a lot of this stuff come out really over the next month.

So it should be very, very interesting.

Your next question comes from the line of Tavis McCourt of Morgan Keegan.

Please go ahead.

Thanks.

Jim, I wonder if you could talk a little bit more about China.

You've done so tremendously in so many emerging markets and yet China has not been one of them historically.

Obviously the BIS plan with China Mobile is a huge step forward.

Tell us what handset you are launching there, how aggressive is that data plan versus others in the marketplace, and what kind of expectation should we have for that market?

I think you should have very positive expectations for China.

There's lots of BlackBerrys in China and not through any plan of our own.

But gray markets work pretty strong into China.

But we're moving very strategically with China Telecom and China Mobile.

And having products for all the carriers in all the segments, and having something that is responsibly integrated there.

Mike was over showing some of the progress with the PD stuff and and supporting the 4G evolution.

And we're planning more high performance, localized infrastructure, more local R&D and localized products.

China does well.

You would always want them to do better, but it grew fast this year.

India grew real fast.

But then Southeast Asia just did extraordinarily well.

So all you can do is just keep doing the right things and investing in these places, and you know that the market is just so big and what's PlayBook going to do?

The interest in PlayBook in places like China and Japan is super high.

Honestly, sometimes markets come faster than you expect.

Sometimes they come slower than you expect.

Sometimes you put a whole lot of effort in one and it comes slower.

Sometimes you put less effort in another and it totally takes off.

But, I've never seen a market not take off, where you just supply systemic support.

So we have a broad set of products we've launched with the two carriers that we've announced -- consumer, and small business and large enterprise.

We have PlayBook plans there.

We have localization there.

We have local infrastructure in plans for 2011.

So lot of green lights, and a lot of positive momentum.

You just keep doing more tomorrow than you did today and just let that compounding take over.

And I'm pleased with China, but obviously I would like more.

But it's a place where you just have to keep investing to make sure that you're part of the local community and the domestic requirements to be an agent for domestic success.

I travel there lots and every indication is that we're making solid progress there, every time I'm there.

But a huge number of things going on, but nothing is discouraging me.

I can't say I've hit any discouragement.

Your next question comes from the line of Steven Fox of CLSA.

Please go ahead.

Hi, good afternoon.

Couple questions.

First of all, can you talk a little bit about the rollout plans for mobile payments later next calendar year?

And then secondly, on the PlayBook, you've talked about enterprise interests.

Is there any more characterization you could put around what kind of interest you're seeing by corporate, what kind of rollout volumes they are looking for, anything that could give us a feel for potential demand?

Thanks.

Mobile payment, we haven't disclosed what we're doing specifically.

You're not going out on a big limb to guess whether or not one's putting near field in their products.

We're close with the ISIS group in US and payments is a big, big issue in Europe.

And the key is, is do you support different payment approaches and also using near field for B2B applications, and we also use secure elements for our manufacturing and over the air upgrades.

So bottom line is payments is getting a lot of attention these days.

There's tug of wars between different players in it, over the top players, carriers, banks.

We constructively align with carriers.

We aim to constructively align with banks.

They have an important credentials role, the bank.

The carrier obviously has a critical role and we're really promoting open architectures in it.

But it's an area that's super busy and, quite frankly, approaches are in flux.

They are different in the US than Europe and obviously different in more developing worlds.

So it's just a very, very busy space right now.

But I don't think the industry structure is really finalized yet.

And I think it's in the interest of the banks and the carriers to finalize it, or over the top strategies are just going to bypass them.

And we have no intention of going over the top.

The interest in PlayBook and the B2B is uniformly strong.

We have lots of corporations with several tens of thousands, and some even planning and approaching 100,000 BlackBerrys, so that part of the business is very, very good.

And really managing the data integrity is just so important in these environments.

Of course they love the things like Flash, things like dashboard applications for SAP and different enterprise applications that work in a Flash environment.

So they really like the UI, of course, and the performance that goes with it.

And people like the portability.

It goes in a purse and goes in a pocket, and all that kind of stuff.

They love the EAL support and POSIX compliance.

Those are standard elements.

But I think the biggest thing I like is that they are just real nervous about vulnerability holes and the architecture, the approach of step one, the mirroring, I think that's going to be a sustained thing.

We're just getting very big interest.

I can't think of an account that isn't just beating us down to get units.

So Phase I shipments, it's going to be very heavily weighted to the B2B because of the pent-up business demand.

Yes, it's overwhelming interest and overwhelming pressure to get units are pretty fair characterization.

So we're very confident just what it's going to do for businesses.

And also it tees up some very interesting evolutions because if you've still got push going and you've got the secure elements of it, can you start to do some interesting things with event-driven type applications for workflow and dashboard.

And so the interest is very heavy.

But the biggie is really mirroring desktop, Flash-based corporate apps, the POSIX compliant, EAL certified.

They like that because it's trustable and it's future-proofed in where it can be but you don't have to take a step too far when you get going.

I've talked to a lot of Fortune 500 CIOs.

It's been uniform interest.

Enterprise grade is the real big, big thing, because they live in a world of asymmetrical consequences where if everything works fine, then everybody pats themselves on the back, but if something goes wrong, often someone in IT pays a pretty severe price.

So they have to be keepers of the system integrity and I think we've really got that figured out in the way we've implemented it.

Great, that's very helpful.

Thank you.

Your next question comes from Gus Papageorgiou.

Please go ahead.

Thanks.

Congratulations on a great quarter.

Jim, just on the PlayBook, clearly it's going to be popular amongst corporations, enterprises, but also, it has the potential of being a very powerful media machine for consumers.

I'm just wondering, when you do launch, can we expect some sort of media strategy to launch sequentially with the PlayBook or soon thereafter?

Oh, yes.

Yes.

When you've got all this rich, open tool -- then it does -- the open tool creates a very, very powerful wave for different media and social environments to work with it.

So for sure, for sure.

And because it's so much performance, it's got so much memory and HDMI output, you can do some very interesting things, which we're going to be showing you.

Having that performance and the ability to use open established access and tools does some pretty powerful things.

And so, yes, we're pretty flooded with content and games-type and media-type partnerships and social solution-type partnerships.

Yes, that stuff.

But we're really going to try to be something that's just a very professional grade.

I think that's going to be really important.

It could be something that just really knocks the skin off the ball in terms of what you really expect these things to be.

I guess I'd say the no compromise kind of experience.

And I've seen all these elements working and demoed here and we've just got to get them all finalized and done and all that.

But it's positioning capability for that addressable market that we see is really, really strong.

It's really, really strong.

So the key is just market it right and enter it right and make sure it's quality right and let it go.

Your next question comes from Mike Abramsky.

Please go ahead.

Yes, thanks very much.

Jim, your shipments exceeded Apple's this quarter, and I'm just wondering what you think about that.

And how you feel about the ability to help regain US share through your plans, matching some of the competitor momentum while sustaining healthy growth in operating margins and ASPs.

Thanks.

We're pleased that the business is growing fast and that we met and exceeded our guidance and that we see a very strong quarter that we're in right now.

I think those of you that have followed technology is, it's very dangerous to get the Excel spreadsheet out and just extend certain trends perpetually because there's ebbs and tides.

The key thing is, just where do you play in these long term architectures.

We feel great about our architecture.

We told you that we're going to be really showing how this stuff's all coming together.

And I think you're seeing this come stronger and stronger together.

And when you see the demonstrability of it, you realize that this is in a different class.

And that means something.

And it means something to consumer media services, it means something to enterprises.

What does that mean to smartphones?

You can dwell on that.

And then you can say well, how can you layer in new kinds of services and services partnerships?

And we're pretty swamped with those these days.

And just the core essence of the business is still just moving along so well and growing so fast.

So if you layer in this tablet category, and then you layer in advanced services strategies and then you layer in leapfrog future-proofed architectures, I feel very, very good about where we are in the US.

I feel very, very good about where we are around the world.

But it's really -- there's just a tremendous amount of work that you have to do because there's just so much to get done and so many places around the world, and there's so much growth pressure.

So it's more work than we've ever really had.

But do I think we're in a position to really take where we are and extend it further in a sustained basis in the US and abroad?

In my view, without a doubt, without a doubt.

And I think we've shown the pieces that are there and we've performed on the business.

So, yes, without a doubt, the extension in the US.

And again, I think obviously there's some very interesting pieces that people don't know yet and don't see yet.

Just watch the year unfold and watch 2011 unfold.

I'm fine just letting the proof be in the deliverables.

We do keep delivering and we're going to keep delivering.

We're just going to keep it up.

And just very quickly, last time you came to market with a lot of products simultaneously, Storm, new 3G BlackBerry, there were some stumbles and you had admitted that at that time that maybe you did too much too quick.

You've got a lot of stuff coming in Q1 and Q2, as you are suggesting.

How do you see you've learned from those experiences to avoid the kinds of challenges that you faced last time as you roll those out?

A lot of the stuff we're doing is building on the core of what we've got.

But then there's certain new air links, there's certain new processors, there's certain new OSs.

I think we have a really rich quality plan that's done some remarkable things in terms of the quality and the returns.

And this gets tracked and you get ranked quarterly by carriers and we've actually soared in our rankings in the US in quality vendors.

So I think we're fine.

I think the QNX stuff is pretty hardened and it starts with Wi-Fi.

When we did stuff before, we still went through a very, very strong growth era, and there are elements of sustaining quality.

Plus, we're now in a position where you can do OTA, over the air, updates, and so that kind of quick cycle of upgrades, like certain other players have had allows you to just quickly ride a much, much quicker upgrade cycle.

Arguably order of magnitude quicker upgrade cycle because a lot of times you've solved issues and their known issues are solved, but the issue is diffusing those solutions in the market, and that's something that is an entirely different set of circumstances now than before.

Thanks, Jim.

Your next question comes from Kulbinder Garcha of Credit Suisse.

Please go ahead.

Thank you.

I have a question just on channel build in inventories.

I think the difference you said between sell-in and sell-through was 1.9 million units, which is at the higher end in absolute and certainly as a percentage of your volume if you go back over history.

So I'm wondering why that wouldn't be a head wind into February.

Could you just clarify that point?

I think that could be one concern for investors going forward.

Thanks.

Sure, Kulbinder.

We tried to address it a little bit in the prepared remarks.

We had a quarter where the way that our quarters fall, it really bridges the sell-ins for the holiday season.

So we had a lot of shipments happen in the very late part of the quarter, as channel build was happening for the holidays, but we haven't had a chance yet to see the sell through for that in the numbers that we reported, just because of the way the quarter ends.

So that is definitely a big part of it.

Then we also have a lot of launch happening, as we talked about 75 carriers launching Torch and 100-and-whatever launching Curve 3G, and there were other launches in there, like Sprint with Style.

So a lot of that also was happening near the end of the quarter and some of that channel fill just hasn't had a chance to flow through yet and show up in the sell-through numbers.

Okay, but basically the sell-through, the strength that you had, I think you said half of volume was in the last month.

That run rate or level of strength in terms of sell-through has continued into the early part of this quarter as well, to be clear?

Yes, I think if anything, it's actually improved in the early part of this quarter.

Okay, great.

Thank you.

Your next question comes from Rod Hall of JPMorgan.

Please go ahead.

Yes, thanks for taking my question.

I've got a couple, but the biggest question I've got for you guys is, no matter what you do, it seems like the shares just don't react.

In the short-term, you're performing.

Last quarter you delivered great numbers, good guidance.

This quarter, same thing again.

And yet we look at the after-hours trading, the shares are only up a couple percent.

Maybe they will trade up tomorrow.

I think what you need to do to get people to believe that RIM has a future is to somehow get out ahead of what's going on out there in the market.

And so I wonder, Jim, if you could talk a little bit about next steps.

The PlayBook is a kind of tablet device, kind of me-too device.

There are already products out there.

You're playing catch-up a little bit on the touch interface.

We see Apple and Google now headed for the connected home, both of them going for TV plays and other things in the home so you can push this content around the house.

I wonder if you could comment a little bit about what you're thinking there and other ways that you could extend the platform and maybe start getting people focused a little bit further out than just the next quarter?

And then I've got one other question behind that one.

I think the PlayBook redefines what a tablet should do.

I think we've articulated some elements of it and I think this idea of a proprietary SDK and unnecessary apps, though there's a huge role for apps, I think is going to shift in the market.

And I think it's going to shift very, very quickly.

And I think there's going to be a strong appetite for web fidelity and tool familiarity.

And I think there's going to be a rapid desire for high performance, and I think we're way ahead on that.

And I think CIO friendliness, we're way ahead on that.

Now, how do you align or go over the top on carriers and content providers?

Well, we have different strategies and that's fine, and there may be room for more than one model, who knows.

It's a very dynamic market.

Plus there's enormous growth and shift happening around the world.

And so how many fronts people want to take on contention, that's a question you can ask.

Do you want to go over the top on banks, do you want to go over the top on content, do you want to go over the top on carriers, do you want to go over the top on video content providers?

Who knows?

What part of it's good strategy and what part of it's a bridge too far?

Who knows?

But the truth of it is you really want a lot of it on your smartphone and you really want a lot of it, we believe, on a tablet.

And how you do fit with -- how you fit with your content providers who are really changing their strategies for mobility, because they want a sustained model.

Carriers are aggressively trying to change their models.

Banks are getting involved.

So I think the PlayBook clearly sets the bar way higher on performance and you're going to see more.

I think the enterprise stuff, we're seriously extending.

I think the BlackBerry is still number one in social collaboration.

And I think with the PlayBook and that environment, we're going to set the new standard on performance and tools, very powerful tools.

And we're growing very, very fast.

So that's a lot.

Connected home, I think there's ways to seamlessly extend what's going on in the home.

And you're going to see a lot of how we're doing that, rather than going over the top.

But it may be a prerogative, but you're going into some pretty serious plays when you go in the connected home too hard.

And it's also, you have to pay attention to the fact that, what's the role of the satellite company or the cable company in that who gets fed selling content.

The content vendors get fed paying through them.

And then also how do you insert ads very well with these content vendors.

There's a lot of moving parts, but I think we're just well ahead on the PlayBook, well ahead internationally, and extending very, very well.

And so people can have their views on sentiment, but when is it a good entry strategy and when is it a bridge too far?

Who knows?

We have a turbulent ecosystem right now.

How do you work with banks, how do you work with carriers, how do you work with content, how do you work with enterprise ecosystem?

And I think these business models are highly shifting but people think that there's just a straight-ahead shot for everybody and it's all just predictably extended the way it's going now.

I think that's a highly questionable assumption.

These business models are highly in flux.

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

Ms. Ebbs, please continue.

Thank you.

I would like to remind everyone that there's a post view service available at 416-640-1917, pass code 4310313-pound.

Or you can listen to the call, which has been recorded and is available in the Investor Relations section of our website at RIM.com/investors.

Thanks.

I would like to wish everybody happy holidays.

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

Thank you for your participation, and you may now disconnect your line.