BlackBerry Ltd (BB) 2011 Q4 法說會逐字稿

Good evening, ladies and gentlemen.

Thank you for standing by.

Welcome to the Research In Motion fourth 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 and instructions will be provided at that time.

(Operator Instructions)I would like to remind everyone that this conference call is being recorded today, Thursday, March 24, 2011, at 5 p.m.

Eastern time.

I will now turn the conference over to Ms.

Edel Ebbs, Senior Vice President Investor Relations.

Please go ahead.

Thank you.

Welcome to RIM's fiscal 2011 year-end and fourth quarter results call.

With me on the call today are 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 fourth quarter results and I'll discuss our outlook for the first quarter of fiscal '12.

We will then open the call up for questions.

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

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

We plan to wrap up the call before 6 p.m.

Eastern time 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 margins, operating expenses, CapEx, depreciation and amortization, earnings, channel inventory and seasonality for Q1 and beyond.

Our expectations regarding RIM's near and long term tax rate, our product development and marketing initiatives and timing, including our expectations relating to the BlackBerry PlayBook and the QNX operating system, 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 product and develop new product and services; risks related to competition; our reliance on carrier partners, third party manufactures, third party network developers and suppliers, including potential risk to our supply of functional components caused by the recent earthquake in Japan; risks relating to network disruptions and other business interruptions; our ability to manage our production processes; risks associated with our international operations; security risks and risks related to encryption technology; our ability to manage growth; difficulties in forecasting financial results, particularly over longer periods given the rapid technological changes, evolving industry standards, intense competition and short product life cycles that characterize our industry; and other factors set forth in the Risk Factors and MD&A section 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'll now turn the call over to Jim.

Thank you, Edel.

2011 was a record year for RIM.

And we are pleased to report strong growth in revenue, shipments and earnings per share for the fourth quarter and full year.

In fiscal 2011, BlackBerry smartphone shipments grew 43%, revenue grew 33%, and earnings per share grew 47% over the prior year.

The adoption of BlackBerry smartphones in international markets continues to expand, and BlackBerry was named the number one selling smartphone for 2010 in several markets, including the United Kingdom, Netherlands and Latin America.

This week, we announced April 19, as the launch date for the BlackBerry PlayBook in North America through a broad network of channel partners.

Pre-orders through Best Buy started this past Tuesday and PlayBook will be available for purchase in over 20,000 retail outlets.

Early indications based on traffic to our own and to our partner's website since the availability announcement, as well as pre-order volumes, indicate PlayBook will have a highly successful launch.

Many existing BlackBerry enterprise customers, including a good portion of the Fortune 500, will receive PlayBooks for review in the coming weeks.

Many enterprise customers have told us that they have delayed their tablet deployment plans in anticipation of the PlayBook launch.

For instance, the CIO at Manulife Financial has told us that they plan to deploy across all divisions in Canada, the US and Asia.

And PlayBook is the top of their list for its great performance, security, lower operating costs and employee productivity benefits.

And Royal Bank of Scotland recently announced that they will be offering their research and strategy products via BlackBerry PlayBook in response to customer feedback.

The launch of the PlayBook will be the most significant development for RIM since -- may well be the most significant development for RIM since the launch of the first BlackBerry device back in 1999, not just because it is a hugely powerful new product that opens the door to an emerging high growth market segment, but also because it is the birth of a new future proof architecture based on the QNX OS that is expected to benefit not only future tablet products but also future BlackBerry smartphones.

The R&D and marketing expenditures we are making today impact our near term earnings growth trajectory but these are investments in the future and we believe that they lay the groundwork for a resurgence of growth.

The guidance ranges we gave for the first quarter are wider than we normally provide due to uncertainty around the impact of the recent tragic events in Japan on our supply chain, particularly as it relates to our smartphone bill of materials.

There are certain components that are sole sourced from Japan, and once we work through the inventory on hand, delivery times for replenishment are uncertain.

We are not expecting any material impact from the Japanese earthquake on our PlayBook supply chain in the near term.

We expect to ship between 13.5 million and 14.5 million BlackBerry smartphones for the first quarter.

We do not plan to guide PlayBook shipments but plan to disclose them as a part of our normal quarterly reports beginning when we report in June.

Q1 revenue guidance of $5.2 billion to $5.6 billion reflects expected PlayBook shipments, as well as a shift in the mix of handsets towards lower ASP entry level devices such as the Curve 8520.

The primary cost drivers of the earnings pressure we expect in the first quarter are the increased R&D expense required to deliver multiple versions of the PlayBook this year, including three 4G versions, WiMAX, LTE, and HSPA+.

As well as investment in turning the QNX OS into a platform that will not only run the world's most powerful tablet products but also set the stage for BlackBerry to offer some of the world's most powerful smartphone products.

In addition, ongoing channel development and seeding activities, launch events, development of marketing collateral and the development of advertising creative and up-front buys of TV slots are all investments that need to be made months in advance of actual launch and realization of revenue from related products.

These investments are continuing in a quarter where there is limited offsetting revenue.

By the end of Q1, PlayBook will have been in the North American market only five to six weeks, and there are no other new product launches to drive top line growth in this quarter.

We expect this to change in Q2 and Q3 when new BlackBerry smartphones are scheduled to launch and PlayBook rolls out internationally leading to renewed revenue growth.

We have a powerful road map planned for fiscal 2012, not only for PlayBook with 4G versions on track to launch for later this year but also for BlackBerry 6.1 based smartphones which will offer significant enhancements on performance and fidelity compared to 6.0, and will include full QWERTY, hybrid and full touch screen models.

These will be followed by QNX based BlackBerry superphones that will fully leverage our current investments and are scheduled to hit the market in calendar 2012.

Corporate gross margin percentage for Q1 is expected to be approximately 41.5%.

And gross margin in RIM's smartphone and related software and services business is expected to remain at or above 40% throughout fiscal 2012.

PlayBook has a lower than corporate average gross margin, and as this product ramps into the second quarter and throughout the year, we anticipate corporate gross margin percentage to be below 40% but on a much higher revenue base.

We expect the PlayBook opportunity for fiscal 2012 is in the millions of units.

As PlayBook rolls out and is broadly adopted, we believe there are many incremental revenue opportunities including accessories, revenue sharing arrangements which we can take advantage of to improve overall margin profile of the product over time.

We don't see the Q1 decline in sequential earnings per share as the beginning of a trend but rather as a period of transition.

Based on the current product road map and supply chain outlook, subject to the risks Edel outlined at the beginning of the call, we currently expect to grow fully diluted earnings to over $7.50 per share in this fiscal year, fiscal year 2012.

It is difficult to have visibility three quarters out with a high degree of precision given the dynamic market we operate in.

However we are confident that fiscal 2012 will be another strong year of revenue and earnings growth for RIM.

At launch we expect PlayBook to offer a broad array of applications in multimedia capabilities.

And today, we made a number of exciting PlayBook platform announcements that will significantly increase and enhance the number of applications and content available for PlayBook and future QNX based products.

These include making support available for over 25,000 BlackBerry Java applications and for more than 200,000 Android applications, support for leading game engines including Unity, AirPlay and Electronic Arts, and access to thousands of PlayBook applications that have been submitted to BlackBerry App World since DevCon last fall.

And a multitude of web-based applications based on the Adobe AIR SDK and our own WebWorks SDK.

We also are pleased to announce the BlackBerry tablet OS native development kit which will allow developers to build high performance, multi-threaded native C++ applications with industry standard GNU tool chains.

The BlackBerry platform implementation will build on the POSIX-based QNX neutrino microkernel architecture rather than on Linux.

And more details and demos of many of these platform extensions will be available at BlackBerry World in May.

The prepaid market was a significant growth driver in Q4 and is an increasing percentage of our total subscriber base.

Tiered pricing plans also drove success in international markets this quarter with unique BlackBerry service plans, including all you can eat pricing on the services that end users value most such as BlackBerry Messenger and social networking applications leading the way.

The combination of the hugely popular Curve 8520 with prepaid and tiered pricing plans allows us to accelerate the transition from feature phones to BlackBerry smartphones offering compelling value and incremental revenue streams for our carrier partners around the world.

The smartphone environment in North America remains very competitive.

Given the maturity of the BlackBerry product portfolio in this market we are not forecasting a near term improvement in North American growth in the first quarter.

Though we believe that the launch of new handsets beginning in Q2 and into the second half of the year, as well as the positive halo from the PlayBook launch, there is an opportunity for improved growth in North America both through attracting new customers to the BlackBerry platform and generating a significant upgrade cycle among our existing loyal customer base.

Corporate customers are increasingly moving their IT infrastructure to cloud based architectures.

And RIM is in an excellent position to benefit from this shift.

The BlackBerry solution was developed as a cloud based service and this architecture enables many of the competitive advantages that the BlackBerry solution is known for, including realtime, push data, industry leading security and back end integration with carrier provisioning and billing systems.

Over the coming year, RIM plans to leverage these strengths to grow our presence as a cloud based enterprise service provider through a variety of strategies including partnership with leading cloud based solutions providers such as Microsoft.

Over 100,000 new registered developers joined the BlackBerry development community in fiscal 2011 and we remain committed to providing them with the best tools to successfully launch and monetize their applications as quickly as possible.

The launch of flexible payment options for the purchase of applications on BlackBerry App World had an immediate impact on the number of downloads through the store front.

These new payment options, which include carrier billing, allow subscribers to apply purchases directly to their post paid or prepaid account making it easy to take advantage of the more than 25,000 applications now available through App World.

Downloads from App World, which is available in over 100 markets around the world, grew 100% in under a year and now average over 3 million per day.

We were also pleased to recently announce that the new BlackBerry mobile gifting platform that integrates BlackBerry App World, BlackBerry's carrier billing platform and BlackBerry Messenger.

This introduction is of such convenient and tightly integrated services based on the BBM mobile gifting platform will enable mobile commerce and enable carriers to provide unique value to their customers.

BlackBerry subscribers will be able to buy or gift airtime, apps or other carrier services and charge the purchases to their existing post paid or prepaid account, or alternatively, pay for the purchases through various other payment methods.

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

Thank you, Jim.

During the fourth quarter RIM shipped 14.9 million devices and total revenue was approximately $5.6 billion with hardware accounting for approximately 81% of the total.

Sales outside of the US, UK, and Canada comprised approximately 52% of total revenue.

Sales in the US represented approximately 30% of total revenue, the UK represented approximately 11% and Canada represented the remainder.

Estimated sell-through in the quarter was approximately $14.5 million, including phone only sales which have been increasing as BlackBerry penetration of the prepaid market grows.

We estimate that weeks of channel inventory decreased slightly at the end of Q4.

Service revenue in Q4 was approximately $898 million, up 8% from last quarter.

And software revenue was approximately $81 million.

ARPU was down slightly due to growth in tiered business and prepaid service plans.

Gross margin in the quarter was 44.2% and operating expenses increased to approximately $1.2 billion, in line with our expectation.

Accounts receivable decreased from $4.1 billion to $4.0 billion in Q4.

And DSOs decreased from 68 days to 65 days.

RIM's cash balance at the end of the quarter increased by $227 million to approximately $2.7 billion.

After capital expenditures, approximately $300 million.

Intangible asset purchases of approximately $365 million.

RIM's corporate tax rate was slightly lower than forecast in Q4 due to some recent enacted tax changes and we expect the full year F12 rate to be similar to the fourth quarter.

Fully diluted earnings per share in Q4 were $1.78.

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

Thanks, Brian.

Before I discuss the outlook for Q1, I'd like to remind everybody 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 total revenue for Q1 including PlayBook to be in the range of $5.2 billion to $5.6 billion, which includes between 13.5 million and 14.5 million BlackBerry smartphones as well as our initial PlayBook shipments to support launch and early sell-through expectations.

We will break out shipments of PlayBook when we report next quarter.

We are forecasting ASP on our handset portfolio to be lower in Q1 than Q4 due to product mix shifting more towards lower priced handsets to support the strong growth in prepaid and entry level markets, as well as the late stage of product life cycle of certain products as we approach the launch of next generation versions of these products and handsets in Q2 and beyond.

As Jim noted, we are also guiding a slightly wider range than normal to account for any tightness or lessening of lead times in supply chain we may experience as a result of the earthquake in Japan.

At this point we do not expect a material impact on near term PlayBook supply from the earthquake, as we continue to evaluate the situation with respect to our smartphone supply chain but believe that the impact in Q1 will likely be minimal based on the current expected mix and feedback from our suppliers with higher risk in the second quarter given the plans for new product launches.

We expect overall corporate gross margin percentage for the first quarter to be approximately 41.5%.

As Jim mentioned earlier, while margins in the overall smartphone business are expected to be at or above 40% in fiscal '12 we expect overall corporate gross margin to be below this as PlayBook increases as a percentage of the mix.

We see opportunities to improve the gross margin profiles for the PlayBook franchise over time as the product scales and becomes more broadly adopted, and we leverage opportunities to generate incremental high margin revenue from accessories and software and services.

Total operating expenses are expected to increase in Q1 by approximately 2% from Q4 levels.

We expect R&D to increase by approximately 7% and sales, marketing and admin expense to be similar to Q4 levels.

In the first quarter we expect depreciation and amortization to be approximately $135 million and we expect CapEx to be approximately $300 million.

We expect the tax rate to be approximately 25% in Q1 and to be similar throughout fiscal '12.

We expect Q1 EPS to be in the range of $1.47 to $1.55 per share diluted based on a fully diluted share count of approximately 525 million.

As Jim mentioned, the earnings guidance for the first quarter reflects a period of transition ahead of the full rollout of PlayBook and new smartphone launches in Q2 and beyond.

We expect that for the full year, fiscal 2012, diluted earnings per share will exceed $7.50.

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 by approximately 6 p.m.

Would the Operator please come on to handle questions?

Thank you.

(Operator Instructions)Your first question comes from Jeffrey Kvaal.

Please go ahead.

Yes, thank you both very much.

I was wondering if you could help us understand the sequential trajectory in the unit volumes you're expecting for the May quarter.

Obviously that's been a seasonally stronger quarter for you in the past even if you haven't had great device launches.

This year it's down.

And then I guess secondarily, it seems as though there might be some shift in the underlying smartphone gross margin structure.

You've previously talked about low 40% range and now you're talking about above 40%.

I'm wondering if there's any dynamic underway there, as well.

Thank you.

I'll just be blunt.

We have just really an outstanding set of new product introduction which is cutting over new architectures.

And the capabilities of these, we haven't talked about, but it's a major, major step up.

And it comes in Q2.

So we're cutting over, we're really cutting over.

It's a time of enormous investment and transition.

The interest in the new devices and new platforms, for those of you that have been able to find it out, is extraordinarily high.

And the interest in the PlayBook we all know, and we're cutting over to the new platform.

So, quite frankly, it's a time of cutting over, and it's a heavy cutting over time.

And in the core market of North America, this is going to be a key part of growth and so this is a time of transition.

We talked about where we see the -- we expect our earnings and activity to be for the year, and we're making major investments in cutting over and transition.

It's just that simple.

And we feel very good about the PlayBook, very good about our new products, our new NPI and the architecture.

And if life was perfect I'd love to pull it in three months but I can't.

And, Jeff, I think it's also worth noting that in the prior two quarters we had a lot of volume because of Torch rollouts around the world.

Last quarter we had a pretty heavy shipment late in the quarter.

So I think that there's a lot of that going on in terms of how the quarter-over-quarter looks.

Yes, and I'll just add on to Edel.

This is really about making sure -- we believe we have an architecture and a platform that future proofs the Company.

And when you see these new products, or maybe you've gleaned it from ways you shouldn't, they're phenomenal.

And the PlayBook, you've seen the interest is fantastic and it's really a no compromise environment.

You get the performance and you get the tonnage of apps and you get the uncompromised web and CIOs are pleased by its enterprise greatness.

It is a hot, hot capability.

And then we talked about this cutting over to being on superphones.

So we feel fantastic about the future of the Company and its prospects.

I'll put it in a simple word.

It's transition.

And that's what it is, and that's why you see the volume of units being what they are.

But we still are forecasting to grow substantially this year.

We're coming off another great year of growth and we're investing very heavily because opening up a new category, bringing in a new platform, it's just not a time for half measures.

Would it be fair to say there's an inventory drawdown ahead of the new product launches?

And then anything on margins would be great.

Yes, in terms of inventory, we said last quarter that we're pretty comfortable.

Certain places had higher inventory than others but we also had a very back end loaded quarter.

Inventory came down slightly this quarter.

Were there elements of maybe some folks having enough inventory in some places?

Sure.

But I think a lot of it is also we're just heading into a new product cycle.

As I said, a lot of the products have been in markets where we have quite a long life on a lot of our products, and as we get ready to transition to new ones in Q2 and beyond, then there's just less demand in terms of taking more channels at that time.

They don't want to take as much inventory, so that's also a factor for sure.

Sorry, remind me again your gross margin question?

Is there anything going on -- is that what you were asking?

Yes, because in the past you've talked about low 40s gross margins and now you're slightly changing that to being 40% or above, and that's in conjunction with lower ASPs.

So that's where the question comes from.

Yes, we've always talked about that 40%, low to mid 40s, I think, as we've said a lot.

Again, we're still, 40% or above is kind of low 40s.

I think in general, as the market matures and we're in some of these markets there's lower ASPs or whatever, there's an element of that.

But I think that with that comes volume, right?

So that's kind of how we're thinking about it.

I think in general, given how we're thinking about scaling the business, keeping that part of it at 40% and above is pretty good.

Okay, thank you.

Your next question comes from Kulbinder Garcha from Credit Suisse.

Please go ahead.

Hi, yes.

I just want to be clear.

The sequential gross margin pressure that you are seeing, all of that is at this stage primarily PlayBook related?

And then going forward, it's going to continue to be PlayBook related.

Is that how you're thinking about things?

That's my first question.

The second thing is I understand it's dilutive and you mentioned at some point it could ramp.

Could you give us some time frame or volumes that you would associate with that kind of ramp?

Does it have to be a 5 million unit quarter item for this to be a gross margin neutral product for RIM at some point?

Thanks.

Yes, okay.

So there's always mix elements.

If you look at what we've guided for gross margin and where we've come in, over the past few quarters, it's pretty hard to be really precise because mix shift can have a pretty big part of that.

The 41.5%, that's in a quarter where we are at the long end of the life cycle of a number of products.

And so you've certainly got that coming into the mix.

You do also have, like you mentioned, PlayBook.

There's definitely elements of that as we have that in market for five to six weeks a quarter, so that's definitely part of it, as well.

Sorry, the second part of your question was again, remind me?

Yes, you mentioned it's going to continue to have a negative impact on the gross margin for the group, but at some point it could be neutral or could it rise?

I'm just wondering how long might that take.

Is this going to be a year away?

And also what kind of volumes do you have to be making for this device to not be gross margin dilutive for RIM overall?

Yes, that's a tough question to answer in that degree of detail.

There's a lot of elements to it.

Obviously, there's, as you scale production, you experience curves in production or whatever, that you can benefit from.

But some of it depends on component pricing and that's just a really tough thing to forecast.

So there's opportunities there.

And then there's a really big opportunity in terms of additional revenue streams beyond hardware, because I think really -- we look at PlayBook as not just a piece of hardware but as a platform.

Part of that is enabling software and services revenue streams which see much higher margin, and also we have a pretty aggressive activity going on in terms of building an accessories business around it which would also be helpful to the margin.

I understand.

And one final clarification.

Your revenue guidance does include PlayBook revenue, you just don't have any kind of a unit number for it, now, just to be clear on that for the next quarter; is that right?

Right.

So we're not planning on guiding PlayBook units but we will report them and so the revenue guidance includes PlayBook but the unit guidance is pure BlackBerry smartphone.

Okay, thanks.

Your next question comes from Gus Papageorgiou from Scotia Capital.

Please go ahead.

Thanks.

Just a question here.

You're going to be releasing the BlackBerry 6.1 devices and then you're saying QNX coming 2012.I'm just wondering if carriers are expecting QNX devices to be coming not too far behind the 6.1 devices is that going to cause some hesitation to adopt the 6.1 devices?

Like, why not just wait for the QNX devices and hold off for 6.1?

There's a time lag between the 6.1 and the QNX stuff and the certification cycle So that's point number one.

And second of all, 6.1, if you saw the products, the demand in interest for those products is amazing.

And so there's just enormous interest in the new products.

And clearly looking at the superphone market, which is really going to be a redefined, in so many ways of capability, that's going to open up that whole aspect of future performance.

But never in any of these has there been diminished interest in the new 6.1 devices.

The interest is, the scrambling for them and trying to get special circumstances for it is super intense for the various NPIs, the new products.

So no, that's not an issue, not an issue at all.

And would you say the interest is, could you characterize it as global or is it more international and North America?

No, it's global.

It's very strong global.

North America and rest of world, yes.

Very, very strong.

It's a fantastic cutover or upgrade.

And yes, there's a superphone strategy, which we talked about, early calendar '12, and then you got the PlayBook.

It's a great portfolio and this is a time of transition.

So no, this idea of risk on 6.1 I would not bet on that in the least.

Okay, thank you.

Your next question comes from Richard Kramer from Arete Research.Please go ahead.

Thanks very much.

Now that you've reached 15 million unit run rate overall, and given the growth in international markets, and some of the issues your competitors are facing, what's preventing you from being far more aggressive in moving to lower ASP models, given your retention rates and the service fees, even if they are lower level?

And also, just to clarify, your EPS guidance assumes that your second half earnings are going to be roughly 50% higher than first half.

Can you just walk us through will there be any major changes in your cost base or will this all come effectively from higher revenue from new products?

Thanks.

The last part of the question there, Richard, no, we're expecting a pretty big step up in growth, and as we launch these new products.

So that's the primary driver.

Yes, and the interest, this is based on a lot of pretty intense engagement on new products.

And on the ASP side, coming at entry level stuff is an interesting idea.

I think going higher into superphones, going more entry level and tiering the different products, I think that is an amazing opportunity that's before us.

And then (inaudible) that both stands alone but also pairs with the BlackBerry and has a (inaudible) of more one platform over time.

But I trust people have seen the release on the application ecosystem and how it supports different environments.

So it really is a no-compromise architecture and a no-compromise strategy.

And, yes, whether you're -- and then you just tier it, you can tier it.

The lower ASP stuff is certainly an opportunity.

Is that in your thinking for this current fiscal year that you would move aggressively with lower ASP products into the emerging markets where you've already seen good take off of 8520?

That's certainly something we're actively engaged in, yes.

I wouldn't put that in the category of our hot Summer NPI, but that's certainly a prospect.

And it just shows the platform of BlackBerry and the carrier alignment, they just want us to hit tiers.

You want the high performance superphone, which you're going to see, and then we've got an amazing line up of stuff you're going to see this summer, and then can you hit entry level.

And it gets real, real interesting.

Okay, thanks.

Your next question comes from Matthew Thornton, from Avian Research.

Please go ahead.

Yes, hi, good afternoon.

Thanks for taking my question.

Just following up on that last question in a slightly different direction, the 8520 portfolio, the EDGE portfolio, has allowed you to sustain some pretty nice gross margins despite being a lower ASP product in targeting those prepaid and developing markets.

Is the EDGE portfolio starting to come off for the remainder of the year?

Is that a contributor to the gross margin degradation that you're talking about or do you have additional EDGE products in the pipeline there?

And then a second question, at the other end of the scale, do you have any 4G products in the works for the US market?

Obviously more of a marketing ploy than anything.

But if you look at AT&T, Sprint, T-Mobile, they're having very good success selling these 4G Android products.

So I'm wondering if you have anything for fiscal '12 on the 4G front for the US market.

Thank you.

You're going to see entry level stuff.

And the idea of having a real stripped down EDGE or 3G stuff or evolved EDGE, those are really, really good questions.

And I can't give you specificity on that around the world but there are places where just having EDGE and evolved EDGE is just fine, but price is a real driver at that entry level.

So I'm not going to go specific on that but I think you've seen how the 8520 just continues to fly, that that serves a real, real need.

As for 4G, I'm not going to commit on specific products for this year but I will say that we have super intense 4G efforts.

We're doing it on PlayBook which we've announced.

And stay tuned.

When you see the platforms and you see the performance, you'll see why we're so bullish on the Company and its current prospects, for this fiscal year but we're just going through a very, very heavy transition and we're shoring up the competitiveness in North America.

And that's really the big thing that's going on here.

It's not some general trend or it's not some global trend and it's not some -- it's not a global element and it's not a general trend that you're going to see sustained.

Just on your gross margin question, again, it really is driven by mix and it's so hard to predict even on a quarter by quarter basis.

And we also have pretty heavy new product coming.

So again, new products, when they first come out of the gate, tend to have a little bit lower margin.

And then as I mentioned earlier, PlayBook, we really think it's going to be a big selling product and it's going to really grow as part of the mix, so it's got to take that into the blended number.

So those are really the main drivers.

Terrific, and that's what I was getting at.

I understand the PlayBook side but I was wondering if also the EDGE mix starting to come off was also a contributor on the smartphone side.

But I certainly understand the PlayBook side.

Yes, I think it's a mix thing.

It's pretty hard to say pin it on EDGE or on 8520 or on any particular product.

It's really a mix thing and the combination of older products and how quickly the new products grow as part of the mix, and then how quickly you can scale those products and allow the different things.

So we give the best view we can at this point but it's going to move around on a quarterly basis based on all kinds of factors that we just can't see right now.

Great.

Fair enough.

Thanks for the help.

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

Please go ahead.

Yes, thanks very much.

Just housekeeping.

Jim, did you say no QNX until CY '12 or F '12?

What's that?

Yeah, I said calendar 12, yeah.

Calendar '12.

Okay.

So do you feel comfortable that based on -- clearly you do from your guidance -- but what is the kind of visibility that you have to the sustained uptake of the 6.1 platform in advance of your transition on the smartphone side, given obviously the pace of competition going on in the market right now?

6.1 is a big part of the transition.

6.1 is a major upgrade.

Why is it a major?

Sorry, can you explain that?

We've not announced all the details.

I think you see that at BlackBerry World so I'm just not going to go into a lot of details.

We haven't announced it formally yet.

No, no, the power of the 6.1, and it's highly sustainable, the interest in it.

No, there's no -- the meetings with the carriers on these products and the level of commitment is outstanding.

Obviously the superphone cut over just puts you into another, an even higher dimension.

But for me, I would say the risk is making sure we get them done and certified.

It's not a minor upgrade.

It's a very substantial enhancement to the product in some profound ways.

And I think a lot of this is going to be shown at -- obviously it's going to be released some time in the spring, probably BlackBerry World would be a certain element will be shown.

But no, the products this summer have enormous interest.

The carrier engagement globally is extremely high.

And absolutely the PlayBook and all of the QNX stuff is wonderfully complementary to all of that.

But I'm not seeing in any -- I mean, I think they -- they're -- we expect, and we expect them to hail one another.

I said that in my comments earlier.

And I just don't see any diminished interest whatsoever in the NPI.

When you see them, you'll be -- and people -- their jaws drop, the carriers, they love it.

And the biggest risk that we've had in this is getting it certified and getting it to market at a certain time.

Like I said, if I could take everything and move it forward two months, a whole lot of things would be different, but I can't but that doesn't change anything strategically.

That just shortens the time of transition, that's all, which all things being equal I would love to shorten that, of course.

So when do you think that investors will start to get visibility to support for your full year outlook and to support for what you're seeing now which is that the transition to 6.1 will sustain and potentially even help your North American momentum?

The NPI is going to come out, the time for NPI, when we're on the call this time next quarter, you'll have a very, very good indication what's going on.

And I would also say that a lot of the talk was things like PlayBook and all that sounds great but talk to me about the application ecosystem.

I think we've gone a long way to doing that today.

So no, we feel great.

It's a transition.

It's a super exciting transition and it's got legs to sustain us really indefinitely.

And we're guiding what we're guiding for -- we're stating what we believe we'll do for this year, and we're investing very heavily in this transition.

And it's just happening at a time where it's competitive in North America.

Globally it's going well.

And you want your new products in as soon as possible because they'll torque the growth.

And you obviously want PlayBook getting out as soon as possible because that will torque the growth too.

Thanks, very much, Jim.

Your next question comes from Brian Modoff from Deutsche Bank.

Please go ahead.

Can you give us an idea on PlayBook?

You're not willing to commit to volume but can you at least talk about what you think, are we talking your initial shipments being in the tens of thousands of units, are you talking hundreds of thousands units?

Can you give us at least a range of what you think you'll be shipping in terms of PlayBook this quarter?

We didn't give guidance for a reason.

We said 20,000 retail outlets.

They're going to have -- they're not going to have one or two devices so I think you can see it's not in the tens of thousands.

Hundreds of thousands.

Clearly, it's a major, major launch that we expect to be a growth driver for a long, long period of time.

And I just don't want to get into semi guiding.

But the interest is extremely high.

This is a shift in computing globally.

The demand -- let me put it this way.

I've got many corporate clients that have approached us about each wanting tens of thousands, several tens of thousand PlayBooks, and that is what they're looking at, that is what they're assessing.

And they are looking at tablets and they like the PlayBook architecture.

Obviously you have to execute on these opportunities and deliver the product, and obviously this is over some period of time.

But when you look at the addressable market, it rolls up to a substantial opportunity and we just have to execute into it.

So, yes, we have some good expected numbers on this.

We're not guiding so I can't say but we certainly have substantial internal forecast, we've made substantial parts procurements, we have received a lot of indication both from the channels and the end customers.

We feel this is a winner.

And the most important thing about the product is get it out as soon as possible but make sure it's stable.

And that's the tension.

If we believe it's stable by April 19, it's got a great over-the-air utility for upgrading, it's got so many things that just future proof it.

You've got to get it done and get it out and make sure it's stable.

And that's why we're being very prudent on the timing, but it's a winner.

It's such a winner.

Your next question comes from Ehud Gelblum from Morgan Stanley.

Hi guys, thanks.

Can you hear me?

We can.

Excellent, thanks.

First of all, wanted to go back to the gross margin issue and just explore it and just understand a little bit more because I think it's important.

When you look at the mix of types of units you're selling, or anticipate selling, next quarter versus the mix this quarter and the quarter before, how do you see that mix changing and why do you think that mix results in a lower gross margin?

Clearly you'll have lower units next quarter than you did this quarter but if you go back to your fiscal Q3, you did 14 million, 14.2 million units, which is essentially your range now and your gross margin then was safely above 40%.

I think it was 43.6%.

So how is the mix different?

I was always under the impression that, A, your 8520s were highest gross margin, and it sounds like your mix is going to be more skewed to 8520s.

And, B, the longer your products last out there, as they get to end of life, et cetera, that they actually have higher gross margin than they did originally.

So I would think as quarters progress you should end up with higher gross margin, not a lower.

And I'm just wondering how is that mix going and what is playing into that on the smartphone BlackBerry side.

Second of all, if you can give us a sense as to, starting off, where those PlayBook gross margins lie.

They are clearly below your corporate average but are they 5 points below your average BlackBerry, are they 10 points below your average BlackBerry?

Give us a sense.

And the last point is on inventory.

You said, I think, that you sold through 14.5 million units of the 14.9 million that were sold into the channel so I would think your inventory in your channel actually went up but you mentioned it went slightly down.

If you can clarify that, that would be great.

Yes, on the inventory stuff, timing in the quarter matters, so that's really where we said it came down a week's basis so that takes into account a forward sell-through forecast.

So what it would mean is that we're forecasting higher sell-through.

On the PlayBook gross margin, I'm not going to give you a number there.

We're not breaking that out right now.

Over time we'll be able to talk more generally about it but I'm not going to give you anything there.

On the gross margin of units and what the big difference is, it's back in Q3, Torch was a big part of the mix.

This quarter, it shifted a lot, more towards 8520.

And while 8520 has got a good margin, it's still older in terms of our portfolio.

We're driving it deeper into new markets.

And we also have other products like Bold, for example, that have been in market a long time but still make up a good part of the mix.

And so as they get closer to having new products in market to replace them, you're lowering the ASP there which can have some margin impact.

So there's some of that going on, as well.

So it's a lot of transition going on until we get new products in the market.

So is it right to look at the gross margin profile of a device as getting greater and greater as time goes on until it gets to end of life and then you cut the ASP on it and then we get a fall off in gross margins for the last quarter, quarter and a half?

Is that the way to look at what's happening?

I guess ideally you'd like to plan it so you get as close a time between that and your new product launches, and that you don't have big gaps there.

But yes, that's generally how I would think about it over a life cycle, yes.

Okay.

And then finally, could you give us a sense of the timing when QNX ends up on BlackBerry devices?

I think we addressed that.

Early calendar next year, early calendar '12.

Early calendar '12.

Okay.

I appreciate it.

Thanks.

Your next question comes from Jim Suva from Citi.

Please go ahead.

Thank you very much.

I have a strategy and then a financial question.

On the strategy, when you talk about the platform and the BlackBerry architecture, yet connecting to the Android ecosystem, can you address the investor concern about why developers will even be motivated to develop for RIM anymore if they can just do it on Android and lever across a much global footprint given they have a limited amount of time?

And then for the financial question, the earnings per share of fiscal '12, more than $7.50 is much much stronger than expected but the May quarter outlook, I think it's fair to say is much softer than expected.

Can you help us bridge the gap about how we get from that run rate in May to the $7.50 in the year?

Is it lower OpEx spending?

Is it units?

How should we think about getting from that to the much higher than expected fiscal '12 full year EPS of more than $7.50?

I'll take that one before I had it back to Jim on your other question.

Really, it's volume, just the indications that we have from our partners on products, whether it be PlayBook or other tablet products that we've announced or not announced.

And handsets that we have coming to market beginning in Q2.

Together with a lot of strategies like some of the ones we alluded to earlier in terms of having a high end strategy and also a strategy to go after some of the opportunities that have opened up internationally, particularly in some of the entry level segments.

We think it's going to drive some really really big volume and revenue, and that's the primary driver of what we expect beyond Q1 in terms of EPS.

Yes, for apps, first of all, what we announced is with the volume of Android apps is the Gingerbread, right?

So this is Gingerbread, this is not Honeycomb.

So I don't know what the number of Honeycomb apps is but it's not very many, whereas Gingerbread, they've got lots of them.

So you've got the volume of the handset apps, so if you're looking for the tonnage of apps or some kind of long tail stuff, you've got it.

But if you've noticed, Gingerbread is not what's being used for Android for tablets.

So you've been changing or fragmenting your designs.

And so at the end of the day, people are going to want performance and you're going to want performance for, quite frankly, you're just not going to get things like gaming or multimedia.

You're just not going to get it.

And you're not going to get the speed going through a VM interface.

And if you want content and you want the Flash type stuff or you're looking at evolving web type assets, that's what you're going to do.

So will people -- you don't get a, there's no compromise here.

You've got the tonnage of apps and you've got the performance.

Do I think the tonnage is overplayed?

Yes, if but you think it's about having a couple hundred thousand apps, there you go.

But do we believe it's about super high performance?

Yes.

Do we believe it's about full web fidelity?

Yes.

These are concepts that were really relegated as not technically possible, which we're doing here.

And so this is a no compromise environment.

If you want to work on Android, great.

Do we think people want to migrate web assets?

Yes.

Do we think they are going to want super high performance native assets with the SDK?

Absolutely.

Do you think they are going to want to use their Flash based stuff for an offline Flash AIR type environment?

Yes.

So I really am just not interested in these sort of religious application tonnage issues.

So I really think we put that issue to bed.

And if you think the whole world is going to want to develop for Gingerbread, fine.

But do I think that's going to happen?

Well, then why is there a different environment for a tablet?

And you know about the performance issues and you know about the app volume issues, because it's tough, and that's why QNX matters.

So people quickly see that -- that's why people are saying is this stuff going to go more in the browser and HTML 5 and more native.

These are going to be strong trends.

But if you want these app players for different VMs -- and don't forget, we've got 25,000 BlackBerry 6.1 apps for BlackBerry apps for 6.0, for BlackBerry.

So at the end of the day, we believe this is going to be about performance, it's going to be about enterprise greatness, and performance means things like multi threaded capability, symmetric multi processing.

We believe it's about an uncompromised web.

We believe it's about enterprise, security, about multitasking, true multitasking, not with suspension.

And that matters because you're going to want to run these things in the background.

You're going to be running multiple things.

You don't want to suspend them, for a lot of reasons, especially when you start to go to tablets into smarter and smarter phones, or super phones.

But I'm out of the religious war on tonnage, which I'm delighted, that's really -- so there is no compromise here on the web.

There is no compromise on native performance.

You've seen it maybe with the EA games, you've seen the enterprise grade capability on this.

But if you want the tonnage, go ahead, but all the tonnage in Android is in Gingerbread.

It's not in Honeycomb.

So you asked a real tough question, when are you going to see tonnage in Honeycomb, and how is it going to perform.

And then you realize, Oh, my God.

But if you've got pretty simple little things, great.

I put that in the long tail stuff and we've got it.

And if you want all your BlackBerry apps fantastic.

And plus you'll be able to run your super apps on this too.

So we're in an era of absolutely no compromise on the app side which is a distinguishing and highly valuable proposition.

Now, let's talk the performance of the engine.

Let's talk where it will take you.

Let's talk about what a CIO needs.

And whether you want to run it master now or you want to bridge it with your BlackBerry and how does it perform when it bridges?

It gives you an enormous benefit.

And so you look at this, and if you saw our handset road map for the summer -- coming out this summer, and then clearly if you look at QNX being on different phones and you're just repackaging a PlayBook, if you will, this becomes very, very interesting for a very, very long period of time.

And then you start saying, okay, how do I start changing the game in terms of these value-added things.

And we've got all these carriers.

We've got dozens of carrier billing, new partners being lined up for this summer, all of the gifting stuff, all the different enterprise and App World extensions and many other media properties that you're going to see come out this.

So it's been hyper investment and hyper developed, so I feel great.

I think people can pick whichever one they want.

I think it's very important to understand that this idea of no compromise matters and this idea that you just -- you can pick whichever one you want.

Great.

Thank you very much, ladies and gentlemen.

Your next question comes from Tal Liani from Banc of America Merrill Lynch.

Hello.

I have two questions.

The first one is if you start from $1 and you need to get to 7.5, it means on average, $2 for the next three quarters.

And if you actually start ramping, it means that the last quarter is going to go from $1 Q1 to $2.50 which is massive ramp.

But on the other hand, you've got gross margin (inaudible).

Sorry, what was the last part of that, Tal?

Hello?

Hello, can you hear me?

I can hear you.

I said that on the (inaudible).

Sorry, Operator, we're breaking up here.

I don't know if it's--.

It was coming from Mr.

Liani's line, it was cutting in and out.

Okay.

I think we'll need to wrap up and I'll touch base with him afterwards.

Perfect.

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

Thank you for participating.

Please disconnect your lines.

Thank you.