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Research In Motion Limited (RIMM)

F2Q2011 Earnings Call Transcript

September 16, 2010 5:00 pm ET

Executives

Edel Ebbs – VP, IR

Jim Balsillie – Co-CEO

Brian Bidulka – CFO

Analysts

Mike Abramsky – RBC Capital Markets

Kulbinder Garcha – Credit Suisse

Jeff Kvaal – Barclays Capital

Maynard Um – UBS

Gus Papageorgiou – Scotia Capital

Presentation

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Operator

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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Research In Motion second 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 to anyone who has any difficulties hearing the conference. Please press star zero for operator assistance at any time.

I would like to remind everyone this conference is being recorded today, Thursday, September 16, 2010, at 5 p.m. Eastern Time and I will now turn the conference over to Edel Ebbs, Vice President Investor Relations. Please go ahead.

Edel Ebbs

Thank you. Welcome to RIM's fiscal ‘11 second quarter results conference call. With me on the call are Jim Balsillie, Co-CEO and Brian Bidulka, CFO. After I read the required cautionary note regarding forward-looking statements, Jim will provide the business and strategic update, Brian will then review the second quarter results and I'll discuss our outlook for the third quarter of fiscal2011. We'll then open the call up for questions.

I would like to note 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 include statements about our expectations and estimates with respect to product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings, channel inventory, seasonality and ASPs for Q3 fiscal2011 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 Q3, our estimates of the number of net subscriber account additions and other non-financial metrics, our product development and marketing initiatives and timing, developments relating to our carrier partners and other statements regarding our plans and objectives.

We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue, and similar expressions. All forward looking statements reflect our current views with respect to future events and are subject to risks and uncertainties and assumptions we have made.

Any factors could cause our actual results, performance or achievements to be materially different than those expressed or implied by our forward-looking statements including risks related to 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 manufactures, 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 the SEC and Canadian securities regulators.

We base our forward-looking statements on information currently available to us and do not assume any obligation to update than except as required by law.

I'll now turn the call over to Jim.

Jim Balsillie

Thank you, Edel. We're pleased to report strong financial results for the second quarter of fiscal2011 with shipments, revenues and earnings all above the high end of the ranges we guided on the last conference call.

Revenue grew 31% over the same quarter last year and GAAP earnings grew 76%. The BlackBerry subscriber account base grew 56% year-over-year to over 50 million and RIM has shipped approximately 115 million handhelds to date. This strong performance was due to the well executed launch of two new products during the quarter, excellent performance in international markets, particularly Latin America and Asia.

BlackBerry Smartphones are available through over 565 carrier and distribution partners in approximately 175 countries and international markets continue to be a strong driver of growth. Approximately 52% of revenue in the quarter was generated outside the United States and over 45% of BlackBerry subscriber account base is outside of North America.

In Q2, net subscriber account additions were 4.5 million which was lower than we anticipated at the time of the last earnings call. Net subscriber account additions are increasingly difficult to forecast as the Smartphone market becomes mainstream with more channel complexity, growth in the number of competitive products and increased market segmentation.

In the early part of the second quarter we saw lower than expected net additions from the United States due to a large number of competitive offerings hitting the market in the absence of new BlackBerry product offerings and in the latter part of the quarter we saw some impact from the weakness in the Middle East markets due to the well publicized issue surrounding BlackBerry service in the region.

With the launch of the Torch in late August, we saw a meaningful increase in run rates in the United States which has continued into the early part of Q3. We have also seen an improvement in the Middle East as we work with authorities in these regions to address the regulatory concerns. Despite the lower net subscriber account additions, sell-through of BlackBerry devices in the quarter was strong at approximately 11 million, not including devices sold as phone only. This reflects a high level of replacement and upgrade sales with millions of BlackBerry customers remaining loyal to BlackBerry products and services while millions of new BlackBerry subscribers are added to our service.

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