Q1 2012 Earnings Call Transcript
Transcript Call Date 06/16/2011

Operator: Welcome to the Research In Motion First Quarter Fiscal 2012 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. I would like to remind everyone that this conference is being recorded today, Thursday, June 16, 2011 at 05.00 pm Eastern Time.

I'd now like to turn the conference over to Edel Ebbs, Vice President Investor Relations. Please go ahead.

Edel Ebbs - VP, IR: Thank you. Welcome to RIM's fiscal 2012 first quarter results conference call. With me today on the call are Jim Balsillie, Mike Lazaridis Co-CEO's; and Brian Bidulka, CFO. After I read the required cautionary note regarding forward-looking statements, Jim and Mike will provide a business and strategic update. Brian will then review the first quarter results and I'll discuss our outlook for the second quarter of fiscal '12. 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 pm 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 and seasonality for Q2 and beyond, our expectations regarding RIM's near and long-term tax rates, our product development and marketing initiatives and timing, including our expectations relating to the BlackBerry PlayBook, and the QNX operating system, our expectations regarding our cost optimization and share repurchase programs, 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 are 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 related to delays in new product launches, risks related to RIM’s ability to implement and to realize the anticipated benefit of the cost optimization program, risk 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 processes, risk 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, risk associated with the share repurchase program 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 we do not assume any obligation to update them except as required by law.

I will now turn the call over to Jim.

Jim Balsillie - Co-CEO: Thank you, Edel. RIM shipped approximately 13.2 million smartphones in the first quarter and revenue was approximately $4.9 billion. As discussed on the conference call on April 28th, we experienced a shift in the mix of products towards lower ASP handsets and had lower than expected sell-through in the United States and Latin America that affected smartphone shipments in Q1. The shortfall in the United States is primarily related to the age of the BlackBerry product portfolio and the delays in new product introductions that we discussed on the last call.

The Lat-Am impact was as a result of lower sell-through related to a variety of factors, the change in the subsidy environment in Mexico that had a greater than expected impact and a specific import license issue in Argentina. We continue to believe that there is a substantial growth opportunity for BlackBerry smartphones in these markets.

The challenges of the first quarter are continuing into the August quarter. The existing portfolio of BlackBerry products has been in market for close to a year and delivering new products have proven more challenging than anticipated. Delays in the new product introduction timelines by a couple of weeks has excluded us from some of the back to school programs, we had expected to be part of, which has led to lower than anticipated shipments, revenue in earnings in the second quarter. My partner Mike Lazaridis will discuss these delays and the outlook for the new products later in the call.

We continue to be very strong internationally with market share growth in many regions. While demand for BlackBerry products and services remained strong in many markets of the world, especially Western Europe and Southeast Asia, the challenges in the United States in particular are making near-term earnings growth difficult.

As we move through this business transition, there is an opportunity to realign cost to better reflect the competitive environment and global growth business we participate in. Some of the organizational structures that were crucial to our success over the past several years no longer make sense given the evolution of the industry, and we need the flexibility to hire new talent, invest in areas that reflect the opportunities and strategic objectives of the Company. A more efficient cost structure will allow us to be nimble in responding to new market opportunities and changes in the competitive environment.

As a result, we've made the decision to begin a cost management process that will include headcount reductions across the Company and the reallocation of resources to areas that offer highest long-term growth opportunities. I want to be clear that this streamlining of operations will make us more effective and responsive to demands in the marketplace, and we do not intend to make significant cuts to areas or development projects that are crucial to RIM’s future direction and growth.

The reduction of our headcount is an incredibly difficult decision, and Mike and I appreciate the impact of this on our employees, their families and the community. We believe that the efficiencies that will come of this exercise will allow us to grow profitably as we continue through the current platform transition and move forward with the streamlined structure we need to renewing earnings growth later this year.

RIM launched the PlayBook in Q1 in consumer electronics channel throughout the U.S. including Best Buy, Staple, Office Depot and many others, and we were pleased to ship approximately 500,000 units in the first quarter. PlayBook delivers on its promise of power, affordability and uncompromised web and the user experience continues to improve as we add more and more applications and content services to the platform.

While the PlayBook launched did not go as smoothly as we had planned, the potential of the product and the powerful underlying OS was recognized and acknowledged by partners, channels, reviewers and end users. We have already rolled out updates of the product to deliver compelling features, such as video chat, and a native Facebook application, and we look forward to adding content partnerships and growing the available applications over the coming months.

The recent availability of Adobe Creative Suite tools for PlayBook provides a superior publishing framework for content creators and is expected to catalyze the availability of content for PlayBook. The PlayBook is a significant product launch for RIM, not only because of the growth opportunity it provides, but because it is the first BlackBerry tablet and the first BlackBerry device to feature the powerful QNX-based OS that will also become the core of future BlackBerry Superphone.

Over the past several days the PlayBook has launched in 11 additional markets around the world with another five to follow in the coming weeks, and we believe this opportunity is at least as large as the North American opportunity. PlayBook was launched in the U.K. today with over 730 points of presence with our retail partners and early feedback has been excellent. PlayBook is now in the hands of over 1,500 enterprise customers in progressive stages leading to full deployment. As part of this process, customers are continuing to uncover new enterprise used cases for PlayBook and we are working closely with global enterprise solution providers to provide powerful new solutions to take advantage of the neat capabilities of PlayBook.

Cisco, Citrix, IBM, HP and SAP are few of the platform and system integration partners that RIM has established joint product roadmaps with and plans for joint sales activities. The recent launch of BlackBerry Balance is also an important step in growing the penetration of BlackBerry smartphones and tablets in the enterprise market, and since launch, Balance has been a meaningful driver of (BIS) upgrades which is allowing customers to test and pilot this solution for broader rollout.

We are working with Verizon to target enterprise accounts with PlayBook and RIM has hosted a number of CIO events to highlight PlayBook throughout the U.S. this quarter. RIM also recently began offering PlayBook to its retail channel and Bell, Rogers and TELUS in Canada have had good success with the product through targeted promotions and bundling packages with BlackBerry smartphones. We also are continuing to work with AT&T to certify BlackBerry Bridge for their subscriber base.

I am going to turn the call over to Mike to discuss the platform transition we are going through, but before I do that, Mike and I would like to address some of the concerns that have been expressed in the media and analyst community surrounding the executive management structure at RIM, and particularly about the joint nature of our leadership.

Mike and I have been partners in this business for almost 20 years and over that time RIM has grown to $20 billion in annual revenue and has successfully navigated through many challenging times. We’re currently approaching the tail-end of a significant transition in our business and frankly a few companies would have been able to survive, but we have, and I believe, and I think Mike would agree, that neither of us could have taken the Company this far alone and that completing the transition and taking the Company to the next level of success and growth is also something neither of us can do alone. It’s something that would be incredibly challenging for someone from outside the Company to manage successfully at this critical time in RIM’s development.

Mike Lazaridis - President and Co-CEO: Thanks, Jim. I agree with Jim’s comments and I absolutely believe that the complementary skill sets and good working relationship between Jim and I led to the success of RIM over the past two decades. I also believe that this strong consistent leadership is critical, successfully leveraging the substantial investments we’ve made – we’ve been making in BlackBerry 7 QNX and all the products that are about to launch in fiscal 2012. Our commitment to RIM is stronger than ever, and we know what we have to do jointly to accomplish and take RIM to the next stage of growth and success.

Jim and I recognize each others strengths and regularly discuss and work together to determine the best way to execute on the incredible market opportunity ahead of us. We understand that weathering this transition has been difficult for our shareholders and also for our employees. We are grateful for the support you've shown us.

I truly believe we are approaching the final phase of this transition. While I can't promise that there won’t be bumps in the road ahead, I can assure you that Jim and I have never been more committed to the business and that our interest remains closely aligned with those of our shareholders.

We understand that you are seeing a lot of turbulence in the marketplace and that the timing issues we have had with delivering the new BB7 products has been difficult to understand from the outside. We also understand that RIM has taken a unique path and why we do things the way we do may not be obvious from the outside. Now I'd like to talk about some of the recent decisions we've made and why we made them.

BlackBerry was designed to be the ultimate messaging and communications device and it achieved that. It is the number one product in messaging-focused markets around the world including in Southeast Asia. The BlackBerry was the number one smartphone in several countries in March and April including Thailand, the Philippines, Indonesia, where BlackBerry has 50% market share and the BlackBerry Curve 8520, Curve 9300 and Torch 9800 were respectively the top one, two and three smartphones in the market in April.

The BlackBerry platform provides the best balance in terms of cost, battery life, performance and network efficiency and this accounts for good part of our success today. We saw the opportunities to upgrade the feature phone market to smartphones around the world and we took advantage of this to grow market share globally.

We were already well down the development path for the next generation Blackberry handsets when we realized that in the U.S. the features and performance arms raise demanded that we upgrade the chipset and port BlackBerry to a higher performance platform. This was an engineering change that affected hardware and software timeline and pushed out entry into Carrier Certification lab.

There are always uncertainties in product development. However, we did not expect the extra challenges which presented to Carrier lab entry with the new platform. We are now in 31 certification programs with 23 Carriers in the U.S. and around the world and we should start seeing technical acceptances beginning this summer, with shipments beginning near the end of the quarter.

The end result of this platform changes was worth it and we now have a platform that is the same across all of our high-end BlackBerry 7 products and I believe it is highest quality BlackBerry we have entered into Carrier labs. Because these products are almost all in the same platform once the first product is certified with one Carrier we can leverage this to accelerate certification of the others.

This now enables the largest global launch of BlackBerry products in our history and allows us to rollout a rapid succession of launches over the next several months. I'd have liked nothing more than to get these BlackBerry 7 handsets out sooner and believe me, we did everything we could to make that happen, but when customers experience the quality, consistency and upgraded user experience we've achieved in these new products, you'll understand why it was worth the wait.

The BlackBerry Bold 9900 that we announced and some of you may have chance to experience the BlackBerry World will be the first BlackBerry to feature to use the new 7 OS. The handset is super slim only 10.5 millimeters, with a sleek smooth feel that combines the award winning BlackBerry 9000 qwerty keyboard, with a highly responsive touchscreen, enhanced browsing with fluid liquid graphics, a powerful 1.2 gigahertz processor, 8 gigabytes of onboard memory, HD video recording, NFC; a built-in compass and many other powerful features. This launch will be followed by steady stream of new BB7-based products including both CDMA and HSPA products around the world both high-end and mid-tier.

Over the same time period, we've been able to develop our new QNX software platform and the remarkable PlayBook, which has set new standards for power and performance in the brand new category of tablet computing. We are now on a steady cadence of features and applications releases using our industry leading automatic wireless software update for PlayBook, including Facebook and video conferencing. We are soon to release native email and BBM in our Android player later in the summer. To be followed in the fall with 4G PlayBooks for WiMAX, LTE and HSPA+. The QNX software platform provides us with an immensely robust secure and standards-based platform for our future.

Many of you asked why we didn’t move to QNX on BlackBerry handsets immediately. There are a number of reasons why this wasn’t a feasible alternative. First of all, a hard cutover between platforms at this time which what has meant abandoning our strong and loyal BlackBerry developer community. It also would’ve been near and possible to deliver a multi-core QNX smartphone this year given the dual-core baseband processors are only just becoming available. It would also have been unrealistic to try to build a whole new tablet platform and to port BlackBerry to that platform at the same time.

To take that path would've left RIM with a product void for most of 2012, which was unacceptable, and so we took the approach that we did. We have a strong business. We have made major platform upgrades and we are almost through this transition. BlackBerry has a strong international brand and a loyal customer base. We understand enterprise need. We are the gold standard for wireless security. We understand that the user experience is everything and we have the platform of BlackBerry 7 and QNX deliver the product that will drive RIM’s success.

I will now turn over the call to Brian to discuss the financial.

Brian Bidulka - CFO: Thank you, Mike. During the first quarter, RIM shipped 13.2 million BlackBerry smartphones and approximately 500,000 BlackBerry PlayBook tablets. Smartphone ASPs in the quarter were lower than anticipated due to shift and mix towards lower ASP handset due to the lack of new product shipping in the quarter impacting sell-through.

To revenue was approximately $4.9 billion with hardware accounting for approximately 78% of the total. Sales outside of the U.S., U.K., and Canada comprised approximately 56% % of total revenue. Sales in the U.S. represented approximately 27%% of the total revenue. The U.K. represented approximately 11%, and Canada represented the remainder.

The largest regions contributing to the 56% are Western Europe, Middle East and Africa and Asia Pacific, primarily India and Southeast Asia. Estimated sell-through in the quarter was approximately $13.3 million including phone-only sales which has an increase in its BlackBerry penetration of prepaid market growth. Inventory at the end of the quarter was approximately flat.

Service revenue in Q1 was approximately $975 million, up 8% from last quarter, in fact where revenue was approximately $80 million. ARPU is down slightly due to the continued growth in (tier bids) and prepaid service plan. Gross margin in the quarter was 43.9% higher than expected due to higher than expected service revenue in the mix. Reduction in warranty cost relating to the Company's contractual obligations to carriers and distributors to provide replacement devices for returns that are covered by warranties, and the impact of the reduction in royalties payable on certain BlackBerry handheld devices. Operating expenses increased, approximately, $1.3 billion in line with our expectation.

Inventory in the quarter increased $325 million to, approximately, $945 million. The majority of this increase is related to the global rollout of the BlackBerry PlayBook that started early in Q2. Accounts receivable decreased from $4 billion to $3.8 billion in Q1 and DSOs increased from 65 days to 70 days. RIM's cash balance at the end of the quarter increased by $170 million to, approximately, $3.9 billion, after capital expenditures of, approximately, $220 million, and intangible asset purchases of, approximately, $560 million.

RIM's corporate tax rate was, approximately, 23%, slightly lower than forecast in Q4. We expect the full-year fiscal 2012 rate to be, approximately, 24%. Fully diluted earnings per share in Q1 were $1.33. As we announced earlier today, RIM is moving forward with plans for a cost optimization plan that we expect to streamline operations and allow us to grow profitability in the back half of the year. This will allow us to refocus resources on high growth areas of opportunity.

We believe that with this streamlining of operations we can achieve benefits beginning in the third quarter. In addition to the OpEx and headcount reductions we also plan to reevaluate our capital expenditure program and target investments strategically to support projects that have a direct impact on executing on RIM's growth potential.

We expect that as we implement this program beginning in Q2, there will be a one-time charge associated with the activities in the second quarter. We have not yet determined the amount but we'll break this our second quarter results in September.

RIM’s Board of Directors today also approved a share repurchase program to purchase for cancellation through the facilities of the NASDAQ Stock Market or by way of a private agreement of up to 5% of RIM’s outstanding common shares. The share repurchase program may commence after July 10, 2011, and remain in place for up to 12 months or until the purchases are completed or the program is terminated by RIM.

With respect to our outlook for the second quarter, which Edel will discuss shortly, there are no significant benefits from this realignment included as we expect them to be minimal in Q2. However, based on the weaker-than-anticipated outlook for the second quarter and missing of some of the back-to-school promotional programs we were anticipating being part of. We believe we will no longer be able to meet our previous full-year outlook of $7.50 per share.

We believe the likely range is now between $5.25 to $6.00, which reflects an uplift in total unit shipments in Q3 and Q4, which we expect to be driven by new product introductions as BlackBerry 7 products around the world. This guidance does not reflect any one-time charges associated with our cost optimization program or any share buyback.

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

Edel Ebbs - VP, IR: Thanks, Brian. Before I discuss the outlook for Q2, I'd like to remind everyone that these forward-looking statements reflect management’s best current estimates and should be taken in the context of the risk factors listed at the beginning of the call and disclosed in our public filings.

We expect total revenue for Q2, including PlayBook, to be in the range of $4.2 billion to $4.8 billion, which includes BlackBerry smartphone shipments of between 11 million and 12.5 million units. We expect the mix of handsets to be heavily skewed towards existing in-life products particularly at the low end of the range. These products have a much lower ASP and contribution margin than the new BlackBerry 7 products that aren’t expected to ship until late in the quarter.

As we discussed on last quarter’s conference call, we expect overall corporate gross margin percentage for the second quarter to be just below 40%, at approximately 39%. This is being driven by a higher volume of late lifecycle products in the mix, as well as the lower overall level of handset shipments relative to PlayBook shipments.

Total operating expenses are expected to decrease in Q2 by approximately 8% to 13% from Q1 levels. In the second quarter, we expect depreciation and amortization to be approximately $140 million, and we expect CapEx to be approximately $300 million.

We expect the tax rate to be between 24% and 25% in Q2 and to be similar throughout fiscal 2012. We expect Q2 EPS to be in the range of $0.75 to $1.05 for share diluted and this does not reflect any share buybacks. At the low end, this range was like the further slip in new product introduction timelines, and therefore a small amount of BlackBerry7 handsets shipping during the quarter.

I'll no turn the call back to Jim.

Jim Balsillie - Co-CEO: Thank you, Edel. We're most of the way through the transitioning of our platform and we believe we are taking the right steps to position RIM for the future. We look forward to the global launch of our new products beginning later this summer and believe that the streamlining and refocusing of our operations will lead us to increased profitability and growth for the Company over the longer term.

Would the operator please come on to handle questions?

Transcript Call Date 06/16/2011

Operator: Jeff Kvaal, Barclays.

Jeff Kvaal - Barclays Capital: Could you please help us on the confidence level that you have in the new product launches, and I say that in a couple of different metrics. I think one clearly is OS 7, how far through the certification are you and how confident are you that you’ll get where you need to be (staffed). But there is also a broader question, to what extent should we be now worried about the timelines for QNX phones plus the delay in OS 7 mean that the QNX phones will be pushed into say middle of 2012, but have you – and similarly with the new PlayBook, should we worry about a delay associated with that?

Mike Lazaridis - President and Co-CEO: I mean, we can never be absolutely certain about getting through certification without any hiccups, but we feel very confident with the level of quality of the code. This is the best quality code that we’ve ever entered into lab. What’s really exciting is that it’s based on the same platform which means that as we certify one that we can then leverage that certification across the board with the other carriers. So, this is part of our plan to accelerate and catch-up. So I am feeling very good about our prospects for the certification products we have in labs. To answer your other question, I think that the BlackBerry 7 products are amazing. The quality, the feel, the industrial design, the user experience, everything has been upgraded, perfected and I am very, very excited with BlackBerry 7 products. What’s really exciting is, this is also our largest launch globally for BlackBerry handsets across the largest number of carriers through the certification cycle, so this is really an exciting time for us right now. No, we haven’t delayed the work that we’re doing to fill the QNX-based Superphone and converge on QNX as our future platform. That's something that we've talked about and something we're working very hard to accomplish here. So, what's really exciting is there is a steady cadence now of BlackBerry PlayBook updates and then you're going to start seeing the 4G PlayBooks coming out in the fall, which are going to be very exciting and very powerful products. So again, I am very confident with the plans now that we are sort of basically through the worst of the transition.

Jeff Kvaal - Barclays Capital: Have the delays affected any of your year-end holiday promotional response to the way they have affected (pool)?

Mike Lazaridis - President and Co-CEO: I don’t believe so, no.

Operator: Matt Thornton, Avian Securities.

Matthew Thornton - Avian Securities: Mike, I think I may have missed this, but the comment on QNX timing, I think the previous guidance was early; now the 2012, was that unchanged?

Mike Lazaridis - President and Co-CEO: That's unchanged.

Matthew Thornton - Avian Securities: Just commenting on guidance for the back half of the year, I think Edel commented that buybacks were not included in the guidance, how about the impact from the cost realignment? Is that already embedded in the revised guidance?

Edel Ebbs - VP, IR: Matt, so I did say that the full year guidance doesn’t include any buyback impact. In terms of realign, we're still working through exactly what that realignment is going to look like, so kind of why there is a range there, there is aspects that are in there, and there's a lot of different variables that go into those scenario, so it's really hard to kind of say exactly how much would be in there at this point, so I can't give you anymore color on that.

Matthew Thornton - Avian Securities: Just a couple of quick ones if I could. Any sense as to PlayBook sell-through in the quarter; I mean, obviously you guys have very good visibility on sell-through on the handset side, any sense as to how sell-through is trending on the PlayBook side?

Jim Balsillie - Co-CEO: We don't have specific numbers on PlayBook sell-through, but we are very pleased with the sell-through and we are very pleased with the feeling in the corporations. The issues that – if there is any gap in features, and we talked a little bit about an email app or an Android media player or corporate VPN and Citrix client those are well underway and those are preconditions, we believe, for large corporate rollouts and also key things the consumers are looking forward. So, we feel good about the launches. I don't have a specific numbers on sell-through but we feel it is absolutely a platform that we can run really for a decade and plus for corporate transformation and also for high performance personal communications and media and social I think in mobile computing. So, the sell through is good, but I don't have a specific number for you.

Mike Lazaridis - President and Co-CEO: The POSIX certified QNX environment allows us to really accelerate porting of new software to the product and new applications to the product. So, it's just going to keep getting better and better.

Matthew Thornton - Avian Securities: Then just one last housekeeping question if I could. Can you remind us I mean obviously gross margin on the legacy smartphone business as it is aging here it's coming down. As we transition to the OS 7, the BB7 product, I mean should we expect another material step down in gross margin? How would that transition actually hit the smartphone gross margin if I could?

Edel Ebbs - VP, IR: We haven't really disclosed and we talked a little bit about that last quarter and also just given mix and everything we do expect gross margin to come down. Contribution margin from those new products will be a lot higher given the ASPs and really that's more what we focus on.

Operator: Amitabh Passi, UBS.

Amitabh Passi - UBS: I just wanted to clarify the cost restructuring program that you’re putting in place, just to confirm would most of the savings be in the OpEx line? Do you also anticipate any incremental benefit in the gross margin line? Then again just looking at the back half guidance, looks like EPS would have to be somewhere around $1.70, $1.75 per quarter. Again just looking to see if there is any incremental guidance you can give us on how we should expect the cost savings to flow through the back half of the year?

Edel Ebbs - VP, IR: We haven’t really worked through all the details on this. Certainly a lot of it will be OpEx. I mean we talked about headcount reduction. Obviously, that’s OpEx. We’ve talked about reevaluating some of the CapEx we’re doing, so that will have some benefits as well and then there is obviously a lot of stuff we're doing on the supply chain and trying to manage the (bottom) costs and see what efficiencies we can get there as well.

Brian Bidulka - CFO: It's too premature to say whether its going to be – there would certainly be some on the gross margin side, but it's too early to actually quantify that or even comment on the specifics there.

Amitabh Passi - UBS: Okay, and then maybe you can just help me understand, given that your products on 7.0 will come out to sale sometime later in August, early September. Are you still looking at QNX in 1Q '12? Does it make sense to maybe push out QNX? I am still a little perplexed about the timing here because essentially you're talking about QNX coming literally a quarter after your 7.0 products coming out. What's the incentive for operators to continue to push 7.0?

Mike Lazaridis - President and Co-CEO: First of all, the BlackBerry 7 products are designed for very much a messaging communications market. In many cases they’re smaller. They're lower cost. They fit into market segments where cost is premium, and those products are selling very well and we expect the 7 products to do very well as well, but the BlackBerry, the first BlackBerry QNX-based Superphone is very much built on the PlayBook platform. It will offer a very high degree of performance, very high feature set, and really will be part of our top of the line.

Amitabh Passi - UBS: So, my final question, Jim or Mike, any just thoughts in terms of what you could have done better with respect to the PlayBook launch, anything you would have done differently. Just curious to get sort of your perspective looking back now?

Jim Balsillie - Co-CEO: I think looking back the most important thing for us is to get the platform going and getting gestated. If you wait, it doesn’t get established. I mean we’re in 1,500 corporations now and the evaluation is underway. Next week we get the Creative Suite for Adobe. So an issue is when you have a fast-moving market, do you wait and get off it (and finish), done or do you get it going when it’s a good entry point and then you have an OTA utility to tighten it over time. I will tell you when I meet with very, very senior industry analysts, who advise the IOs and major CIOs, they say this is the biggest mismatch in their career between what’s been commented and what’s under the covers, and so do you wait and not get your story out. Do you walk headlong into competitiveness of (earn) media where maybe there is a very high bar on fit and finish, it's a dilemma and it's inherent, we could have waited, but would that be best for the Company and would that have started the hardening process or would it be too late, but we have a platform we can run with for a decade and it's very, very powerful and actually get a thoughtful CIO and get an objective assessment and they will say, you look at the security of BlackBerry, you look at the security of the PlayBook, it's seriously there and it's quite frankly just going to gain momentum and we think it's got an engine to surpass. So, I mean I'm happy to take comments and criticisms, other than could we ask people to get more things done sooner, they were all working as hard as they could and as fast as they could. So, the question for me is do you delay and admit the fact that we have half a million units out there, we have 1,500 corporations evaluating it. We have a development kit, which absolutely makes us a premium publishing and media product or do you sit there and say well, you know, I mean given all that stuff may be should wait till September and to get overtaken by event. So what I do is materially different, given the facts at hand, I don’t think so. Would we have wanted certain other elements ready at that time, absolutely. Could we have prepped media and channels with more information, of course. But I think you look at the commentary, people would say strong engine, got amazing potential, for certain class of people it does something, but there's elements of capability gaps that they want filled and as a step one, I'll take it, because if the option is no step one and delay it, I'd rather take a step one and close off any challenges and I don't want this to be interpreted in anything other than as candid an assessment as I can. I mean Mike's here with us. He will speak for himself on this one.

Mike Lazaridis - President and Co-CEO: We focus very much on making sure that we provided an uncomprehensive experience on the browser for instance. We had a very unique very powerful browser that would PC class browser on the PlayBook that included flash. We had Adobe PDF viewers don't write in very powerful, very useful, full suite of Docs to go for both Word, Excel and PowerPoint. There is a whole bunch great stuff. I don't think that there was any hesitation to remind with regard to how great the product was. What it could do for people. It really elevated the performance in terms of the quality, the screen, the fidelity of its rendering and the quality of its full HD output and HD cameras. I mean those are all great things But we realized that we make sure that we had over the year full upgrade capability, the CMOS upgrade capability built into it from the start. In that way that allowed us to not only get new applications on to the product through App World for our customer base but also add new features and upgrade the platform on a continued cadence to just keep making the product better and better. This is like it's a great investment for our customers to get in their early, start playing with it getting the benefits from it, understanding the product, see how it's going to work within the enterprise and the kind of business transformation that the Playbook's possible to provide and at the same time provided a platform for both future growth and applications.

Edel Ebbs - VP, IR: Before we go onto the next question I just want to remind everybody that we really have a long queue of questions, so please try to limit yourself to one. Thanks operator.

Operator: Gus Papageorgiou, Scotia Capital.

Gus Papageorgiou - Scotia Capital: The question just in terms of the restructuring that you are announcing here I mean given that you have all these products that you are hoping to launch the next few months post QNX post PlayBook I mean is doing the restructuring right now to save cost the right thing to do. I mean is it not going to impact your ability to executing on launching other new products?

Jim Balsillie - Co-CEO: I would not call it a restructuring and I just think that this radically mischaracterizing it. There is no -- I mean we have grown so much over the past few years and we’ve done I don't know 14 or 15 acquisitions in the last year in a bit and so this is just a streamlining exercise. But when you talk about restructuring I mean you are talking about an industry in a different kind of situation and where you are deciding to do certain things and not do certain things and we just view this as a streamlining. But the core aspects of investments, the core aspects of focusing on our execution priorities, absolutely will be upheld, anything that we believe is part of our future, anything that is part of the opportunity we’re investing in I mean this really opens up our ability to streamline and focus and have those resources in those places we got to grow. So, I wouldn't call it -- it's not going to we're not going to allow any compromising of our NPI of our key strategic initiatives and I would definitely call this seeking efficiencies and streamlining which is an appropriate thing to do, and its timely, but I would – in now ways (you) performed characterizes the restructuring.

Gus Papageorgiou - Scotia Capital: So would it be fair to characterize it as reorganizing the organization and the org structure?

Mike Lazaridis - President and Co-CEO: No, there is not a re-org, no. No, there is no re-org. I mean, I don’t have the specific number but the headcount and the growth of sales we’ve had over the past few years has been – and there is lots of triple-digit growth rates all over the place.

Jim Balsillie - Co-CEO: No, we’ve been growing very quickly to meet our product growth, our sales growth, our globalization of the industry and we’ve just been so busy growing and selling product, developing product, that I think this is the right time for us to go back, to step back and just make the system more efficient.

Mike Lazaridis - President and Co-CEO: Yeah. It’s leaning out to reinvest in any organization of this size growing that quickly is going to…

Jim Balsillie - Co-CEO: Yeah, you've to remember – I mean – gosh knows, I mean what have we grown per year in headcount and percentages over the last five years, it's been…

Edel Ebbs - VP, IR: Sales in…

Mike Lazaridis - President and Co-CEO: Yeah. So, this is really a streamline plus. We want to make sure that we invest and we get the most productivity and we have the right cost structure for the industry so that we can focus in on those areas. We don’t want to just be able to do everything just because we can. So I would not call this a re-org. There is no re-orging of duties, and there is no – I wouldn’t call this restructuring because when we look at restructuring, it means you are fundamentally lopping things off. That’s not this at all, but do we expect people to reexamine what they're spending on in the zero-based play? Absolutely, because we want to make sure we deliver profitability within our business model and we also want to make sure that we have the resources and capabilities to invest in those things we want to grow. We really do believe we're still at very early beginnings in this whole smartphone revolution and in this corporate computing transformation, and we have a whole bunch of products coming out with NFC in it and the opportunity in credentials and so on is just a huge feature. So, if we don’t have an efficient organization and a flexible organization and one that's able to make investment out of business model that works, that's not helping anybody.

Operator: Rod Hall, JPMorgan.

Rod Hall - JPMorgan: I have just got a quick one and then may be a clarification on something you said earlier. On corporate governance; first of all, thanks for the comments on the leadership and the fact that you guys are staying along well, so we appreciate that. The one thing I would ask though is, we've seen other companies like Google moving away from these (indiscernible) multi-headed structures so that – and citing the fact that the industry is moving so quickly, that really need to get to just one person making decisions, do you guys feel like the Co-CEO structure is the right one in this situation, would it make sense to go to – I don’t know, a single CEO, and then somebody focusing on technology and come back to a Co-CEO structure later or, can you just give us some color on what you think about that given the circumstances you're in? Then the clarification was just real quickly, it looks like you guys are pretty significantly cutting your EPS expectations for the second half of the year. I don’t know if I am interpreting that right, but it feels like in that period you're going to have the 9900 shipping and maybe some other products, so I'm just wondering why a little bit less optimism on the back half of the year given that those products would be shipping by then?

Edel Ebbs - VP, IR: I can take the second one first. The main difference in Q2 and the further slip out and missing some of these back-to-school windows, it's not like back-to-school comes back again in January. So, once you miss it you kind of miss it, so you don't get that opportunity again. So, when you build all that into the model that's where we come out as with our new range. So, it's just really hard to sort of makeup that extra bit in Q3 and Q4 when Q2 was still really feeling the same impact we saw in Q1.

Jim Balsillie - Co-CEO: Rod, I mean, again, I guess I'll kick it off and let Mike put his view on it. I just don't think it's the issue. I think there are lots of issues and lots of things to pay attention to. We can happily talk about how we do the duties and then we can say how we coordinate that. The fact of the matter is, I think I have expertise in what I do. I think Mike has the thing of expertise when he does. I think there are parts that overlap and we highly coordinate it. I just don't know – if you sort of sit there and say, well, let's change a business card

Mike Lazaridis - President and Co-CEO: I don't see how that changes anything.

Jim Balsillie - Co-CEO: I don't think it changes anything what we got to do and I don't think it changed. So, I'll let Mike talk (indiscernible), we're answering on the play, there is nothing scripted here. So, I mean, I just don't know what that address, I mean if you look at the issues we have to address, and believe me – I mean, we have an exciting stuff ahead of us. I have never worked harder. I have never been more committed. We've never spent more time together Mike and I. This is a super busy time. Let's make sure that whatever things we propose help us to be more successful and not compromise what has to be done. I mean, Mike whatever you think, I mean I don't know.

Mike Lazaridis - President and Co-CEO: Well, I just remember when you asked the question, we just looked at each other and smiled. I mean we work very closely together and I don’t know where all these things are coming from. The thing you have to understand is that this is fun. As difficult as it gets we are changing the world, we’re impacting people's lives positively, we are bringing people closer together, we're making businesses more productive, more competitive. We're transforming the way we do our work. What else can we do to get this kind of opportunity in our lives. I mean gosh it’s a huge responsibility, and by working together, we’re able to make sure that – so we have the saying it's called, 'Measure twice, cut once.' You want to make sure that the decision you are going to make is the right one and I think that Jim and I have that perfect balance to be able to make the really hard decision.

Rod Hall - JPMorgan: Have you guys changed the way that you are (digging) up duties at all or is it pretty much just par for the course, just keep going as you've been going?

Jim Balsillie - Co-CEO: Well I would say the GR took on a different – I travel a lot more than Mike does, I think, globally. I think it’s a fair thing to say, and I think GR became something that became more important when there was all kinds of – when BlackBerry just grew explosively, quite frankly last year it was something like 500% growth of BBM or the time leading up to all of this, and so it became something that I spend a lot more time on. So I would say the (digging) up that came on my plate late last summer, and that’s fine because that fits with my travel more, I mean Mike sees carriers too and he does his stuff and I am not trying to speak I am not, but I would say that I would say the marketing stuff I spend a lot more time with and that’s getting more organized within our region activities and I think that fits really, really well. I would say – I won't speak on behalf of Mike, but I would say the application layer of the business has just become a bigger and bigger part as well as the hardware and (air link), so honestly I think the challenges on Mike and the technology have grown. I mean we did (brought) a tablet from one year.

Mike Lazaridis - President and Co-CEO: We (brought) the tablet on a new OS. We did a monstrous upgrade with a mid course change in processing on BB 7. We’ve got all these amazing things going on in credentials and enterprise, a whole lineup of 4G.

Jim Balsillie - Co-CEO: PlayBooks and development environment and the stuff you are doing, the search and stuff with Microsoft, the Adobe stuff, and Mike is navigating all that stuff. So as this platform as what you expect from these things burgeons, you look at what you expect from these things now and tomorrow versus a year ago, quite frankly it’s exponential. So I think the load on getting this stuff out has become bigger. So I would say the (bursting) aspect and the navigating of the technology and platform is a bigger job than it was honestly two years ago.

Mike Lazaridis - President and Co-CEO: But I feel we’re in a far better position.

Jim Balsillie - Co-CEO: We’re absolutely in a far better, but he asked the question, how do we (divi) up duties, I think that takes a relatively more. I mean you speak for yourself. I mean I will put it but – I mean I don’t want to be presumptuous but I do more marketing and GR than I did and I am writing a lot more application or work with the teams to write more applications, lot more UI work.

Amitabh Passi - UBS: You basically (divi) up the job that need to be done (and this we have all day).

Mike Lazaridis - President and Co-CEO: Plus we have all the new companies that we have acquired and currently manage all those things.

Jim Balsillie - Co-CEO: You look at the acquisition, I mean Mike the TAT acquisition, you got to manager that. The QNX stuff, manage that. With the OS. The guys at Documents To Go, the database guys have done a great job, Torch and the (browser guys), those are all – Certicom, but honestly I mean I help make sure the deal gets closed.

Mike Lazaridis - President and Co-CEO: These are all great guys. All these companies, when we met with them they really wanted to come on board and be part of this.

Jim Balsillie - Co-CEO: Yeah, but Mike, you have to spend a lot more time with these acquisitions and the integration.

Mike Lazaridis - President and Co-CEO: Absolutely.

Jim Balsillie - Co-CEO: But that's part of, if you were to define where this base was going two, three years ago, we all knew it was growing, but I don’t think, I mean let's be honest, the tablet space is barely a year old, so guess what, it's a wonderfully explosive space, and smartphones are doing a lot more than you would have thought back then.

Operator: Kulbinder Garcha, Credit Suisse.

Kulbinder Garcha - Credit Suisse: I just wanted to ask a couple of questions with respect to (port) transitions, I guess one on the guidance this very strong ramp in earnings, and what I really want to get to is not so much with what earnings (indiscernible) either the third or fourth quarter. It's more the visibility you have around carrier promotions for your new products. Are they all more or less agreed to the balance of this calendar year? The reason why I am asking is, do you have a guaranteed kind of (hero) status, a U.S. carriers or even global carriers the way you show that you have this very strong uptick in earnings, what stage you are in those discussions? That's my first question? The second one is for Mike, you talk about this transition, you said that I think a few times that QNX (could get) RIM there for the next decade or it could be the platform of choice, the one question I have is, as you start launching QNX phone or Superphone next year and then tapering it down market over time, what confidence you have you won't face a similar transition with respect to the demand for BlackBerry devices then and the carrier subsidies won’t shift leading maybe a significant decline that BlackBerry OS ecosystem and demand for volumes as we go to 2012. So would that (open for risk) or how is that going to be managed I guess is my question?

Jim Balsillie - Co-CEO: I'll answer the question about QNX and Superphones. I mean that's a very good question and we have a plan to make sure that we both continue to perfect the BlackBerry experience and make sure that BlackBerry experience becomes available for our Superphones and we are trying to very carefully navigate that transition. I think we've done probably the best job we could in the sense that we now have two very powerful platforms that are very perfectly evolved with the markets they are going after and the kind of experience they are trying to provide. Plus at the same time we have an opportunity to really get into the high end high performance platform that will allow us to have a really a common single platform in the future that encompass the smartphones, as well as tablets.

Mike Lazaridis - President and Co-CEO: I would say the Carrier launches, I mean the heat I get from Carriers is they hurry up and get it done I want to give you orders. I want to buy stuff from you, but get it done I mean…

Jim Balsillie - Co-CEO: They love the products we've been playing with them.

Mike Lazaridis - President and Co-CEO: Like let's go, let's get it certified, let's get it done. I mean their big issue is let's make sure we stay on schedule because they line up programs and so if the schedule is shift it leaves them and so we might can speak our heart, guys are working to get these products out and get them on schedule because that's a global organization now. We have got offices around the world. We are literally running 24x7.

Edel Ebbs - VP, IR: In terms of visibility Kulbinder we obviously have a plan we have a carry rollout plans for all our different products and when they are going to launch and what types of programs they are going to be in. But you know as Jim said, you can have all those plans in place but if there is a delay of some sort you can still miss a window, but you know we've taken a bunch of different scenarios and when we come out with the guidance range that we put out there so they are I mean that's -- there will absolutely room for that but I mean its not like everything is locked in 12 months out, but there is a lot of puts and takes that can happen in there. But then the key thing is to get the products out so that we can make it into the programs that people have committed to.

Kulbinder Garcha - Credit Suisse: Bob I guess that’s where I am getting at let's say for Q4 the color in the Q4 this year the key selling season of the year, do you have most of those for the new products I normally -- I was under the impression that normally as we head into June and July the second half of the year starts to get termed for more spenders is that the case that you’ve given these product delays or not I guess is my question?

Edel Ebbs - VP, IR: Do we have commitments for the holiday programs is that what you are asking?

Kulbinder Garcha - Credit Suisse: Yes for the new products.

Jim Balsillie - Co-CEO: Yes we have all kinds of programs locked in.

Mike Lazaridis - President and Co-CEO: We've got ongoing discussions as well.

Jim Balsillie - Co-CEO: For sure.

Edel Ebbs - VP, IR: The question is getting the products out when you see them come out then you get in the program.

Jim Balsillie - Co-CEO: Well no it's finished certification.

Edel Ebbs - VP, IR: Operator, I think we're pretty much…

Operator: Jim Suva, Citi.

Jim Suva - Citi: A lot of the questions have been asked already about the restructuring in that I thought maybe I would focus on a different item and that is on the carrier relationships. Has there been pressure on your monthly carrier ARPU pressure or importantly the carrier certification changes by getting the things technically through with the carriers. It just seems like other handset vendors are pumping through products less in writing doing just certified or is just BlackBerry 7.0 is just that much more complex and why can we not expect that to happen again with the QNX, what's going on with the carrier relationship?

Jim Balsillie - Co-CEO: I'll try to answer that, but let me try and describe it. So, the thing that happened was we went to a new platform, an upgraded platform that provided far more powerful performance and graphics capability and more high resolution screens and HD Video and a whole bunch of other things and that was a new platform and so we had to – when we got into certification we discovered new problems that weren't there in our previous platforms and that's really one of the things that delayed us. What's interesting though is that because we've standardized on this platform and we were using it across our high-end products and much of our mid-tier products, what that's done for us is allowed us to create both the largest certification program in our history where we literally were able to get all these products in the certification across 23 carriers around the world and U.S. So I mean that's the thing that is really the big achievement for us. I mean we've grown as an organization. We've become experts at producing these kinds of products and getting through certification and so we've been able to bring a whole of that experience and talent and process to bear on this and I think it's been very, very successful now that we’ve gotten into certification and we’ve gotten through those last minute unexpected issues we had with the new platform.

Operator: Ladies and gentlemen, this does conclude the question-and-answer session. Ms. Ebbs please continue.

Edel Ebbs - VP, IR: Thank you. Thanks for joining us today. There will be a replay of the call available on our website at rim.com/investors. Thank you.

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