So much for being immune to the downturn: BlackBerry maker Research In Motion (RIMM) got crushed after hours — down 20% — after missing Q2 sales and EPS consensus, and issuing light subscriber and profit guidance for Q3.
Specifically, RIM missed Q2 revenue expectations by $20 million and EPS by a penny — its second narrow miss in a row, and a big change from last year when RIM was beating and raising. Projected net subscriber additions for the November quarter — 2.9 million — are at the low end of expectations, which were mostly above 3 million. And margins are expected to be light, too — 47% — as RIM launches new, high-cost devices, like the touchscreen Storm, and spends a lot on holiday marketing.
Again, RIM co-CEO Jim Balsillie dismissed “competitive” threats — i.e. Apple’s (AAPL) iPhone — focusing instead on the massive growth spurt in the smartphone business and the big marketing campaigns he and his carrier partners have planned for Q3 and beyond.
Q2 Revenue: $2.58 billion vs. $2.60 billion consensus
Q2 EPS: $0.86 vs. $0.87 consensus
Q2 Net Sub. Adds: 2.6 million vs. 2.6 million (RBC, AmTech), 2.7 million (Citi)
Q2 Device Shipments: 6.1 million vs. 6.1 million (AmTech, Citi), 6.3 million (RBC)
Q3 Revenue: $2.95 billion – $3.1 billion vs. $2.95 billion consensus
Q3 EPS: $0.89-$0.97 vs. $0.98 consensus
Q3 Net Sub. Adds: 2.9 million vs. 2.9 million (Citi), 3+ million (RBC), 3.3 million (AmTech)
Q3 Device Shipments: 7 million vs. 6.9 million (Citi), 7.4 million-7.5 million (RBC), 7.8 million (AmTech)
LIVE Conference Call notes; refresh for the latest.
5:00 Call begins.
5:01 IR VP joins. Balsillie and Brian the CAO join will join. Standard disclaimer stuff.
5:04 Jim Balsillie joins. “A busy summer at RIM” — new products, announcements, etc. Approx 19 million subs at end of Q2. 60% of new subs were non-enterprise, and 42% of subscribers are now non-enterprise. per cent of sub base outside NA remained steady in low 30% range. Strong takeup of Bold by enterprise and consumer; mix is roughly 50/50. Disproportunately replacements/upgrades, now beginning to shift. Consistent with past experience with other QWERTY devices.
5:06 Pearl Flip to address 70% of US market that prefers flip phone. Cracked the code for a smart flip phone, ideally suited to address this large market segment. Seamless handoff between wifi and cellular.
5:07 Also recently announced Curve for Sprint’s Nextel walkie talkie network. Will include GPS, wifi, camera, advanced media player, large, removable battery.
5:08 Significant ramp of 8830 Curve at CDMA partners during Q2. Most successful product ever launched at Sprint. Offering at $99 in September and October.
5:10 WHOA! Crazy echo. Balsillie sounds like he’s the Wizard of Oz! Now talking about Turkish promos. Nice!
5:11 Broader distribution in India. “Significant step” — broader access to SMB and consumer segments.
5:12 Expect prepaid to be an increasing part of business; will break out significantly once they get critical mass.
5:15 BlackBerry maps, location based search, etc. Wireless social network stuff — 2.5 million downloads of Facebook for BlackBerry so far. Now talking about MySpace.
5:17 New IM/presence stuff for BES users with Office Communication Suite.
5:20 Smartphone market exploding. We believe that one day, all mobile phones will be smartphones. Impact on hardware gross margin, driven by blended handset gross margin. New hardware platforms, which included a multitude of features, have higher associated costs, including Bold and other 3G product platforms.
5:21 Sole-sourced on certain components, weak US dollar affecting component prices. Have seen scale benefits in the past; think there’s cost savings potential.
5:23 Brian going over numbers from release.
5:26 Outlook for Q3. Clarify that net sub adds 2.6 million. (Yep.) Expect hardware shipments around 7 million. Ramp is going to cover Q3 and Q4. Smaller quantities of unannounced platform! (Storm, we assume.) Expect to see a lot of activity in Nov, especially Black Friday. Expect phone-only sales to increase as Pearl Flip ships. This quarter higher risk because of new product launches. Gross margin moving down because of new platforms have higher cost. Also weak USD and tightness in certain segments of supply chain. During Q4, expect a slightly lower GM again because of new platforms.
5:29 Unlikely that hardware GMs will get better next year. Mid 40% GM range going forward. Strong profit growth is achievable into fiscal 2010.
5:30 Investing heavily in R&D and marketing.
5:32 RIM in an excellent position to gain share in the global smartphone market. Q&A to begin.
5:33 UBS: Sounds like past quarter and current quarter very promotion heavy, helping top line. Greater rev ramps in Q4… but beyond Q3, why wouldn’t we expect to see some seasonality as promo activity starts to tail off? Fair question: Number of currents at play in the market right now that are very very exciting. Surge during black friday, weren’t really sure what was going to happen; strong flow into new year. If all these hero programs take traction; should carry through. Spring? A little out of our visibility. Important to remember that there’s a lot of sector speicfic stuff right now wherte the smartphone is really replacing the common mobile phone. Really a time for adoption, new products traditionally have higher BOM and you work it down. You’ve seen part of the announcements; haven’t heard all of them. Coming in midquarter; small shifts here or there shift what comes into the quarter. We participate in some of the pricing and promotion; we see very exciting new high margin rev. strategies that come out of this. It’s exciting; dynamic; high growth, etc.
5:37 Probably 50/50 between hardware cost and marketing. We’re not even near done this autumn.
5:38 Expectation for having phones like Pearl Flip hit the prepaid voice market. In Europe this is a trend. I don’t really see carriers offering BlackBerry data on a prepaid voice SIM card. Won’t be hard to get into this. Working on prepaid plans for data.
5:42 Should see operating margins below 26% next quarter… haven’t seen since 1q05. Think can maintain 26-31-32 opmargin, or take down? What tried to get across is big ramp in opex spend is behind us, will go down as % of revs. Decreased GMs. If we get topline growth we’re hoping for, will get some leverage. Think we can drive leverage and drive some really good profit growth.
5:44 Balsillie just used “telegraph” as a verb. Nice.
5:44 Shift in competitive or market landscape? In past, pass along cost of new platform? More comarketing? Softening market? Greater competitive market? Things different here is, pretty normal for us when we introduce new products that they have lower margin. But never done so much at once.
5:46 Wouldn’t put it as a competitive thing. This is a lot of new newness. Wait 30 days and when you see these campaigns… it’s like nothing you’ve seen before. If you put your shoulder in it, etc. etc. etc.
5:50 Surge-type situation! Hard to have any visibility beyond a couple set of quarters. RAPID! UNAMBIGUOUS!
5:54 If one thing I would do if I had more latitude, I think we should invest more! India could be the biggest market in the world. Not saying it is, not saying short term; justifies tremendous attention. Get products done, priced right, launched, etc. This is why everyone is playing so aggressive.
5:56 Jim B. very passionate about not letting this growth spurt slip away.
5:59 Marketing on new platform (Storm) — depends on when it launches.
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