BlackBerry maker RIM (RIMM) beat its preannounced Christmas quarter results, and Q1 looks very strong. Most important: RIM says gross margins will improve this quarter, a key concern. Shares jumped 20% after hours.
Investors had been concerned that RIM’s margins could continue to collapse as it offers more sophisticated phones and spends more on marketing to compete with the likes of Apple’s (AAPL) iPhone. But RIM says margins will improve to 43%-44% this quarter, up from 40% last quarter. On the company’s earnings call, it said margins would stay in the low 40% range this fiscal year — which is much better than the 30% range, for sure.
At the same time, RIM says subscriber growth will also be ahead of expectations. The company expects 3.7 million to 3.9 million net new subscribers this quarter, much better than the 3.0 million that RBC was expecting. RIM ended February with 25 million subscribers, up 3.9 million from the previous quarter.
- Q4 Revenue: $3.46 billion vs. $3.4 billion consensus
- Q4 EPS: $0.90 vs. $0.84 consensus
- Q4 Net subscriber additions: 3.9 million vs. 3.5 million preannounced
- Q4 Gross margins: 40.0% ~40% preannounced
- Q1 Revenue guidance: $3.3-$3.5 billion vs. $3.35 billion consensus
- Q1 EPS: $0.88-$0.97 vs. $0.82 consensus
- Q1 Net subscriber additions guidance: 3.7-3.9 million vs. 3.0 million (RBC)
- Q1 Gross margins guidance: 43%-44% vs. 40%-40.5% (RBC)
LIVE Earnings Call: (Refresh for the latest.)
4:55 Cheerful on-hold music. Call begins at 5 p.m.
5:02 Call begins. Standard disclaimers etc.
5:04 Jim B. Pleased to end 80% rev, shipments, etc. RIM launched record new products which outpaced expectations. Number of devices shipped in year almost doubled to 26 million. Demand for products and services reached unprecedented number in Q4.
5:04 Many carriers hitting highest number of net activations ever during the quarter. Aggressive promotion like Verizon buy 1-ge t1 drove outperformance. About 1/3 of BB accounts outside of America. Double digit growth in enterprise. Approx 70% of net new subs came from non-enterprise, now about half of total BB account base.
5:06 Cost reductions and favourable product mix will improve gross margins. Expect to increase to 43% or 44%. Ongoing efforts to reduce built of materials cost, ASP changes, etc. Expect GM percentage in low 40%s in 2010. $350 ASP in Q1, shift in mix.
5:07 Increasing focus on increasing efficiency on opex. Carrier inventory in channel at lowerst levels seen in some time, sell-through is strong. Carriers not replenishing inventory in levels as previous, so volume of shipments lower. Similar to volumes in Q4 despite strong sellthrough. Majority of inventory adjustments beginning to moderate in Q1, response to macro and not BB.
5:08 Storm continues to do well. Strong driver of new customers for BB, clearly opened up new market segment. Now launching in Brazil, India, and multiple carriers in Hong Kong.
5:09 Launched 8900 in quarter, too. (New Curve.) Reviews excellent. Product just beginning to ramp.
5:09 Pearl Flip price cut to $49, aggressive marketing campaign.
5:11 Huge growth in Latin America, particular strength in Venezuela, Brazil, etc.
5:13 Launched BlackBerry App World at CTIA yesterday.
5:16 Talking about marketing deals like Ticketmaster, concert tours, etc.
5:18 New BlackBerry enterprise server on the way.
5:19 Now going over results from press release.
5:24 Now discussing outlook for Q1. Revs 3.3-3.5 billion, with units shipped similar. Current uncertainty in macro means carriers more conservative than normal. Thus, lower inventory. And fewer new launches mean consistent shipments. Software revs expected similar. 3.7-3.9 million net sub adds.
5:26 Targeting GM between 43% and 44%. Cost savings and favourable mix shift.
5:28 Jim is back. Pleased with strong momentum. Now Q&A.
5:29 GM guidance: Can you give rough contribution of components? Mix and cost improvements? Rebates and FX elements? What is normalized GMs? Upside or downside? What drove improvements: Biggest piece is cost savings on build of materials, Mix second. Forex not big piece. In terms of normalized, really difficult question. Really hard to have a lot of visibility. Best kind of guess is low 40%s from prepared remarks.
5:31 New products… depends if launch on schedule, what kind of cutover from old to new. Lack of visibility — difficult to not know how things are going to play out in second half of the year.
5:31 Mike A. from RBC. What inning of “land grab” are we in? Forward margin guidance… think you need to do lower prices, or lower subsidies to sustain land grab? Gross margin… most difficult is turbulence and currency swings in world. The land grab is still there. Our role is as a standard trusted element in the b2b is there. Trying to create more value props to widely deploy them throughout organisations. That’s why a lot of activity in unified comm. B2b in deeper penetration but not really a land grab.
5:33 Jim B. I’d say 2 down in 2nd inning of smartphone land grab. Lots more to come in marketing promo stuff too. Mix is going to shift, GM is a function of a lot of factors of play, you know cost and working down the BOM, still a land grab and still lots of variability and turbulence. Very valuable land. Benefits users, benefits developers, and really benefits carriers. Mike A. “Assume you have a strong batter warming up for third inning.”
5:35 I think pricing is a function of what’s in play. More segmenting in devices, services.
5:37 Lots of meandering talk about multimedia, mix. Consumers buying BlackBerry. Yes.
5:38 Carriers will have to increase inventory at some point.
5:43 Change from carriers in true value as a carrier? Well 8 years since working with carrier channel. We are nothing if not consistent. Overwhelming carriers see us strategically.
5:46 Lots of geeky talk about carriers, backhaul, etc. Mantras.
5:48 Jim Balsillie really likes to go on long, flowery tangents. This is fascinating.
5:51 Risk of customers confused if multiple app stores? I think it’s modestly positive — not a big profit driver, but catalyst. Kind of a precondition. Shocked by adoption, flow of apps and new users has been pleasantly surprising. If carriers have a store, that’s an awful lot for a carrier to do. Untenably difficult, inefficient thing for them to do.
5:54 Q&A over. Call over.
BlackBerry maker Research In Motion (RIMM) already gave investors a peek into their holiday sales: They said subscriber growth was strong but profits and gross margins would come in at the low end of guidance. So when the company posts Q4 earnings this afternoon, we’ll be listening closest to its guidance for Q1.
We’ll cover RIM’s Q4 earnings LIVE this afternoon, beginning at 4 p.m. ET. We’ll also live blog the company’s earnings call at 5 p.m. ET. (See our homepage for the link.)
Will the slower first quarter — and RIM’s maturing products — help the company’s gross margins improve? Or at least stay level?
RIM’s gross margins have fallen to around 40% from more than 50% a year ago, as a result of selling new, more sophisticated phones, and increased marketing spend. Gross margin guidance lower than 40% could send investors running away, while an uptick would be good news.
We’re also curious what RIM’s management has to say about forthcoming BlackBerry devices; competing with Apple’s improved iPhone 3.0 software (due out this summer) and the forthcoming Palm Pre; and the new BlackBerry app platform, which launched yesterday.
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