BlackBerry maker Research In Motion just posted solid August quarter results and November quarter guidance, with many numbers ahead of expectations. Shares are up 7% after-hours.
RIM’s gross margin guidance is a little lower than we had hoped, which is one of the problems we see for RIM going forward, as the company gravitates more toward the mid- to low-end of the smartphone market.
But also importantly, RIM does not expect a major slowdown in subscriber additions, and has projected revenue and earnings well above expectations, despite increasing competition from Apple’s iPhone and Google Android.
On the conference call, RIM co-CEO Jim Balsillie went on an epic rant, making a confusing attempt to explain how RIM will be able to catch up to Apple and Android (more here). And RIM also announced it would stop offering guidance for and reporting its quarterly subscriber additions and average sales price.
LIVE conference call notes follow; Click here to refresh.
4:55 Waiting for call to begin.
5:01 Call beginning. Standard disclaimers on the way. IR VP kicks off the call. Balsillie joining the call later, also CFO.
5:03 Standard disclaimers, etc.
5:04 Co-CEO Balsillie joins, going over the highlights. 565 carrier and distro partners in about 175 countries. Net sub growth “increasingly harder to forecast” due to competition, growing segmentation. Competitive offerings in the U.S. and weakness in Middle East affected sub adds last quarter. Torch led to “meaningful” uptick in subscriber growth.
5:06 An “exciting” quarter. AT&T supported Torch launch with one of RIM’s biggest national marketing efforts. The level of marketing of Torch is expected to increase further as head into Black Friday, leading to “highest exposure” BB has had in U.S. market to date. Best month ever for BB at Best Buy in August. In first 3 weeks after Torch launch, the most successful GSM BB launch ever. Sales of Torch mostly consumer and prosumer so far; enterprise takes a while.
5:08 Expect strong momentum to continue into Q3. In U.S. expect to roll out BB6 into additional carriers, and a number of promotional campaigns heading into Black Friday. This leads to strong outlook for Q3.
5:09 Mac support for BB6 media syncing expected in the next few months.
5:12 New Curve for CDMA networks recently announced. Will be available for Verizon and Sprint for holiday season.
5:12 LatAm performing exceptionally well, strong growth in Colombia, Mexico, and Argentina.
5:13 225% increase in regional point of sale presence; important in prepaid markets where convenience is essential.
5:15 Going over some specific campaigns at various carriers around the world. Exclusive pink Pearl, etc.
5:17 Willing to work with people, but RIM security needs encryption, and RIM has no master key. End to end encryption super important to enterprise customers, a core underpinning of why 250,000 enterprise servers operational.
5:20 Over 2,000 apps available for Torch in App World. Working with devs to take advantage of new services. “Very exciting” news coming at BlackBerry dev con at end of Sept in SF.
5:26 Three important distinctions for enterprise market: Smartphones purchased through friends + family plans are consumer devices, even if registered as “enterprise.” Others may buy through business channel to get a discount but can’t hook up to enterprise systems. Other firms have not gone past trial stages of letting employees bring their own devices into the enterprise. Looking forward to continued strong adoption of BB platform around the world.
5:28 Now CFO is going over financial details.
5:32 Asp $310-$315 expected next quarter, higher than previous. Last time we’re offering ASP guidance and next quarter is last time we’ll report ASP. Interesting! Q3 margin lower because of strong growth driving hardware higher as per cent of mix.
5:34 Forecasting net subs is increasingly difficult with diverse segments, huge carriers. Will no longer guide net subscriber additions, and will report it for the last time in December. Wow! Unexpected.
5:36 Q&A begins. Abramsky asks about design philosophy? Pushing specs versus following specs? Torch is fine product but criticised for not pushing the edge on processor or display, no OpenGL for gaming, etc.? Sense of how might think of things going forward? JB: Such an interesting dynamic going on in the market. When you talk about platform and design and future aspects, you’re going to be pleasantly surprised at DevCon. More aspects of design philosophy are going to come out there. In terms of what BB does, tremendous number of attributes, serves the market in the way it’s supposed to. Dangerous to frame this in high end arms race. Now no idea what he’s talking about. Will address cost effecctiveness, security, etc. Guidance shows what’a happening. If you saw roadmap, prudent in our approach. I don’t know how to say it better than resolve the paradox? Can’t make too high-end or use too much of the network. But be careful. We’re trying to innovate, not be strategically erratic. The core BlackBerry aspects are well defended, but it’s in a space where people have mushrooming expectations, and that’s the essence of the paradox. Hard to answer too directly without violating confidential roadmap stuff. [We’ll fully transcribe this gem later.]
5:45 Softening early in the quarter reversed.
5:47 I understand not guiding the net adds, but why not reporting net adds? Big sensitivity to out years. Is something happening on the international side? I think we’re guiding kind of 20ish per cent growth in it, so room in both there. But bits of variability. How much information is helpful? How much do you just put yourself in a disadvantage when you overdisclose information? We’ll tell you when we hit our 75 millionth sub, or 100 millionth. You can also pretty much deduce it. It’s just, how much granularity do you give? Then you have to keep people all updated on it. Powerful set of indirect monetizations we have going. Sort of heard this diminished ARPU thesis for years, at the end of the day, I mean, I think it’s run its course. We’re not modelling anything really different than we talked about last quarter. Not like some huge decline in ARPU or something. This is a services platform, and we need current return for what we do, and need strategic presence of adopted customers.
5:52 I think I just detected a subtle diss at Google’s Android, too.
5:55 Uniquely positioned to be a very good citizen in China. Pleasing subscribers, carriers, etc.
Aug. qtr. revenue: $4.62 billion beats $4.47 billion consensus
Aug. qtr. EPS: $1.46 beats $1.35 consensus
Aug. qtr. net additions: 4.5 million misses 5.0 million consensus
Aug. qtr. units: 12.1 million beats 11.7 million consensus
Nov. qtr. revenue: $5.43 billion midpoint beats $4.83 billion consensus
Nov. qtr. EPS: $1.66 beats $1.39 consensus
Nov. qtr. gross margin: 42% misses 42.6% consensus
Nov. qtr. net addition: 5.2 million midpoint in line with 5.2 million consensus
(Consensus data via Yahoo! Finance and Citi Investment Research.)
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