Ina Fried

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RIM’s Tale of Two Cities (a.k.a. Its Earnings Call)

It’s that time of year again.

Another three months have passed and it is time, once again, to hear how great RIM is just after hearing how not great its last quarter’s results were.

RIM is set to address investors on a conference call in just a few minutes and, Wi-Fi co-operating, AllThingsD will have live coverage here.

Earlier, joining the call in progress:

RIM co-CEO Balsillie: “We recognize our shareholders may feel we have fallen short.”

Asked board to cut his and Lazaridis’s salary to $1 per year.

He says the company is reevaluating everything it does. “We are leaving no stone unturned.”

More from Balsillie. To improve business in the U.S., the company plans to invest in advertising and promotions — moves that will impact next year’s earnings.

The first QNX-based BlackBerrys are now due in second half of the year.

2:18 pm: Balsillie is talking aboout the PlayBook, and while I’m paraphrasing, he’s basically saying that while the sales could have been better, he’s confident that it’s going to catch on because it’s secure and aimed at the enterprise.

2:19 pm: Porting of games to PlayBook is an extremely attractive proposition for developers. “Applications developed today for BlackBerry 10 using a native SDK will also benefit future smartphones.”

380 connected apps on App World, representing 20 percent of downloads on App World. BBM Music is seeing strong uptake in Canada and other markets.

“We currently have a major cost optimization initiative under way.” It’s called CORE and is focused not on headcount reductions, but on efficiency and supply chain management. It includes the creation of a data monitoring center.

2:22 pm: Here’s an update on BlackBerry 10 smartphones. They’re not expected until the “latter part of 2012,” according to the slide deck.

Part of the reason is that the chipset RIM has selected won’t be available until the middle of 2012.

“We ask for your patience and confidence.”

Oops, that was Mike Lazaridis talking before.

2:24 pm: Now CFO Brian Bidulka is speaking.

U.S. sales were down 20 percent. Sales outside North America accounted for 61 percent of sales.

14.1 million phones shipped in the quarter.

150,000 PlayBooks, and sell through during the quarter was higher than this based on RIM’s internal data. Demand is increasing, and 800,000 units in total have been shipped.

Service revenue was $970 million.

The service interruption reduced service revenue by $50 million.

Gross margin was 37 percent, in line with guidance, but lower than Q2.

Mike Lazaridis said during his chat that, despite being delayed, BlackBerry 7 devices are doing well in the market with some 1,000 acceptances from carriers around the world. He then delved into Fantasyland, suggesting new BlackBerry Bolds are seen as one of the best phones on the market. He spent more time there arguing that while he would have preferred that the PlayBook launch had gone better, the tablet is one of the most advanced on the market. (Um, it still can’t do native email without a tethered BlackBerry.)

Operating expenses declined 10 percent.

ARPU (average revenue per user) was down as the number of people using BIS-tiered plans increased.

2:28 pm: For those noting a bit of jumping around, I have had major Wi-Fi issues and a bunch of the crack staff at AllThingsD have been chipping in. Thanks, gang!

And here’s the outlook.

Edel Ebbs, VP investor relations: Q4 unit outlook, we plan to invest heavily in new marketing programs but we don’t expect them to help us sell more phones in the quarter.

We expect to ship 11 million to 12 million smartphones in Q4.

Revenue 4.6 to 4.9 billion. Service revenue to be stable to slightly higher. Gross margins of 38 percent.

EPS will be 80 cents to 95 cents.

$100 million investment coming in marketing and consumer retention programs.

Now we’re into the QA. There’s a question about the delay on the BlackBerry 10 phones. Lazaridis says we “wanted to target a higher efficiency, lower power consumption chipset in the U.S. We wanted to make sure U.S. consumers will get the power and performance expectations.”

2:33 pm: The software development work that is going for the PlayBook is directly applicable to the BlackBerry.

Morgan Stanley asks: Now that you have written off the PlayBook inventory, how does that run to P&L? How does that work and impact the margin?

Also, of the 75 million subscribers, how many are in the U.S. and how many in Europe?

How many in the quarter were BlackBerry 7?

Brian Bidulka: While we will get revenue, there will be an associated cost. The gross margin dollars will be nominal.

2:35 pm: Edel Ebbs says the company doesn’t break out U.S. versus Europe subscribers.

2:38 pm: Question: Given the shift of business to Latin America and Asia, how do you think about your future growth prospects?

Balsillie: There’s a very powerful opportunity at the entry level. But over half of the phones in the world are feature phones.

Q: This CORE program. There’s still a fairly high level of inventory and receivable compared to peers. Can you make a meaningful squeeze?

Bidulka: There’s a lot to the CORE program. We’re looking at a lot of aspects that we’re looking at.

2:41 pm: For more on RIM’s move to delay the QNX-based BlackBerrys, check out this just-posted story.

2:42 pm: Sorry for the double-post. Let’s say “high-speed broadband” ain’t always.

2:40 pm: Question from Thinkequity on QNX/BlackBerry 10. How much are you going to be changing on the infrastructure side? The Network Operations Center?

Lazaridis: The PlayBook 2 software will be able to interface to the BlackBerry Enterprise Server. It’s part of our secret sauce. It plays right into the security that we have. Our enterprise customers are excited about it because they can re-use their investment in BES.

Balsillie: We’re looking at leveraging our strengths.

Question from Citi: There was some commentary about some additional EPS pressure. Was that just referring to year-over-year EPS pressure, or with the OPEX ramp, should EPS trend lower after February?

Edel Ebbs: We’re not giving any more detailed guidance.

Q: Opex up quarter on quarter, on advertising, and then something about royalty retention.

Edel Ebbs: That is loyalty retention.

Lazaridis: That $100 million isn’t all in OPEX.

Q: When are you finished with your restructuring efforts?

Lazaridis: We’ve talked about that. CORE program is not about headcount, it’s about how we do things.

Balsillie: This is not business as usual at RIM. We’re totally redoubling our efforts for shareholders.

2:45 pm: Question about BB7 and how it seems RIM wasn’t happy with pickup in the U.S. Could you please explain thinking around price-cutting on the BlackBerry.

Balsillie: We are planning a set of marketing and promotional plans. You’re going to see that imminently. We’re excited to promote the BB7 to consumers in the U.S. Special offers, marketing campaigns, advertising.

Question from UBS: How do you intend to keep us updated on the CORE program?

Bidulka: We haven’t thought that through but we can get back to you on the next call.

Q: Why is it that ahead of BB10 shipments don’t get worse?

Lazaridis: The BB7 devices are rejuvenating the BlackBerry experience around the world. BB7 is such an advance that it really has changed the way that people perceive the product. The fit and finish and material choices is just amazing.

Balsillie: We realize we’ve not met expectations, but we plan a comprehensive set of marketing and advertising programs. We have to execute with a laser focus.

2:50 pm: Balsillie: PlayBook OS2 is a major upgrade.

Balsillie: It’s difficult to be in the smartphone business and not in the tablet business. It’s very early in the tablet market still.

Balsillie: It’s still very early in the launch of the PlayBook.

Last question, from Morgan Keegan: It looks like that was a $374 million purchase of intangible. What was it?

Service revenues are up. Are subscribers not churning as fast as feared?

Bidulka: That relates to payments for certain license agreements.

Balsillie: I’m not going to paint anything overall optimistic or pessimistic. We are seeing lots of growth in subscribers and lots of growth of traffic. Yes, there’s a very powerful system that we have here and it’s up to us to make sure that we use it in a way that executes well for our shareholders.

And that’s all.


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