Research in Motion 1st Quarter Fiscal 2010 Conference Call

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Yesterday evening, RIM held their 1st quarter fiscal 2010 conference call. Adele Ebbs, RIM’s Vice President of Investor Relations moderated the call, while Jim Balsillie fielded questions of a strategic nature. The major news in this call included:

  • RIM sees a whopping 80% increase in consumer subscribers.
  • Enterprise subscribers are down for seasonal and architectural reasons.
  • Jim Balsillie dismisses iPhone and Pre as a threat.
  • International sales are strong and steady but come with risk.
  • Jim talks about the BlackBerry OS with respect to the smartphone market.

RIM sees a whopping 80% increase in consumer subscribers.

Overall, financial results from RIM are strong. Total revenue is up 3.4 billion, up 53% from last year. Revenues are slightly higher than predicted during RIM’s conference call last year. Revenues can generally be attributed to strong device sales in the consumer space, and new enterprise functionality.

Over 80% of RIM’s new subscribers this quarter came from the consumer base. The massive growth in the BIS subscriber base can be attributed to both local North American growth, and strong international sales, particularly in Latin America, the Middle East and Asia. These developing markets, tend to primarily use BIS, even in enterprise.

This new shift to the consumer side is increasing loads being put on the infrastructure. Consumers are demanding rich media services such as streaming video, which uses more than 100 percent the network capacity of a voice call. BlackBerry efficiency and network capacity are going to address this issue, as devices become more efficient, and carriers offer new technologies such as LTE.

The BlackBerry Tour is this quarter’s big step to address the consumer shift. The BlackBerry Tour has the media capabilities to address the power user market. While you may have seen very little from RIM in terms of promotion, I believe this is indicative of a marketing shift at RIM Corporate. The firm seems to be giving the promotional responsibilities to the carrier. The message from RIM seems to be: “we just make them, you sell them.”

While carriers will be the driving force behind device promotion, this transition hasn’t been fully realized as of yet. There seems to be a miscommunication between RIM and the leading carriers in that RIM mentioned several times during the call that carrier inventory levels are consistently low. They also predict these levels to remain low. So while carriers are taking more responsibility for sales and marketing, they don’t seem to be managing the logistics behind these new responsibilities very well.

Enterprise subscribers are down for seasonal and architectural reasons.

This quarter we have seen a decrease in enterprise subscribers. One reason for this decrease is that it is part of a natural seasonal change. For example, government represent a large enterprise base, and their purchasing cycles have an impact on subscribers. Generally, the summer season is slow in this regard.

In general, we’re seeing a change in the architecture of business, which could explain slow growth, and a decrease in enterprise subscribers. Many businesses are changing their organizational structure to be more BlackBerry friendly, but it can be a slow process. Organizations are only now starting to implement MVS technology and giving up their desk phone. The consumer space, in contrast, will be almost completely free of land lines come 2012.

Native integration with SAP and robust CRM solutions will foster increased growth in the enterprise space, along with BES 5 and a host of cloud computing options. Overall, RIM will still be a leader in enterprise for a long time to come.

Jim Balsillie dismisses iPhone and Pre as a threat

During the question period, one caller asked Jim to address the competitive dynamics surrounding the new App iPhone pricing point at $99, and what impact the Palm Pre may have. Jim responded that the new iPhone pricing plan isn’t anything necessarily new. Apple is just offloading hardware that’s a year old at a low price to drive sales. This strategy is standard in the industry and nothing that RIM can’t match and even outperform. In response to the concern that the Palm Pre could be a threat to market share, Balsillie was again somewhat dismissive. The market is constantly growing and the Palm Pre isn’t going to eat enough of it to affect RIM.

International sales are strong and steady but come with risk

Latin America, the Middle East and Asia have all seen an increased BlackBerry subscriber base which will continue to grow over the years. This growth is fueled by great success with the BlackBerry Curve 8900 in Europe as well as huge success with the BlackBerry Storm and Curve 8350i in Latin American countries such as Brazil. In Middle Eastern countries such as Saudi Arabia, the BlackBerry Bold has been selling well too.

Prepaid BlackBerry device plans are key to RIM’s international success. Mexico offers a prepaid solution and has seen a tremendous increase in device sales. The pay-as-you-go plans are ideal for a developing market where access to a system of credit is not always guaranteed. I would like to see a BlackBerry specifically for the developing world. This device would be more basic than the Pearl and come at a price point the developing markets can afford.

While being an international company is clearly beneficial for RIM, it doesn’t come without risk. RIM reports in American dollars but there is still a considerable amount of RIM’s cash and business in foreign currencies. Fluctuations in the British Pound, Canadian Dollar or Euro, could have a significant impact on RIM’s fiscal stability.

Jim talks about the BlackBerry OS with respect to the smartphone market

During the question period, the issue of 1 unified OS came up. A caller from Goldman Sachs asked if RIM has a strategy to deal with OS competition. Jim responded by saying that the OS is a relatively minor part of the smartphone and the market in general. What the caller was likely refering to, is called the Java Apps layer, and is it the layer above the OS that is mistakenly called the OS. In reality, it is what makes up the front end interface to much of the native (C++) level software.