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Research In Motion Limited
Company Profile
Publication Date: 4 Jul 2008
www.datamonitor.com
Datamonitor Hong KongDatamonitor GermanyDatamonitor EuropeDatamonitor USA2802-2803 Admiralty CentreKastor & PolluxCharles House245 5th AvenueTower 1Platz der Einheit 1108-110 Finchley Road4th Floor18 Harcourt Road60327 FrankfurtLondon NW3 5JJNew York, NY 10016Hong KongDeutschlandUnited KingdomUSA
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Research In Motion (RIM) is a communications services company that designs, manufactures andmarkets wireless solutions for the mobile communications market. The company operates in NorthAmerica, Europe and Asia Pacific. It is headquartered in Ontario, Canada and employs about 6,250people.
The company recorded revenues of $3,037.1 million during the fiscal year ended March 2007, anincrease of 47% over 2006. The revenue increased due to a rise in number of BlackBerry devicesto reach approximately 6.4 million units in fiscal 2007, compared to approximately 4 million units infiscal 2006. The operating profit of the company was $806.8 million during fiscal year 2007, anincrease of 94.3% over 2006. The net profit was $631.6 million in fiscal year 2007, an increase of68.6% over 2006.
KEY FACTS
Research In Motion LimitedHead Office295 Phillip StreetWaterlooOntarioN2L 3W8CAN
Research In Motion (RIM) is a leading designer, manufacturer and marketer of wireless solutionsfor the worldwide mobile communications market.Through the development of integrated hardware,software and services that support multiple wireless network standards, RIM provides platforms andsolutions for access to time-sensitive information including email, phone, SMS messaging, Internetand intranet-based applications. RIM technology also enables a broad array of third party developersand manufacturers to enhance their products and services with wireless connectivity to data. Thecompany operates offices in North America, Europe and Asia Pacific.
The company is organized and managed as a single reportable business segment. RIM’s primaryrevenue stream is generated by the BlackBerry wireless solution. The BlackBerry wireless solutioncomprises wireless devices, software and services.
The wireless devices offer BlackBerry smartphones which are communication tools that incorporatewireless technology to deliver simple, mobile communications access. BlackBerry products make iteasy to manage information and communications from a single, integrated device. BlackBerrysmartphones are available from over 200 carriers and are designed to operate on a variety of carriernetwork types, including GSM/GPRS/EDGE, CDMA/Ev-DO, iDEN, UMTS and Mobitex.
Software division revenues include fees from licensed BES software and Client Access Licenses(CALs), Technical Support (T-Support) and upgrades.
In the services division, the company generates revenues from BlackBerry service relating to monthlyaccess billings charged to its BlackBerry subscriber account base. For the fiscal year ended March2007, RIM’s BlackBerry subscriber account base was estimated at approximately 8 million subscriberaccounts.The company’s service revenue is generated in one of two streams: a monthly infrastructureaccess fee to a carrier/reseller when a carrier or other reseller bills the end customer. The secondstream of revenue is a monthly service fee charged by RIM directly to data-only end-customerswhere RIM purchases airtime from certain carriers and resells it directly to BlackBerry subscribers.
Mike Lazaridis, the company’s President and Co-Chief Executive Officer, and Douglas Fregin, VicePresident of Operations, founded Research in Motion (RIM) in 1984.The company was incorporatedin March 1984 in Waterloo, Ontario under the Ontario Business Corporations Act.
RIM’s IPO on the Toronto Stock Exchange took place in 1997. RIM began trading on the NasdaqStock Exchange in February 1999. RIM 850 and RIM 950, pager-sized handhelds, were introducedin 1998. During 2000, RIM launched BlackBerry. In 2002, the company launched TSupport, a suiteof technical support and software maintenance programs.
In 2004, the company launched the 7510 version of BlackBerry. In the same year, the companylaunched BlackBerry in a number of new markets in alliance with various carriers. These marketsincluded Cayman Islands, Barbados, India, Malaysia, South Africa, Germany, France, Belgium,Netherlands, Ireland, Portugal and Spain besides various others. RIM and Good Technology signeda settlement and license agreement to resolve a number of pending lawsuits between the twocompanies in 2004.
RIM introduced their launching program allowing other device manufacturers to incorporate BlackBerrysoftware in 2004. Siemens launched its SK65 the same day with this technology in collaborationwith RIM. SureType, a combination of phone keyboard and QWERTY keyboard, was introduced inthe BlackBerry 7100 series in the same year. Also PalmSource and RIM announced email API withfirst version of the PalmSource mail client to enable development of secure mobile data applications.
BlackBerry enhanced solutions were launched on the Sprint Nationwide PCS Network in 2004 andin the same year RIM also introduced new java technology for BlackBerry. Turkcell launchedBlackBerry in Turkey in collaboration with RIM, which also launched it in Brazil in 2005.Yahoo! andAmerica Online announced relationships with RIM to bring Yahoo services and AOL instant messagingto BlackBerry in 2005. The same year witnessed the expansion of the BlackBerry networks toHungary, Czech Republic, Poland, Russia, Romania, Switzerland and Israel.
Maxis communications announced the availability of BlackBerry connect for the Sony Ericsson P910ismartphone in Malaysia in 2005. In the same month, Indosat and Nokia launched BlackBerry connectwith the Nokia 9300 smartphone and Nokia 9500 communicator, also mobilkom launched BlackBerryconnect in Austria at the same time. AIS and RIM announced their strategic alliance to launchBlackBerry to corporate customers in Thailand in the same year.
TRC Capital Corporation made an unsolicited ’mini tender’ offer for 1,000,000 common shares ofRIM in November 2005.The offer was neither recommended nor endorsed by RIM and the companyannounced that the approach was unrelated to RIM’s previously announced plan to repurchase,over a period of time, up to 9,500,000 of its common shares on the Nasdaq National Market.
In November 2005, Telefonica Moviles and RIM announced their intention to launch BlackBerryacross Latin America. The agreement covered Argentina, Brazil, Chile, Colombia, Ecuador,Guatemala, El Salvador, Nicaragua, Panama, Peru, Mexico, Uruguay and Venezuela, and wasscheduled for implementation in early 2006. RIM acquired Ascendent Systems in March 2006.Yahooand RIM expanded their strategic global alliance to bring Yahoo services to BlackBerry users aroundthe world, including Yahoo Go for Mobile, Yahoo Search, Yahoo Mail and Yahoo Messenger in April2006.
In January 2007, RIM and Yahoo! expanded their strategic global alliance to bring Yahoo! Go forMobile 2.0 to millions of BlackBerry users around the world. RIM announced plans to introduce anew development tool that would enable developers to work within the familiar .NET programmingenvironment to rapidly create rich client wireless applications for BlackBerry smartphones in May2007. In the following month, RIM announced that its Board of Directors approved a 3-for-1 stocksplit of the company’s outstanding common shares. In July 2007, RIM and Orange UK introducedthe BlackBerry 8820 smartphone to the UK market.
RIM’s BlackBerry Enterprise Server and BlackBerry device software have been awarded CommonCriteria Evaluation Assurance Level 2 augmented (EAL 2+) validations in September 2007. In thefollowing month, RIM and Eatoni Ergonomics have agreed to work jointly on the next generation ofpredictive text technology in ambiguous keyboards. In the same month, Alcatel-Lucent and RIMhave expanded their partnership with the signing of a strategic agreement for the distribution ofBlackBerry smartphones in China.
Telefonica and RIM announced plans to introduce BlackBerry Unite!. In October 2007, a freePC-based software offering that would allow small groups, such as a family or small office, to stayconnected and enhance communications and coordination. In the same month, RIM launchedFacebook for BlackBerry Smartphones, a new BlackBerry software application that enables fast,streamlined and optimized mobile access to the popular Facebook social utility using a BlackBerrysmartphone.
In November 2007, RIM introduced BlackBerry Professional Software, a new wireless communicationsand collaboration solution that integrates with the industry leading email servers and is specificallydesigned and priced to meet the needs of small and medium-sized businesses. In the same month,Sony Ericsson and RIM integrated BlackBerry Connect software v4.0 on the Sony Ericsson P1i invarious countries in the Asia Pacific1 region, including Australia, Hong Kong, India, Indonesia,Malaysia, Philippines, Singapore, Taiwan and Thailand. In December 2007, Smart Communications,and RIM introduced the BlackBerry Curve 8320, the smallest full QWERTY BlackBerry smartphonethat includes Wi-Fi support in the Philippines.
Grameenphone and RIM launched of the BlackBerry wireless solution in Bangladesh, in January2008. During the same month, the company launched BlackBerry smartphone models in variouscountries like Uganda, Madagascar, Qatar, Romania, and others through regional and internationalplayers like MTN, QTel, Telma, Alcatel-Lucent, Vodafone Spain, and 3 among others. The companyand Orange also released BlackBerry Professional Software in Spain. In the next month, February2008, RIM and Vodacom launched BlackBerry Pearl 8110 smartphone in South Africa. RIM launched
ultra sleek BlackBerry Pearl 8110 smartphone in Hong Kong. RIM launched GPS enabled BlackberryPearl 8110 in India through Airtel and Vodafone. In the same month, the company launched Blackberrysolutions in Lithuania, Botswana, Madagascar, and Nigeria in association with regional players inthe respective markets.
In March 2008, RIM and Vodafone launched Blackberry solutions in Czech Republic and Latvia.The company launched BlackBerry Pearl 8120 smartphone in Indonesia. Celtel Zambia, RIM, andEmitac Mobile Solutions launched the BlackBerry solution in Zambia. The company and Verizonlaunched BlackBerry Curve 8330 smartphone. In the next month, RIM and T-Mobile launchedWi-Fi-enabled BlackBerry Pearl 8120 smartphone. Mobile Telephony of Serbia, Alcatel-Lucent andRIM launched BlackBerry wireless solution in Serbia.
In May 2008, the company and Brightpoint and RIM entered into a global master distributionagreement for Brightpoint to distribute RIM products across North America, Latin America, Europe,Middle East & Africa, and Asia Pacific.The company and SAP entered into a co-innovation partnershipto work on the enterprise mobility. Zain, EMS, and RIM launched the Wi-Fi enabled BlackBerry Curve8320 smartphone in Jordan.Through BlackBerry Partners Fund, RIM, RBC, and Thomson Reuters,along with several private Canadian investors formed a $150 million venture capital fund to investin the emerging mobile applications and services. IBM and RIM have joined forces to offer Web2.0-powered IBM Lotus collaboration software and information on demand on the market-leadingBlackBerry platform. Vip operator, a member of mobilkom austria group and RIM launched theBlackBerry solution in Macedonia.
Board: Executive BoardJob Title: President and Co-Chief Executive Officer
Mr. Lazaridis is the President and Co-Chief Executive Officer of Research In Motion. As Presidentand Co-Chief Executive Officer of Research In Motion (RIM), a company Mr. Lazaridis founded whilea student at the University of Waterloo, he is responsible for product strategy, research anddevelopment, product development, and manufacturing. He is a member of the Natural Sciencesand Engineering Research Council of Canada (NSERC), the Ontario Research and InnovationCouncil, and a Governor of the Information Technology Association of Canada. Mr. Lazaridis is alsoa long-standing member of the Board of Governors of the University of Waterloo and, in 2003, wasinstalled as its Chancellor. He was named an Officer to the Order of Canada in 2006 and was listedon the TIME 100 List of Most Influential People in 2005. Mr. Lazaridis is a member of Maclean'sHonour Role of distinguished Canadians, is a recipient of the 2002 Kitchener Waterloo Chamber ofCommerce Community Leader of the Year Award and has been previously recognized as Canada'sNation Builder of the Year and Ontario's Entrepreneur of the Year.
Mr. Balsillie is Co-Chief Executive Officer of Research In Motion (RIM) since 1993. At RIM, he isresponsible for driving corporate strategy, business development, marketing, sales, and finance. Heearned a Bachelor of Commerce from the University of Toronto and an MBA from Harvard University,and is a Chartered Accountant. In 2002, he announced a major endowment gift to establish theCentre for International Governance Innovation, a non-profit, non-partisan research institution basedin Waterloo dedicated to improving approaches to transnational policy issues in the new globaleconomy.
In addition to his commitment to the new Institute, Mr. Balsillie is a founding donor of the PerimeterInstitute for Theoretical Physics and a patron of the Grand River Hospital where his leadership gifthelped establish a new cancer care center. He is a major donor to RIM Park in the City of Waterlooand principal benefactor for the Mr. Balsillie Collection of Roy Studio Images in his nativePeterborough.
Research In Motion LimitedKey Employee Biographies
Board: Non Executive BoardJob Title: DirectorSince: 1997
Mr. Estill has been Director of Research In Motion since 1997. Since 2004 has been the ChiefExecutive Officer of SYNNEX Canada Limited. Prior to the acquisition by SYNNEX of EMJ DataSystems in 2004, Mr. Estill was the founder, President and Chief Executive Officer of EMJ DataSystems. Mr. Estill is a graduate of the University of Waterloo and holds a Bachelor of Science,Systems Design Engineering. Mr. Estill is currently a director of Hammond Manufacturing Company.
Barbara Stymiest
Board: Non Executive BoardJob Title: DirectorSince: 2007
Ms. Stymiest has been the director of Research In Motion since 2007. Ms. Stymiest has an HBAfrom the Richard Ivey School of Business, University of Western Ontario and FCA from the Instituteof Chartered Accountants of Ontario. Ms. Stymiest has been Chief Operating Officer of RBC FinancialGroup since 2004. Prior to this, Ms. Stymiest held positions as Chief Executive Officer at TSX Group.Executive Vice-President & Chief Financial Officer at BMO Nesbitt Burns and Partner of Ernst &Young. Ms. Stymiest is currently a Director of Symcor. Toronto Rehabilitation Institute Foundation,the Canadian Institute for Advanced Research and the Royal Ontario Museum.
John E. Richardson
Board: Non Executive BoardJob Title: DirectorSince: 2003
Mr. Richardson has been Director of Research In Motion since 2003. Mr. Richardson has a Bachelorof Commerce degree from the University of Toronto, an MBA from Harvard Business School andan FCA from the Institute of Chartered Accountants of Ontario. Mr. Richardson was appointedChairman of the Ontario Pension Board in 2004. Mr. Richardson was previously a Senior Partnerof Clarkson Gordon & Co, Executive Vice President, Lonvest Corporation (now London InsuranceGroup), President of Great Lakes Power, Deputy Chairman of London Insurance Groups, Chairman,President and Chief Executive Officer of Wellington Insurance, and Chairman of London GuaranteeInsurance Company. Mr. Richardson was a past board member with The Insurance Bureau ofCanada, and the Facility Association. Mr. Richardson is currently the Chairman of Boiler Inspectionand Insurance, a director of Intertape Polymer Group and a trustee of Armtec Infrastructure IncomeFund and Resolve Business Outsourcing Income Fund.
Research In Motion LimitedKey Employee Biographies
Board: Non Executive BoardJob Title: DirectorSince: 2007
Mr. Wetmore has been the director of Research In Motion since 2007. Mr. Wetmore is the formerPresident and Chief Executive Officer and also the former Chief Financial Officer of IBM Canada.He also held various finance positions at IBM Americas. Mr.Wetmore is currently a director at LoblawCompanies Limited, Sunnybrook Hospital Foundation and a trustee of Resolve Business OutsourcingIncome Fund. Mr. Wetmore has a Bachelor of Mathematics from the University of Waterloo andgraduated from the Advanced Executive Program at the Kellogg School, Northwestern University.
David Kerr
Board: Non Executive BoardJob Title: DirectorSince: 2007
Mr. Kerr has been a Director of RIM since 2007 and is Managing Partner of Edper FinancialCorporation, a financial management company. From July 2002, to August 2006, Mr. Kerr wasChairman of Falconbridge Limited (formerly Noranda) and prior to that he was President and ChiefExecutive Officer of Falconbridge Limited. Mr. Kerr is a Director of Brookfield Asset Management,CanWest Global Communication, Sustainable Developments Technology Canada, Sun Life FinancialCorporation, the Toronto Rehabilitation Hospital Foundation, and the Special Olympics CanadaFoundation. He is also a Member of the National Round Table on the Environment and the Economy.In the past five years, Mr. Kerr also served as a Director of Shell Canada.
Roger Martin
Board: Non Executive BoardJob Title: DirectorSince: 2007
Mr. Martin has been a Director of RIM since 2007 and is Dean and Professor of Strategy at theJoseph L. Rotman School of Management at the University of Toronto. Mr. Martin was formerly aDirector of Monitor Company, a Cambridge, Massachusetts based consulting firm, and is Chair ofthe Ontario Task Force on Competitiveness, Productivity, and Economic Progress. Mr. Martin alsoserves as a Director on the board of The Thomson Corporation, serves on the advisory boards ofButterfield & Robinson, Social Capital Partners and Jefferson Partners, is a founder of E-magineand serves as a trustee of The Hospital for Sick Children.
Dennis Kavelman
Board: Senior ManagementJob Title: Chief Operating Officer, Administration and Operations
Research In Motion LimitedKey Employee Biographies
Mr. Kavelman is Chief Operating Officer Administration and Operations of Research In Motion. Priorto becoming Chief Operating Officer, he held the position of Chief Financial Officer at Research InMotion since 1995. During his tenure at RIM he has overseen the company’s listings on the TorontoStock Exchange and the NASDAQ. Mr. Kavelman is a Chartered Accountant, finishing first in Canadaon the CICA Uniform Final Examination. He holds an Honours Bachelor of Business Administrationfrom Wilfrid Laurier University.
Prior to joining RIM in 1995, Mr. Kavelman held various positions in the corporate finance group atKPMG. He is currently Treasurer of the Centre for International Governance Innovation in Waterloo.
Mr. Morrison is Chief Operating Officer, BlackBerry at Research In Motion. He oversees all domesticand international operations focusing on the development and execution of a world-class,customer-driven organization to support the BlackBerry wireless solution. Before joining RIM in 2000,Mr. Morrison undertook a number of senior leadership positions in Canada, the US, Europe and theMiddle East with AT&T and Bell Canada. He holds an MBA and BA from the University of Toronto,and also participated in the Executive Program at the University of Virginia, Darden Business School.
Larry Conlee
Board: Senior ManagementJob Title: Chief Operations Officer, Engineering and Manufacturing
Mr. Conlee is Chief Operations Officer, Engineering and Manufacturing at Research In Motion. Heoversees RIM's engineering and manufacturing groups to help realize and expand upon RIM'slongstanding vision for 'Always On, Always Connected' computing and communications solutions.Prior to joining RIM in 2001, Mr. Conlee held numerous senior leadership positions at Motorola. Heholds a BA in Physics from McMurry University, Abilene, Texas and an MBA, MS Management,Cum Laude from Lake Forest School of Management, Lake Forest, Illinois.
Robin Bienfait
Board: Senior ManagementJob Title: Chief Information Officer
Ms. Bienfait is the Chief Information Officer of Research In Motion. She oversees BlackBerryOperations and Corporate IT. Prior to joining RIM, Ms. Bienfait held senior leadership positions withinAT&T Labs and Global Network Services. A graduate of the Georgia Institute of Technology with amaster’s degree in Management of Technology, she also holds a bachelor’s degree in engineering
Mr. Bidulka is the Chief Accounting Officer at Research In Motion. He oversees all financial reportingand compliance activities. Prior to joining RIM in 2005, he held numerous finance positions at Molsonand Ernst & Young. He received his Chartered Accountant's designation in 1989 and holds an HonorsBachelor of Commerce degree from McMaster University.
Mr.Yach is the Chief Technology Officer, Software at Research In Motion. He oversees and managesthe development of software that has helped RIM become a world leader in the mobilecommunications market. Prior to joining RIM in 1998, David held various leadership positions atSybase. David holds a Bachelor's degree in Mathematics from the University of Waterloo and anMBA from Wilfrid Laurier University.
Research In Motion LimitedKey Employee Biographies
MAJOR PRODUCTS AND SERVICES
Research In Motion (RIM) is a communications services company that designs, manufactures and markets wireless solutions for the mobile communications market. The company's key products and services include the following:
Wireless handheld communication devicesApplication softwareBlackBerry wireless platformSmart cardsEmbedded radio modemsSoftware development tools
Research In Motion LimitedMajor Products and Services
REVENUE ANALYSIS
Research In Motion
The company recorded revenues of $3,037.1 million during the fiscal year ended March 2007, anincrease of 47% over 2006. The revenue increased due to rise in number of BlackBerry devicessold by 58.6%, to reach approximately 6.4 million units in fiscal 2007, compared to approximately 4million units in fiscal 2006. For the fiscal year 2007, the US, the company's largest geographic market,accounted for 57.8% of the total revenues.
The company is organized and managed as a single reportable business segment which is categorizedin four divisions: devices (73% of the total revenues during fiscal year 2007), service (18.4%), software(5.7%) and other (2.9%).
Revenues by Division
During the fiscal year 2007, the devices division recorded revenues of $2,216 million, an increaseof 53.9% over 2006. This increase in device revenue over the prior year is due to a volume increaseof 2.4 million devices, to approximately 6.4 million devices sold in fiscal 2007 compared toapproximately 4 million devices sold in fiscal 2006.
The service division recorded revenues of $560.1 million in fiscal year 2007, an increase of 46.2%over 2006. The increase was due to rise in BlackBerry subscriber account additions, which wereapproximately net 3.1 million for fiscal 2007 compared to approximately net 2.3 million in 2006.
The software division recorded revenues of $173.2 million in fiscal year 2007, an increase of 10.6%over 2006. The increase was as a result of increased sales of CALs as well as increased revenuesfrom technical support and maintenance.
The other division recorded revenues of $87.8 million in fiscal year 2007, an increase of 1.4% over2006.
Revenues by Geography
The US, Research In Motion's largest geographical market, accounted for 57.8% of the total revenuesin the fiscal year 2007. Revenues from the US reached $1,756.6 million in 2007, an increase of31.5% over 2006.
Canada accounted for 7.3% of the total revenues in the fiscal year 2007. Revenues from Canadareached $222.5 million in 2007, an increase of 24.6% over 2006.
Other countries accounted for 34.8% of the total revenues in the fiscal year 2007. Revenues fromother countries reached $1,058 million in 2007, an increase of 91.7% over 2006.
Research In Motion (RIM) is a designer, manufacturer, and marketer of wireless solutions for theworldwide mobile communications market.Through the development of integrated hardware, softwareand services that support multiple wireless network standards, RIM provides platforms and solutionsfor access to time-sensitive information, including email, phone, short message service (SMS)messaging, Internet and intranet-based applications. The company’s strong financial performanceboosts the investor confidence. However, intense competition could increase pricing pressure onthe company.
WeaknessesStrengths
Dependence on few customersRobust financial performanceLack of scaleStrong research and development
capabilitiesLeading market position
ThreatsOpportunities
Intense competitionGrowing demand for smartphonesInternational business risksRIM and Yahoo! AllianceEconomic slowdown in the USExpanding Asia Pacific mobile phone
market
Strengths
Robust financial performance
RIM recorded a strong financial performance in the recent three years. The company's revenuesincreased from $1,350.4 million in 2005 to $3,037.1 million in the fiscal 2007, growing at compoundedannual growth rate (CAGR) of 50%. The revenue increased due to rise in number of BlackBerrydevices sold by 58.6%, to reach approximately 6.4 million units in fiscal 2007, compared toapproximately 4 million units in fiscal 2006.The company also reported strong profits.The company'soperating profit increased exponentially to reach $806.8 million in the fiscal year 2007 as comparedto $29.1 million in 2005. Similarly, the net profit of the company increased to $631.6 million in 2007from $205.6 million in 2005, growing at a CAGR of 75%.
As a result of strong profits, the company’s margins increased in the same period. The operatingmargin and net profit margin increased from 20.1% and 18.1% in fiscal 2006 to 26.6% and 20.8%in fiscal 2007. The company also recorded increasing returns in 2007 compared to fiscal 2006. Thecompany’s return on equity, return on capital employed, and return on assets increased from 18.8%,
20.5%, and 15.2% in fiscal 2006 to 28.2%, 31.7%, and 23.4% in fiscal 2007. High returns indicatemanagement effectiveness in deploying their resources and would boost the investor confidence.Strong financial performance gives financial stability to the company and indicates that the companyhas been able to capitalize on growth opportunities.
Strong research and development capabilities
The company has strong research and development capabilities. As of March 2007, RIM’s researchand development team consisted of approximately 2,100 employees.The research and developmentexpense in fiscal 2007 was $236.2 million, compared to $158.9 million in fiscal 2006, an increaseof 48.6% over 2005. The company is continuously launching new products as a result of thesecapabilities.
In November 2007, the company introduced BlackBerry Professional Software, a new wirelesscommunications and collaboration solution which integrates with the industry’s leading email servers.The software is specifically designed and priced to meet the needs of small and medium-sizedbusinesses. The company launched Facebook for BlackBerry Smartphones, in October 2007, aBlackBerry software application that enables fast, streamlined and optimized mobile access to thepopular Facebook social utility using a BlackBerry smartphone.
RIM has developed its own radio code stack and launched a new device platform incorporating thisradio code stack as well as utilizing the powerful Marvell PXAxxx processor. The company has alsopreviously entered into two project development agreements TPC-1 and TPC-2 with TechnologyPartnerships Canada (‘TPC’), which provides partial funding for certain research and developmentprojects. Strong research and development capabilities would serve as a competitive advantage tothe company by providing it with new and innovative products.
Leading market position
RIM is the world's second largest supplier of smartphones, behind Nokia. RIM’s share in thesmartphone market has steadily increased in the last five quarters from 7.2% in third quarter 2006to 9.5% in third quarter 2007. The company offers smartphones with better music players, on-boardGPS, and Wi-Fi.These are appealing features for any phone shopper. It's also able to keep AverageSale Prices (ASP) higher than its competitors. It is estimated that ASP of RIM handsets in 2007 was$345, which is substantially higher than the overall industry average of $248 for smartphones. Thegrowing popularity of RIM's devices indicates that consumers and carriers are willing to supporthigher priced handsets if the device has the required features.
The company’s BlackBerry Enterprise Server and BlackBerry device software has been awardedCommon Criteria Evaluation Assurance Level 2 augmented (EAL 2+) validations in September 2007.The Common Criteria is an international standard for validating that IT products meet specific securityrequirements. This evaluation assurance level is accepted under the Common Criteria RecognitionArrangement (CCRA) by 25 countries. BlackBerry software has become the first mobile platform toreceive the Common Criteria certification. Leading market position would enhance the brand imageof the company.
RIM is dependent on an increasing number of significant global carrier partner customers with respectto the sales of its products both in terms of the numbers of units sold and the aggregate value of itssales. While the company sells its products and services to a variety of customers, two customerscomprised 23% and 13% of trade receivables as of March 2007. Additionally, four customerscomprised 19%, 14%, 11%, and 11% of the company’s revenue in fiscal 2007.
The primary direct customers for the BlackBerry wireless solution are wireless carriers.The companysells GPRS/EDGE, CDMA/Ev-DO and iDEN devices and software to carriers, who, in turn, bundlethe handhelds and software with airtime and sell the complete solution to end customers. Revenuefrom carriers represented approximately 95.7% of revenue for fiscal 2007, compared to approximately95.2% of revenue for fiscal 2006. Loss of any significant customer could affect the company’soperating results and financial condition.
Lack of scale
The company lacks the scale to compete with large companies such as Nokia and Motorola. Thecompany recorded a net income of $631.6 million on revenues of $3,037.1 million during the fiscalyear ended March 2007. By contrast, Nokia, a competitor, reported a net income of $5,644.3 millionon revenues of $54,292.1 million for the fiscal year ended December 2006. Motorola recorded a netprofit of $3,661 million on revenues of $42,879 million for the fiscal year ended December 2006.Lack of scale adversely affects the company's prospects in competitive markets.
Opportunities
Growing demand for smartphones
Demand for smartphones among the mobile users is likely to grow rapidly over the next few years.Increasing demand for PC functionalities to support the data services along with the voice areexpected to drive the smartphone markets. According to industry forecast, 70% of the global mobilephones would be smartphones by 2010. Currently, smart phones have 38% share in the globalmobile market.
RIM is a provider of various smartphones like BlackBerry 8700 Series, BlackBerry 7130 Series andBlackBerry Pearl. BlackBerry smartphones are available from over 200 carriers and are designedto operate on a variety of carrier network types, including GSM/GPRS/EDGE, CDMA/Ev-DO, iDEN,UMTS and Mobitex. RIM is well positioned to capitalize on the growing demand for smartphones.
RIM and Yahoo! have expanded their strategic global alliance to bring Yahoo! Go for Mobile 2.0 tomillions of BlackBerry users around the world in January 2007. Users worldwide would downloadand enjoy the beta version of Yahoo! Go 2.0 on select handsets including the BlackBerry 8700Series, BlackBerry 7130 Series and BlackBerry Pearl. The companies also plan to make Yahoo! Go2.0 available for future BlackBerry handsets and develop even tighter integration between it and theBlackBerry platform.
The company’s relationship with Yahoo! would benefit mobile users who want to access Yahoo!'spopular services via the BlackBerry platform.Yahoo! Mail and Yahoo! Messenger on Yahoo! Go forMobile 2.0 is a new application that enhances the mobile Internet experience for users. It provies aunique product design, ability to personalize with content from the entire Internet and a reinventionof mobile search. The company is still working with Yahoo! to bring other Yahoo! services toBlackBerry handsets, as well as further enhance the user experience of Yahoo! Mail. Adding newand advanced features to the company’s products would differentiate its products from those ofcompetitors and attract many customers.
Expanding Asia Pacific mobile phone market
The Asia Pacific region, including China, India and Japan, is the largest mobile phone market in theworld. About 18 million Smartphones have been sold in the APAC region in 2006 and this figure isexpected to increase to 64.2 million by 2010.
The BlackBerry smartphones are well received in Asia Pacific as the region is slowly transitioningfrom the market which was characterized by many first-time buyers of mobile phones intosmartphones. In 2006, 40% of all Smartphones were shipped to the Asia Pacific region due toincreasing demand for mobile data in the region. Informa is predicting over 1.1 billion smartphoneusers in the Asia Pacific region by 2011, representing over 50% of the total market.
In November 2007, Bharti Airtel and Research In Motion introduced the BlackBerry Pearl 8120smartphone in India. In the same month, Vodafone, also in collaboration with Research In Motion,introduced the BlackBerry Pearl 8120 smartphone in India. In October 2007, BPL Mobile, Mumbai’sleading cellular service provider, launched the BlackBerry Curve 8300 smartphone in Mumbai (India).In the same month, Alcatel-Lucent and Research In Motion expanded their partnership with thesigning of a strategic agreement for the distribution of BlackBerry smartphones in China. Increasingdemand in the Asia Pacific region would strengthen the financial performance of the company.
Threats
Intense competition
The competitive environment for the wireless data communications industry is rapidly evolving and,to date, no technology has been exclusively or commercially adopted as the industry standard forwireless data communication. In the wireless data communications access market, the company
faces competition from: Casio, Danger, LM Ericsson, Fujitsu, HandEra, Hewlett-Packard Company,Hitachi America, Intermec Technologies Corporation, Itronix, Kyocera Corp, Microsoft Corporation,Mitsubishi Corporation, Motorola, NEC, Nokia, Novatel Wireless, NTT DoCoMo, Option, Palm, SanyoElectronic, Samsung Electronics, Sendo, Sharp Corporation, Sierra Wireless, Sony Corporation,and Sony Ericsson, among others.
In addition, the company would face competition from companies focused on providing middlewareto facilitate end-to-end wireless messaging solutions. Companies in this category include Motorola,IBM Corporation, Microsoft Corporation, Notify Technology Corporation, Openwave Systems, SevenNetworks, Sybase, and Visto Corporation. A variety of approaches are being pursued as diversehandset and handheld vendors attempt to provide mobile access to corporate data.These approachesinclude smartphones, PDA’s, wireless PDA’s, phone/PDA hybrids, converged voice and data devices,a variety of middleware offerings and other end-to-end integrated wireless solutions. Intensecompetition could increase pricing pressure on the company.
International business risks
The company generated a significant amount of revenues from geographies which lie outside NorthAmerica. Sales outside North America represented approximately 34.8% of revenues in fiscal 2007compared to 26.7% of revenues in fiscal 2006. The company intends to continue to pursueinternational market growth opportunities, which could result in a scenario where international salescontinue to account for an increasing portion of the company’s consolidated revenues.The companyhas committed, significant resources to its international operations and sales and marketing activities.The company also maintains offices in Canada, the US, the UK, Japan, Hong Kong, France, Italy,Germany, Australia, Singapore, Spain, and China. The company would be subject to a number ofrisks associated with international business activities, which would increase liability, costs, andlengthen sales cycles.
The company is also exposed to foreign exchange risk as a result of transactions in currencies otherthan US dollar functional currency. The majority of the company’s revenue and purchases of rawmaterials are denominated in the US dollars. However, some revenue, are incurred in other currencies,primarily Canadian dollars. Any appreciation of Canadian Dollar relative to the US Dollar wouldincrease the company’s Canadian dollar denominated expenses when translated to the US dollarsfor financial reporting purposes. Exchange rate fluctuations may adversely affect the company’soperating results in future periods.
Economic slowdown in the US
The US is key market for RIM. According to IMF, the real GDP growth rate for the US would declinefrom 2.9% in 2006 to 1.9% in 2007. Against the background of recent turmoil in financial markets,very weak housing market indicators and consumer sentiments, IMF has recently lowered itsprojections for the US growth in 2008 by 0.9% to 1.9%. Economic slowdown in the country wouldlead to reduced IT spending, which would affect the revenues of the company.
A joint statement by Jim Balsillie, Co-Chief Executive Officer and Mike Lazaridis, President andCo-Chief Executive Officer of Research In Motion is given below. The statement has been takenfrom the company’s 2007 annual report.
Fiscal 2007 was a year of opportunity and accomplishment for Research In Motion (RIM). Neverbefore has RIM delivered as many new products, entered as many markets, or formed as manypartnerships. These initiatives significantly expanded the reach of the BlackBerry platform duringthe past year and have set the stage for an exciting fiscal 2008.
We are grateful to our customers, partners and shareholders for their support throughout the year.Your confidence in our technology and business plans allowed the BlackBerry platform to continueits leadership around the world. We would also like to thank the Special Committee of the Board ofDirectors and their advisors who contributed to the in-depth review of RIM's stock option grantingpractices that was completed at the end of the fiscal year.We have already made significant progressto rectify matters identified in the review and we continue to evolve our processes to be consistentwith our philosophy of achieving excellence throughout RIM's operations.
During Fiscal 2007: Revenue grew 47% to over $3 billion; The BlackBerry subscriber account baseincreased to approximately 8 million; Over 1 million BlackBerry subscriber accounts were added ina single quarter for the first time; Over 100 new carrier partners were added across the globe; Severalgroundbreaking new smartphones were introduced, including the BlackBerry Pearl smartphone withbuilt-in camera and multimedia capabilities; the BlackBerry 8800 smartphone with built-in GPS; theBlackBerry 8703e smartphone for CDMA/EvDO networks and the BlackBerry 8707 smartphone forUMTS networks; BlackBerry Enterprise Server for MDS Applications and BlackBerry EnterpriseServer Express were launched; and The number of devices available with BlackBerry Connectsoftware more than doubled with over 50 devices now supported by 80 carrier partners worldwide.
We are also grateful to over 6,000 RIM employees whose talents and dedication enabled RIM toonce again achieve its goals and deliver strong financial performance for shareholders.
Financial Results and Administration
Revenue in fiscal 2007 grew 47% to $3.04 billion as compared to $2.07 billion in the previous year.Hardware represented the largest percentage of revenue at 73%, with service contributingapproximately 18% and software, accessories, and other revenue contributing the remainder.
Gross margin for the year was 54.6%, down slightly from the prior year. This decline was primarilyrelated to the increased percentage of revenue coming from smartphones, such as the BlackBerryPearl, that target broader market segments with lower average selling prices. We shipped over 6
million handsets during the year, up 50% from fiscal 2006, and experienced strong sell-through tonew customers as well as a robust replacement cycle from customers upgrading to newer BlackBerrysmartphones.
Operating expenses for the year increased slightly as a percentage of revenue. This increasestemmed from greater investments in software and hardware development, new marketing programsassociated with the launch of the BlackBerry Pearl into broader markets, as well as higheradministration expenses in the second half of the year.
U.S. GAAP net income in fiscal 2007 increased approximately 69% to $631.6 million.We are pleasedwith our results for fiscal 2007 and remain focused on growing the business and driving superioroperating performance as we move into fiscal 2008.
RIM’s balance sheet remains strong at the end of fiscal 2007 with negligible debt and $1.4 billion incash, cash equivalents, short-term investments and investments. This strong balance sheet givesus confidence that RIM has adequate resources to execute its plans and take advantage of strategicopportunities as we go forward.
RIM had approximately 6,250 employees at the end of fiscal 2007, up from approximately 4,700employees at the end of fiscal 2006. We continue to hire across all areas of the Company includingR&D, carrier support, business development, marketing, customer care and manufacturing.We alsocontinue to support co-op and new graduate programs from a variety of universities and colleges toensure that we have ongoing access to the best new talent available.
BlackBerry
In fiscal 2007, the BlackBerry subscriber account base increased to approximately 8 million from4.9 million the previous year. We were especially proud to have added over 1 million subscriberaccounts in the fourth quarter alone – more than the combined total added during the first 5 years.Our strategic investments in technology leadership, new market segments, global expansion, channelexpansion and the overall BlackBerry ecosystem helped drive our strong subscriber account growthin fiscal 2007.
RIM’s global presence continues to expand and BlackBerry smartphones were available on over270 networks in approximately 110 countries at the end of the fiscal year. Latin America presents avibrant market opportunity with over 40 carrier partners added in that region alone during fiscal 2007.We also entered the Japanese market for the first time this year with the launch of the BlackBerry8707, the first BlackBerry smartphone supporting UMTS network protocols. Europe has become animportant market for the BlackBerry solution and the new products and service plans launched thispast year, together with the momentum of our business relationships with European carriers, hasled to excellent growth in this region. At the end of fiscal 2007, approximately 28% of the BlackBerrysubscriber account base and 35% of overall revenue was derived from outside North America.
So far in fiscal 2008 we have also been active in launching new devices and have already broughtto market the BlackBerry Curve and the BlackBerry 8830 World Edition, the first BlackBerry
smartphone to allow roaming between CDMA/EvDO networks in North America and GSM/GPRSnetworks around the world.
BlackBerry in the Enterprise
The BlackBerry solution’s leadership in the enterprise market continues to be evident and there arenow over 100,000 BlackBerry Enterprise Server installations operating around the world. RIMcontinued to enhance BlackBerry Enterprise Server with powerful new administrative features forIT departments and innovative features for mobile users. BlackBerry Enterprise Server Express waslaunched for small businesses and BlackBerry Enterprise Server for MDS Applications was introducedto help meet the growing demand for mobile applications on the BlackBerry platform.
Last year RIM acquired Ascendent Systems, a leading provider of enterprise voice mobility solutionsthat enable single number reachability, real-time notification and conferencing, and voice continuity.Through this acquisition, the BlackBerry solution is now able to deliver the same style of seamlessintegration for enterprise voice that the BlackBerry solution brings to email. Corporations can nowextend the functionality and identity of the office desk phone to an employee’s BlackBerry smartphoneand take advantage of features such as 4 or 5 digit extension dialing, dial-out conference calling,desk phone caller ID and single number reachability, while increasing productivity and improvingmanageability of their mobile deployments. The availability of this functionality further strengthensand differentiates the BlackBerry solution.
BlackBerry for the Individual Buyer
During the past year, we also began a substantial effort to extend the reach of BlackBerry smartphonesbeyond the enterprise market. These efforts have included channel expansion, encouragement oflower carrier service pricing programs, introduction of consumer-friendly applications and the launchof new hardware platforms. The BlackBerry Pearl smartphone attracted many new users to theBlackBerry platform and received wide recognition for its unique blend of size, functionality and style.The BlackBerry Pearl, which is available in three colors, offers a camera, media player and all therenowned BlackBerry smartphone functionality in an amazingly small and stylish design. Thisoutstanding product launch exceeded our expectations and helped broaden our customer base. Atthe end of fiscal 2007, over 27% of the BlackBerry subscriber account base was non-enterpriseusers. As we progress in fiscal 2008, we are continuing to expand the appeal of BlackBerrysmartphones to broader market segments with new products, features and services such as theaddition of the Roxio Media Manager for BlackBerry, the launch of enhanced BlackBerry InternetService features and the launch of the new BlackBerry Curve smartphone, which is already receivingrave reviews.
Sales, Marketing and Channel Development
BlackBerry brand awareness continued to grow around the world during fiscal 2007. RIM and itspartners invested in a broad array of marketing initiatives to help expand the strength of the BlackBerrybrand beyond the enterprise market. A record number of product launches were executed with carrierpartners and RIM significantly expanded its indirect and third party distribution channels. At the end
of the year, the BlackBerry solution was available through over 100,000 retail points of presenceand growing. Additional efforts are underway to develop relationships with large national resellersand on-line distributors and RIM will continue to invest in training and supporting the traditional carrierenterprise and retail channels.
Network Operations
As the BlackBerry subscriber account base grows, we remain focused on delivering a high level ofreliability and service quality to our customers. We have been investing in the expansion of ourinfrastructure as well as our continuity of operations capabilities. The BlackBerry Infrastructureprocesses over a billion wireless data packets each day and we are dedicated to continuing toprovide the security, quality of service and scalability that customers have come to expect fromBlackBerry.
BlackBerry Application Ecosystem
Another important aspect of the BlackBerry platform is the support and added value it receives fromthe large number of independent software vendors (ISVs) and other partners that make up theBlackBerry application ecosystem. These partners develop and enable a wide variety of enterpriseand personal applications to work with BlackBerry smartphones. There are currently more than 600BlackBerry® Alliance Members offering BlackBerry applications for both enterprises and individuals.In addition to ongoing innovation in virtually every mobile application segment, it is particularly excitingto see partners taking advantage of GPS and multimedia capabilities to add new dimensions andvalue to the user experience.
RIM continues to provide an open, standards-based development platform and supports developerswith robust tools and technical assistance. In support of this goal, the BlackBerry Java DeveloperEnvironment (BlackBerry JDE) was recently launched. The BlackBerry JDE provides developersaccess to almost every functional component and application on a BlackBerry smartphone, includingthe camera, BlackBerry Messenger and GPS APIs, support for numerous audio formats for routingplayback, and XML and Web Services for use in application development. The BlackBerry JDE hasalready been downloaded by more than 125,000 registered developers and the growing BlackBerrydevelopment community is expected to significantly expand the number of applications available forthe BlackBerry platform.
R&D and Manufacturing
RIM’s focus on high quality engineering and performance remains a key competitive advantage.While the number of new products increased dramatically since last year, including the launch ofthe BlackBerry 7130e, BlackBerry 7130c, BlackBerry 8703e, BlackBerry 8707, BlackBerry Pearl,BlackBerry 8800, BlackBerry 8830 and BlackBerry Curve smartphones, RIM’s dedication to qualityand reliability never wavered. RIM’s company and culture has been built with an intense focus onquality. We have implemented the structures and processes to facilitate ongoing new productintroduction cycles without sacrificing our core quality values and we have achieved ISO 9001
certification. BlackBerry smartphone quality is consistently rated at or near the top by our carrierpartners and we are focused on maintaining this high level of performance.
RIM completed the expansion of its manufacturing facility in fiscal 2007, effectively doubling itsphysical footprint. We also continue to expand our outsourcing relationships to complement RIM’smanufacturing facility and to meet the growing demand for our products.
Licensing Programs
In fiscal 2007, the number of devices available with BlackBerry Connect software more than doubledto 50 devices available in over 80 countries. BlackBerry Connect v4.0 was also launched this pastyear and provides additional and enhanced capabilities to our partners including support for BlackBerryMDS, enhanced security features, wireless provisioning and additional wireless synchronizationfeatures.We also recently announced a BlackBerry application suite for certain Windows Mobile-baseddevices, which will enable a virtual BlackBerry application experience. The addition of this newsoftware is another important element of RIM's strategy to provide an open platform that supportsindustry standards and addresses the needs of both customers and partners.
Customer Care
RIM’s Customer Support Operations team has grown dramatically over the past year in order tosupport the global expansion of our customer base and offers 24x7 support for BlackBerry customersaround the world. In the past year, we opened two new support centers while continuing to expandthe existing facility at our headquarters. Capabilities within the group have also grown to include aprofessional services organization, an extensive array of educational programs, an incident-basedtechnical support team and an operational excellence team focused on regulatory compliance, qualityassurance and customer satisfaction. In the past year, we have also seen 68% growth in revenuefrom our contractbased technical support programs, with over 20,000 contracts now in place. RIM’sfocus on customer care and support is another strong competitive advantage.
The Year Ahead
As we move forward into fiscal 2008, we are as excited as ever about the prospects ahead. Alreadythis year, we have announced several new hardware and software products that open major newopportunities for RIM. Throughout the remainder of the year our goals are to:
Deliver additional high quality smartphones, software and services to address multiple marketsegments;
- Expand our product portfolio to include support for emerging network technologies;
- Grow our enterprise customer base through enablement of value-added applications and theintegration of desk phone functionality into BlackBerry Enterprise Server;
