Ladies and gentlemen, thank you for standing by. Welcome to Research In Motion's Second Quarter Fiscal 2012 Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded today, Thursday, September 15, 2011, at 5:00 p.m. Eastern Time. And I will now turn the conference over to Mr. Paul Carpino, Vice President of Investor Relations. Please go ahead.

Thank you, Luke. Welcome to RIM's Fiscal 2012 Second Quarter Results Conference Call. With me on the call today are Jim Balsillie and Mike Lazaridis, Co-CEOs; Brian Bidulka, CFO; Edel Ebbs, Senior Vice President, Investor Relations. After I read our cautionary note regarding forward-looking statements, Jim and Mike will provide a business and strategic update. Brian will then review the second quarter results, and Edel will discuss our outlook for the third quarter of fiscal 2012. We will then open the call up for questions. This call is available to the general public via call-in number and via webcast in the Investor Relations section at rim.com. The webcast include supporting slides that can viewed through your personal computer or your BlackBerry PlayBook tablet. A replay of the webcast will also be available on the rim.com website. We plan to wrap up the call before 6 p.m. Eastern this evening. [Operator Instructions]. Some of the statements we will be making today constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. These include statements about our expectations and estimates with respect to product shipments, revenue, gross margin, operating expenses, CapEx, depreciation and amortization, earnings, channel inventory and seasonality for Q3 and beyond; our expectations regarding RIM's near- and long-term tax rates; our product development and marketing initiatives and timing, including our expectations relating to the BlackBerry PlayBook and the QNX operating system; our expectations regarding our cost optimization and share repurchase programs; developments relating to our carrier partners and other statements regarding our plans and objectives. We will indicate forward-looking statements by using words such as expect, plan, anticipate, estimate, may, will, should, forecast, intend, believe, continue and similar expressions. All forward-looking statements reflect our current views with respect…

Thanks, Paul. RIM shipped approximately 10.6 million smartphones in the second quarter, and the BlackBerry subscriber base is now over 70 million. RIM was approximately -- revenue was approximately $4.2 billion, and service revenues surpassed $1 billion for the first time in RIM's history, reflecting the over 40% growth in our subscriber base over the past year. The lower-than-expected unit shipments in Q2 reflected lower shipments of in-life products as customers work through inventory and awaited the launch of new BlackBerry 7 smartphones. Sell-through of BlackBerry smartphones in Q2 was the second highest ever at 13.7 million. Shipments of the BlackBerry 7 smartphones in the quarter were near the high end of our expectations but we're shipping for only 3 weeks and across just a portion of our carrier and partner network in Q2. BlackBerry 7 smartphones launched on schedule and have been enthusiastically received by our partners and customers for their blend of technical performance and industrial design. Mike will give further details on some of the launches later in the call. Demand for BlackBerry smartphones was strong across all regions. BlackBerry 7 launches occurred over the past few weeks in most regions around the world, although rollouts in Latin American and parts of Asia will predominantly start this quarter. In North America, BlackBerry 7 smartphones are having an excellent reception and have driven a meaningful increase in sell-through in the region during the last few weeks of the quarter and so far in September. In the last week of Q2, BlackBerry 7 smartphones accounted for approximately 35% of our overall sell-through in North America. Outside of North America, sell-through increased almost 50% in the first 2 weeks of Q3, driven by the launch of the new Bold 9900. With new BB7 smartphones that are already available in North…

Thanks, Jim. We're very pleased with the recent launch of our 7 new BlackBerry 7 smartphones. The combination of the BB7 operating system capabilities, the high-performance processor and the best hardware designs we've had to date has been well received by our partners around the world. In the first several weeks of the launch, 147 launches have occurred with approximately 90 carriers in 30 countries, and we've achieved over 600 certifications currently at 250 carriers. We're also excited to have already received 118 carrier certifications for our new BlackBerry 7-based Curve, the highest volume BlackBerry smartphone ever, which we expect to be launched by 165 carriers around the world in Q3. This is the largest and most successful global launch of BlackBerry smartphones in our history. On top of the powerful hardware enhancements, including upgraded processors, displays and memory, BlackBerry 7 devices offer faster web performance with industry-leading JavaScript performance, liquid graphics, the world's best mobile QWERTY keyboard on the BlackBerry Bold 9900 and NFC capabilities. The seamless integration between hardware, software and platform has not gone unnoticed, and BlackBerry 7 devices have been getting great reviews for their robust performance and exciting industrial design. In addition, we have secured more than 200 separate carrier promotions around the world for BlackBerry 7 smartphones, and we plan to build on the strong foundation of support. The NFC implementation on BlackBerry 7 is already showing itself to be a differentiator in the enterprise market. Just today, it was announced that the new NFC-enabled BlackBerry Bold and BlackBerry Curve will be the first smartphones with high-class functionality with digital keys and identification, secure access to buildings, offices and networks. This is the first in the development of mobile access and identity solutions using NFC technology on smartphones, and we're excited to be part…

Thank you, Mike. Revenue for the second quarter of fiscal 2012 was $4.2 billion, primarily reflecting the lower number of BlackBerry handheld devices and PlayBook shipped. RIM shipped 10.6 million smartphones and 200,000 PlayBook tablets during the second quarter. Shipments of new BB7 products in the quarter were near the high end of our expectations. Overall smartphone shipments were impacted by lower shipments due to high channel inventory of older in-life products. Channel inventory levels of the new BB7 products are relatively low and inventory of the older products was drawn down in the quarter. Service revenue increase by $232 million year-over-year, surpassing $1 billion for the first time ever, reflecting the strong growth in RIM's BlackBerry subscriber base. Software revenue increased by $7 million year-over-year to $78 million. On a geographic basis, sales outside the United States, United Kingdom and Canada represented approximately 56% of the total consolidated revenue. Some of the larger markets in the quarter were South Africa, Indonesia, Western Europe, Middle East and Latin America. U.S. sales were 27% of total consolidated revenue. Sales in the U.K. represented approximately 10%, and Canada represented the remainder. Hardware revenue was 73% of sales, with services, software and other representing 27%. Estimated sell-through in the quarter was approximately $13.7 million, including phone-only sales. This was the second highest level of sell-through in RIM's history. We expect this to increase significantly as BlackBerry 7 products continue their global rollout, and the early data from the first few weeks of launch supports this, as Jim mentioned. ARPU was slightly lower than the last quarter primarily due to an increasing percentage of tiered BIS plans and prepaid customers in the mix. Gross margin was 39% in the quarter, reflecting higher service revenue in the consolidated mix as well as lower PlayBook sales,…

Thanks, Brian. Before I discuss the outlook for Q3, I'd like to remind everyone that these forward-looking statements reflect management's best current estimates and should be taken in the context of the risk factors listed at the beginning of the call and disclosed in our public filings. We expect total revenue for Q3 to be in the range of $5.3 billion to $5.6 billion, which includes BlackBerry smartphone shipments of between 13.5 million and 14.5 million units, which is a sequential increase of between 27% and 37%. The broad acceptance of BlackBerry 7 products across our channels and a higher-than-normal degree of order coverage for this point in the quarter relative to Q2 gives us confidence in our Q3 unit shipment forecast. We expect gross margins to be approximately 37%. This decrease versus Q2 reflects the lower percentage of service revenue in the mix and the anticipated implementation of a number of programs designed to increase PlayBook sell-through. Total operating expenses are expected to be flat to slightly higher in Q3 as benefits from the cost optimization program are offset by increases in R&D costs of approximately 13% and launch in holiday sales activities. We expect total SG&A to decrease by approximately 5%, and we expect depreciation and amortization to be approximately $150 million. We expect CapEx to be approximately $200 million in Q3. We expect Q3 adjusted diluted EPS, excluding charges related to the cost optimization program, to be in the range of $1.20 to $1.40 per share diluted. Adjusted diluted earnings per share for the full year of fiscal '12, excluding the impact of charges related to the cost optimization program, is expected to be towards the low end of our previously guided range of $5.25 to $6. This reflects increased costs associated with programs to drive PlayBook sell-through as well as the lower-than-expected revenue in the second quarter. This concludes our formal remarks, and I'd like to ask the operator to open up the call for questions. I'd also like to ask you to limit your questions to one, please.

[Operator Instructions] Your first question today comes from the line of Mike Abramsky of RBC Capital Markets.

I'm just trying to understand, you appear quite confident about BlackBerry 7 giving you a window to QNX, if I properly paraphrased your comments. I'm just wondering why you feel that confidence given that sell-through is obviously coming below than what you previously expected? And I know that this was transitional, but you talked about last quarter also that there were product transitions leading to your lower guidance. I'm just wondering if in the big picture there is a risk that BlackBerry 7 share losses in North America -- or your overall share losses in North America, sorry, may not be helped as much by BlackBerry 7. We might see some additional losses and perhaps even some more impact from Android before QNX starts to kick in.

Well, Mike, this is Jim, and we've already seen a meaningful increase in sell-through and decreased churn in North American carriers who have launched BB7 handsets. And we have plans to more than double the number of models available in the U.S. and increase the number of channels selling the products, which should further improve our position in the U.S. So this gives us a lot of confidence, coupled with the reviews and the competitive performance that this product has got a tremendous amount of runway that's going to service extremely well.

This is Mike. In the last week of Q2, BlackBerry 7 accounted for approximately 35% of the overall sell-through in North America, and Mike, outside North America, sell-through increased approximately 50% in the first 2 weeks. And I know this is early, but these are really good results for a completely new product launch.

Is there a risk that the sustainability of that may taper off following the early upgrade cycle from what are obviously your most loyal fans?

No. I think the BlackBerry Bold 9900 and 9930, I mean, is just a -- one is seen as a thing of beauty to behold. I mean, it's getting great reviews around the world, and people are really enjoying the new BlackBerry 7 experience.

And Mike, it's also not -- I mean, we've seen big increases in sell-through, but we've also seen increase in mix. So it's not just replacement customers that are buying these new products. It's being driven by both.

Your next question comes from the line of Jim Suva.

With the gross margins being lower, can you talk about is this a new one time item or a new level that we're looking at? You'd mentioned that it's being materially impacted by the PlayBook. Can you help us understand the disappointing gross margin outlook?

It's Brian here. Our second quarter gross margin was really reflected a 24% mix of the service revenues. So it was a strong mix in the overall gross margin on the service side. So I think what we're seeing is just the impact of handheld being a larger portion of mix in our Q3 forecast than we had in Q2.

I have a quick follow-up on QNX timing, I believe Jim used to say early calendar next year. Is that still on track? Or is there any link to the Android player later not being on PlayBook about that potentially impacting the rollout timing of QNX?

Well, we've got a lot of planned announcements at DevCon in October, and we've got -- we'll be announcing our new development platform for QNX and our QNX-based phones. We'll be launching the development phones, so that people can start experiencing the QNX phones and the applications. So we've got a lot of things planned. At this point, we want to be careful not to give up too many of our secrets and specifications of the product and delivery dates. But we're very excited, and the fact that we've already got the development phones operating right now and we're testing them is a great sign.

And the idea of an Android player being a factor in launching a QNX phone is not a factor at all.

Your next question comes from the line of Jeff Kvaal of Barclays Capital.

I was wondering if we could follow up on the gross margin question a little bit. Obviously, gross margins have come in a decent amount over the past couple of quarters. To what extent is 37% of the way that we should think about that going forward? To what extent the PlayBook promotion is one-time and therefore, what should we assume though what's happening in the underlying hardware gross margins?

This is Edel. Yes, I mean, obviously, in the older products, the gross margins as they tail off in their life cycle are a lot lower. The BlackBerry 7 new handsets have a much better gross margin profile. In terms of the impact on gross margin from the PlayBook activity that we're going to be undertaking over the next few months, it's going to be more than one quarter impact. So you have all those dynamics playing in the gross margin. I wouldn't -- I mean, the BlackBerry 7 handsets do have good margins, so I wouldn't try to read too much into that.

Okay. So theoretically then, if the mix of BB7 is picking up, that would be helpful due to the margin structure in, let's say, fiscal fourth quarter into 2012?

That's correct.

Your next question comes from the line of Tavis McCourt of Morgan Keegan. Tavis C. McCourt - Morgan Keegan & Company, Inc., Research Division: Mike, I wanted to follow up, you mentioned a couple of things we should expect on the next version of the PlayBook operating system, and you said native email. Does that specifically mean BES integration? And would you expect BES integration as one of those key applications that you would want to get right before launching a QNX phone?

That's a great question. I mean, the great thing is that we can upgrade the PlayBook, and our customers are all benefiting from very simple, effortless wireless upgrade that they've become accustomed to. And certainly, the PlayBook 2.0 release is going to be something that they're looking forward to, and I expect them to be very, very happy with. The built-in native email calendar and contacts of course will work with BES, but it will also work with email services. So it's something that some customers have been waiting for. Certainly, the BlackBerry Bridge solved the immediate security and deployment issues that some of the enterprise customers and some of our government customers were challenging us to solve, and it was a very successful implementation that solved those particular security and deployment challenges. But I think our customers have been waiting for the native email, calendar and contacts, and certainly, that will work with BES and it will also work with the basic email service. Tavis C. McCourt - Morgan Keegan & Company, Inc., Research Division: Okay. And can you talk about -- I guess, this might be for Edel. The 13% sequential growth in R&D expectation for Q3, normally we see that was kind of prior to big launches. But what is driving that specifically sequentially?

I mean, there's a lot of different activities going on in R&D, some of it is development activities. We also mentioned certain programs that are going on in terms of key talent, traction and retention.

Your next question comes from the line of Jason North of Jefferies. Peter Misek - Jefferies & Company, Inc., Research Division: It's Peter Misek. Just a couple of quick questions on free cash flow if I may. So as we look out for the rest of the year in terms of free cash flow target, at what point and what level should we think about cash on hand and then your comfort level with doing buyback? Should we think that the current level is what -- is sort of the baseline, anything above this we should consider for a buyback? Or do you think there needs to be a bigger cushion potentially for more components or working capital?

Peter, it's Edel. I mean, I think we always, when we're looking at uses of cash, I mean, we take into account all the different opportunities open to us. And as you saw last quarter, there was an opportunity to participate in the Nortel consortium. That took some other alternatives off the table. We undertake that same process whenever there are opportunities available and that would apply to any future potential buyback. Peter Misek - Jefferies & Company, Inc., Research Division: Just one quick follow up on those patent things. It appears that your patents, particularly in security, seem to be quite strong. I guess, I'm surprised we haven't heard of headline or read that RIM was potentially seeking royalties from other handset makers that I think would need your technology to be going into the enterprise or be going into government. I'm curious as to your thought process there.

Patents is a pretty complex, multifaceted game. I think we've done a pretty commendable job of fortifying ourselves and not someone who's attractive to be pursued by another practitioner. So I think that's been a real strength of ours, and I think we've done a very good job of managing the complex IP stuff that's at play. With all the activities of people spinning them off and trying to create a next-generation set of activities in IP, this is something that obviously one has to strategically look at. But we have nothing to comment on this time. But I think the patents we've acquired in the past and the royalty structure that we've managed and the protection for the company as well as all the, literally, thousands and thousands of patents we filed in our innovation the last few years has fortified the company extremely well in this patent game.

Your next question comes from the line of Simona Jankowski of Goldman Sachs.

Could you just help us think about the transition from BlackBerry 7 to QNX? And even if you're unable to give any specifics, but just conceptually, if we think about it a year from now, would you expect the majority of your unit volume to be on QNX or BlackBerry 7?

Well, one of the things that you have to be very careful with transitions, so as we've talked about before, it takes a lot of work to do them properly. And one of the things that you're going to find is nothing happens right away. BlackBerry 7 is seen as a hugely successful upgrade to the BlackBerry family. BlackBerry 7 with the BBM platform is becoming very, very popular, and there is a transition opportunity that we've discussed and we'll be showing more at DevCon, where we're able to use the WebWorks and HTML5 framework, which is identical on both the BlackBerry 7 and QNX-based next-generation. I suspect that we're going to see strong growth in both, and they have different market segments and different appeal around the world. But I would say that we have 2 very strong platforms, and they're targeted at 2 different markets, and I expect that -- I expect both of them to have a very strong and long term coexistence.

Okay. So it sounds like even if we're looking 12 months out, BlackBerry 7 would likely still be the majority of your volume, and QNX will be more the overlay on top of that more targeted at the high end?

That's a good summary, yes.

Your next question comes from the line of Mike Walkley of Canaccord Genuity.

Just want to follow up a little bit on the full year guidance. Clearly, you are not going to talk about new product launches, but it appears on my math that you return to and be a record quarter or return to year-over-year growth in your February quarter. Can you help us just reconcile maybe some of the assumptions there given you've talked about a multi-quarter promotional activity on the PlayBook? Is it just more BlackBerry 7 ramp into the out quarter, or is it new products? Or maybe you can just help us reconcile that big recovery in the last quarter of the fiscal year?

It's definitely BlackBerry 7. I mean, it really has only been in the market a few weeks, so it's really just starting to ramp. I mean, Mike gave some really great stats there in terms of certifications that are underway or being granted, but yet haven't rolled out yet. That activity is going to continue into Q3 and Q4, and there's other BlackBerry 7 products that we haven't announced yet as well that will be part of driving some of that growth into the end of the fiscal year.

And the gross margin mix as well will be improved with BB7 products as Edel mentioned.

Okay. Great. And do you feel like you have good carrier promotions into the holiday selling season to support the continued ramp?

Absolutely, yes. The carriers are behind it big time.

Your next question comes from the line of Ehud Gelblum of Morgan Stanley.

First, just to confirm what you were talking about before, Edel, and I think maybe Jim on the gross margins, that it sounds as though the BlackBerry-only gross margins, if we were not to look at the dilution from PlayBook, sounds like they may actually be flat to up. I just want to confirm that that's true, and that the total gross margins declined and the device business is coming from the PlayBook discounts and that we're actually seeing an uptick on the BlackBerry. And then if you look at the -- Brian, you look at the geographic split you gave, which I thought that was very interesting. For the first time, and I think in 6 quarters, the U.S. did not go down as a percent of total revenue. It was the same 27% it was last quarter. And I understand that you had very strong last 2 weeks of the quarter with the BlackBerry 7 launches. But if you can give us a hint as to what happened on the subscriber side to help that out? Did subscribers decline in the U.S., or did they stay flat? Or did they actually grow in line with kind of what we're looking at in the total revenue? If you could give us a sense of that, it would be terrific.

Ehud, your analysis on the gross margin is accurate.

Yes, that's correct.

I mean, as you know, we don't give the net numbers anymore. We've seen some really good growth in the base. We did give some stats on the increases and improvements in North America, and what we saw sell-through increase 50% in the first couple of weeks of the third quarter. In order to support that kind of growth and sell-through, you obviously have to ship a reasonable amount to support that. So the BlackBerry 7 launch, I would say it's been going really well and helping us out a lot in North America.

Okay. Can you give us a sense as to what the subscriber breakdown looks like and how U.S. subscribers did?

We don't disclose that anymore.

Okay. I'll try one last separate thing. Mike, can you give us a sense as to on the patent buy that you had, the $780 million? Can you explain to us what you got? Are you now, all 6 of you, jointly owning those patents? It's something I haven't quite been able to understand. Or did you each buy a particular subset of those patents? And if you're jointly buying, purchasing them, what's the structure of that? And how are those patents -- how can those patents be used? Does it need the consensus of all 6 parties? Or if you can just give us a little explanation behind that?

There's a structure where all the participants got license to the patent, so they're protected from them. And there are a lot of patents, and they're quite broad. And then there was an element of drafting for particular ownership and certain ones are in approval. So it gives unique opportunities to both protect and monetize, as well as collective opportunities to monetize as well as assurance that the group will not be asserted by those patents. So those are the 3 aspects of benefit we got from them.

And we can't really talk a whole lot more about it right now.

Your next question comes from the line of Gus Papageorgiour of Scotia Capital.

Brian, a question for you. So in the last quarter, it looks like you sold through about 100,000 more than you shipped into the channel. And this quarter, it looks like you sold through about 2.9 million more than you shipped into the channel. So you brought the channel by about 3 million units over the last 2 quarters. How much more is there to go before the channel inventory is at a level where you start to see that once again?

That's a good question. I think it's an indication that there was a tremendous interest in the new products. And so I mean, that's -- the good news is we shipped these products when we said. I think the good news is demand was as high for everything. We could ship and much more. I think the reality was that in beating up to this anticipation, they cleaned out channels. So this is a remarkable transition we've completed, and it's pretty hard to believe there's a lot more to go in terms of the capacity to squeeze that down.

So do you think maybe next quarter or maybe Q4 that you'll be feeding the channel again? Or how much longer before that goes back to kind of your normal levels where you're starting to ship product into the channel?

I mean, Gus, it's tough to say exactly. We kind of have to look at it in terms of in-life product and new product. I mean, obviously, the channels are pretty lean in terms of the new product. There's lots of opportunity to ship there, which is supporting the guidance that we gave. In terms of in-life product, I mean, there's still a lot of demand for those products. As Jim said, we had the second-largest quarter ever in terms of sell-through last quarter, and that was with the majority of it being the in-life stuff. So there's still a lot of demand for those products, so you expect that to continue to draw down. It's tough to comment on exactly what a normal level is because it's kind of related to the life cycle.

Your next question comes from the line of Tim Long of BMO Capital Markets.

If you could just -- you've had a pretty good run at the low end of the entry level of the smartphone market with 8520 and 9300. Could you talk a little bit about what's going on there from a market share perspective? Are you seeing more Android? And when will we see a BlackBerry 7 phone to address more of the entry level? And relating it back to channel inventory, do you think a lot of that channel burn was also in this low end of the segment of the market? Or do you think it was more Bold type of products?

We've just launched -- we received 118 carrier certifications of the new BlackBerry 7-based Curve, which is our entry-level category, and it's also our highest volume BlackBerry smartphone ever, the Curve line. We're expecting to have it launched now by 165 carriers around the world next quarter in Q3. So we're pretty excited about BlackBerry 7-based entry-level devices and the new Curve. So we're -- I would think that the BlackBerry 7 launch has been very successful. It was our largest and most ambitious launch, global launch in our history. I think you're getting a sense of the scale at which we're operating as a global company.

In terms of the channel inventory, I mean, it's really across-the-board, although Brian did mention that there was some mix impact on gross margin in in-life products in the quarter due to the lower ASP products, which leads more into that entry-level category.

And Mike, just following up, is that -- I mean, is the Curve BlackBerry 7 going to be low end enough? Are you going to need to still support 6.0 to get even lower if price points move down because of Android? Or can you get down into the $100 price points with 7?

One of the things, I have a saying, "there's no step function in business." I mean, these -- the markets -- it's such a large scale when you start to look at the global telecom market and all the carriers, the 600 carriers around the world that we work with. These products are very successful. Their users love the BlackBerry around the world, and these products have a long life to them. And so again, I don't see anything as a step function. I see it as a blending, and I expect the BlackBerry 6 devices to continue to sell as we ramp up the BlackBerry 7.

Thanks, operator, and thanks to everyone for listening to the call. I'd like to remind everyone that there is a replay service available at (416) 640-1917, passcode 4466490 and the pound sign, where you could also listen and watch the webcast, which has been recorded and will be available to the Investor Events section of our website at rim.com/investors. Thank you.

Thank you. Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation, and you may now disconnect your lines.