Blackberry 2005 Annual Report Download - page 25

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The Company expects this net migration to continue in fiscal 2006 as data-only BlackBerry subscribers
upgrade to voice-enabled handhelds. Consequently, the average monthly revenue per subscriber is expected
to continue to decline in fiscal 2006 as a result of: i) the aforementioned net migration; and (ii) the continuing
net increase in the BlackBerry subscriber base attributable to relay access subscribers for which RIM receives
a lower monthly service fee from its carrier customers.
Software revenues include fees from licensed BES software, CALs, technical support, maintenance and
upgrades. Software revenues increased $84.4 million to $131.8 million in fiscal 2005 from $47.4 million
in fiscal 2004, as a result of increased sales of BES software, particularly with the introduction of the new
BES 4.0 during the fourth quarter of fiscal 2005, and increased sales of CALs consistent with the growth
in BlackBerry subscribers.
Other revenue, which includes accessories, non-warranty repairs, NRE, technical support, OEM radios, and
other, increased by $16.8 million to $49.6 million in fiscal 2005, compared to $32.8 million in fiscal 2004.
Growth in revenue streams such as accessories, NRE and non-warranty repair was partially offset by a
reduction in OEM radio revenue in fiscal 2005.
Gross Margin
Gross margin increased by $443.3 million, or 163.4 %, to $714.5 million, or 52.9% of revenue, in fiscal 2005,
compared to $271.3 million, or 45.6% of revenue, in the previous fiscal year. The net improvement of 7.3%
in consolidated gross margin percentage was primarily due to the following factors:
•Software revenues at $131.8 million comprised 9.8% of the total revenue mix in fiscal 2005, compared to
$47.4 million and 8.0% respectively in fiscal 2004;
•An increase in NRE revenue in the current year;
•Improved service margins resulting from cost efficiencies in RIM’s network operations infrastructure as a
result of the increase in BlackBerry subscribers;
•Reductions in handheld unit warranty rates and net warranty expense (see “Critical Accounting Policies and
Estimates – Warranty” and note 13 to the Consolidated Financial Statements); and
•A decline in amortization expense as a percentage of consolidated revenue, as the Company continues to
realize economies of scale in its manufacturing operations.
23
For the years ended February 26, 2005, February 28, 2004 and March 1, 2003
17.4%
Service
69.2%
Handhelds
9.8%
Software
28.8%
Service
57.7%
Handhelds
Revenue Mix Fiscal 2004Revenue Mix Fiscal 2005
3.6%
Other
8.0%
Software
5.5%
Other