Blackberry 2012 Annual Report Download - page 209

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
manufacturing partners for units or materials relating to those products. The Company has also encountered challenges due to the
impact of BYOD strategies being adopted by some of its enterprise customers, as some IT departments that previously required
employees to use the BlackBerry wireless solution because of its emphasis on security and reliability are permitting employees to
choose devices offered by the Company’s competitors. The Company expects that the anticipated launch of BlackBerry 10
smartphones will strengthen its position in the BYOD enterprise segment. The Company will also continue to seek partnerships that
will further enable RIM to have a complete BYOD offering.
Excluding the impact of the Q4 BlackBerry 7 Inventory Provision, the decrease in consolidated gross margin was $785 million or
32.0%. The decrease in consolidated gross margin percentage was due to a lower volume of BlackBerry handheld devices shipped
and a shift in the mix of BlackBerry handheld devices sold during the fourth quarter of fiscal 2012, which were weighted towards in-
life products with lower average selling prices and gross margins. This decrease is partially offset by higher service revenue as a
result of additional subscriber accounts, which comprised 27.3% of total revenue mix in fiscal 2012 compared to 16.2% in fiscal
2011. As noted above, gross margin percentage for devices is generally lower than the Company’s consolidated gross margin
percentage.
In the first quarter of fiscal 2013, the Company expects the product mix shifting even further towards lower priced handsets to support
growth in prepaid and entry level markets as well as the late stage of the product life cycle for the Company’s current portfolio of
smartphones. The Company also plans on adopting more aggressive pricing initiatives in smartphones to increase the sell-through and
sell-in of BlackBerry 7 smartphones. Based on these trends and the Company’s more aggressive selling initiatives for Blackberry 7
smartphones, the Company expects smartphone gross margins to face ongoing pressure, which it anticipates will be partially offset by
a higher percentage of service revenue as a proportion of consolidated revenue.
Operating Expenses
The table below presents a comparison of research and development, selling, marketing and administration, and amortization
expenses for the quarter ended March 3, 2012, compared to the quarter ended November 26, 2011 and the quarter ended February 26,
2011. The Company believes that it is meaningful to also provide a comparison between the fourth quarter of fiscal 2012 and the third
quarter of fiscal 2012 given that RIM’s quarterly operating results vary substantially.
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