Blackberry 2013 Annual Report Download - page 191

Research In Motion Limited
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Hardware revenue was $6.6 billion, or 60.0% of consolidated revenue, in fiscal 2013 compared to $13.8 billion, or 74.9% of
consolidated revenue, in fiscal 2012, representing a decrease of 51.8%. This decrease in hardware revenue over the prior fiscal year
was primarily attributable to a decrease in the volume of BlackBerry handheld devices shipped by approximately 20.9 million, or
42.7%, to approximately 28.1 million BlackBerry handheld devices in fiscal 2013, compared to approximately 49.0 million
BlackBerry handheld devices shipped in fiscal 2012. The decline in the volume of BlackBerry devices shipped was primarily a result
of decreased demand for the Company’s aging product portfolio in a very competitive environment in which multiple competitors
introduced new devices beginning in early fiscal 2013. The Company introduced the first BlackBerry 10 smartphones in certain
countries starting on January 31, 2013. The overall decrease in revenue in fiscal 2013 is also attributable to a decrease in average
selling prices of BlackBerry 7 handheld devices in fiscal 2013 compared to fiscal 2012 due to the continuation of pricing initiatives to
drive sell-through, partially offset by the higher average selling prices of BlackBerry 10 devices. However, the impact of BlackBerry
10 smartphone sales on total revenue for fiscal 2013 is modest since they were only available in certain markets for one month or less
prior to the end of fiscal 2013. Delays in the introduction of the BlackBerry 10 smartphones resulted in certain of the current
BlackBerry 7 product line being in the market for over one year, which contributed to declining unit shipments and a loss of market
share in fiscal 2013 as some customers either awaited the launch of the new BlackBerry 10 smartphones or switched to devices of our
competitors. The initial early global demand for the BlackBerry Z10 smartphone has been better than the Company anticipated. The
Company only recently started selling the BlackBerry Z10 smartphone in the United States and the launch is meeting the Company’s
early expectations. BlackBerry 10 smartphones are being launched in phases and will continue over the next several quarters with
various devices and all the major carriers. The Company announced that the BlackBerry Q10 smartphone will be launched in
international markets beginning in April 2013, and the Company intends to launch lower costs versions of BlackBerry 10
smartphones later this year.
The number of BlackBerry PlayBook tablets shipped during fiscal 2013 was approximately 1.1 million, representing a decrease of
0.2 million units compared to the prior fiscal year. Overall, BlackBerry PlayBook tablet shipments have experienced lower than
anticipated sell-through to end users due mainly to intense competition in the tablet market, especially in the United States. During
fiscal 2013, the Company continued its ongoing promotional activities to encourage sell-through of the BlackBerry PlayBook tablets.
The Company sold out of the 16G BlackBerry PlayBook tablets in the second quarter of fiscal 2013 and is continuing to sell its 32G
and 64G units as well as the 3G plus BlackBerry PlayBook tablet and 4G LTE BlackBerry PlayBook tablet, which launched in fiscal
2013.
Service revenue decreased by $164 million, or 4.0%, to $3.9 billion, or 35.3% of consolidated revenue, in fiscal 2013, compared to
$4.1 billion, or 22.1% of consolidated revenue, in fiscal 2012. The decrease in service revenue is primarily due to the net decrease in
BlackBerry subscriber accounts. The total BlackBerry subscriber base was approximately 76 million as at the end of fiscal 2013, a
decrease of approximately 1 million since the end of fiscal 2012. The decrease in service revenue also reflects a decrease in average
revenue per user (“ARPU”). The decrease in ARPU resulted from recent pricing reduction programs implemented by the Company to
maintain the subscriber base as well as a shift in the mix of the Company’s subscriber base from higher tiered unlimited plans to
prepaid and lower tiered plans. BlackBerry tiered service plans continued to drive growth in the Company’s subscriber base in fiscal
2013, specifically outside North America. The Company anticipates a single digit percentage decline in service revenue in the first
quarter of fiscal 2014, the impact of which is expected to be partially offset by cost savings related to the CORE program. Service
revenues will continue to be generated by current and future users of BlackBerry 7 devices and the Company plans to continue to sell
and launch new BlackBerry 7 devices in certain markets outside of the United States in fiscal 2014. As the business migrates to
BlackBerry 10, the Company plans to enhance the business offering with new value-creating services including new services for the
Company’s strong BBM base; possible licensing of the BlackBerry 10 platform; the creation of cross-platform offerings; services that
leverage BlackBerry’s social media community; advanced security tools and additional enterprise services. Please refer to the
“Overview – Sources of Revenue” section for further discussion of service revenue and the Company’s subscriber base.
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