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Research In Motion (RIM) 2009 Annual Report

June 09 2009

Research In Motion (RIM) 2009 Annual ReportYear In Review
The following discussion contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws, including statements relating to RIM’s plans and expectations for fiscal 2010.

Many factors could cause RIM’s actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, as described below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Special Note Regarding Forward-Looking Statements.”

Fellow Shareholders:
Fiscal 2009 was another year of exceptional growth for Research In Motion (RIM). The BlackBerry subscriber account base grew by almost 80% in fiscal 2009, driven by strong sales in both enterprise and consumer markets as well as exceptional market acceptance of the new BlackBerry products launched throughout the year. We are also pleased to report that BlackBerry was the number one selling smartphone brand in North America.

2009 marks the 10th anniversary of the BlackBerry wireless solution, and we are proud to have recently shipped our 50 millionth BlackBerry smartphone. RIM also achieved record financial results with strong revenue and earnings growth, and maintained a strong balance sheet with over $2 billion in cash and investments and no debt.

RIM introduced an unprecedented number of new smartphones during the year, with the majority launched in the second half, and continued to expand the reach of the BlackBerry platform into broader market segments.

RIM continues to benefit from the industry shift to smartphones and achieved significant market share in both North America and abroad during fiscal 2009. RIM’s position in the market and strong partnerships allowed us to grow substantially despite the turbulent economic environment that has been prevalent throughout fiscal 2009. We are confident in RIM’s ability to thrive in fiscal 2010 and are taking steps to position the company to take advantage of the opportunities ahead.

We are proud of RIM’s accomplishments during the year and are grateful to the over 12,000 employees around the world whose talents, hard work and determination enabled RIM to maintain its market leading position. We would also like to communicate sincere appreciation to our customers, partners and shareholders for their support throughout fiscal 2009.

Some of RIM’s achievements during the past year included:
• Revenue growth of 84% from approximately $6 billion to approximately $11 billion;
• The introduction of many new and powerful BlackBerry smartphones, including the BlackBerry® Bold™ smartphone, BlackBerry® Pearl™ Flip smartphone, BlackBerry® Storm™ smartphone, BlackBerry® Curve™ 8350i smartphone, BlackBerry® Curve™ 8330 smartphone and BlackBerry® Curve™ 8900 smartphone;
• Expansion of the BlackBerry subscriber account base to approximately 25 million subscribers, with record quarterly net subscriber account additions of 3.9 million in the fourth quarter;
• The launch of a new, global BlackBerry brand campaign;
• BlackBerry ranked on the Millward Brown Top 100 Most Powerful Brands list at number 51 in the world, and rated as the fastest growing brand on the list with a 390% increase in brand value;
• Shipment of the 50 millionth BlackBerry smartphone in January, with approximately 26 million smartphones shipped in fiscal 2009 alone;
• The addition of over 100 new carrier and distribution partnerships globally;
• Successful penetration of new market segments with approximately 60% of net subscriber account additions in fiscal 2009 coming from non-enterprise customers;
• Enhancement of the mobile experience through powerful partnerships that helped deliver a wide range of compelling mobile applications;
• Expansion of manufacturing capabilities through the addition of new outsourcing partners around the world which allowed us to almost double the number of devices shipped during fiscal 2009; and
• Receipt of the 2009 GSMA Chairman’s Award in recognition of RIM’s role in pioneering the wireless data industry.

Financial Results and Administration
Revenue in fiscal 2009 grew to approximately $11 billion from $6 billion in the previous year. Hardware continued to represent the largest percentage of revenue at 82%, with service contributing approximately 13%, and software, accessories, and other revenue contributing the remainder. RIM shipped approximately 26 million smartphones in fiscal 2009, which was driven by strong demand from new customers as well as handset upgrades from a loyal customer base.

Gross margin for the year was approximately 46%, down from fiscal 2008. This decline was principally related to the introduction of new feature-rich, premium smartphones with higher associated costs (such as the BlackBerry Bold smartphone, BlackBerry Storm smartphone and BlackBerry Curve 8900 smartphone), an increased percentage of revenue derived from hardware sales relative to software and service fees, and unfavorable trends in foreign exchange rates.

The past year has been a period of significant investment for RIM with the launch of a new brand campaign, an aggressive entry into broader market segments and the expansion of our global R&D capabilities. We plan to leverage these types of investments and take advantage of opportunities for cost improvements to grow RIM’s market share and profitability in fiscal 2010.

Operating expenses for the year totaled approximately $2.38 billion and remained flat with the previous year as a percentage of revenue as we continued to invest in brand, channels and R&D.

Net income in fiscal 2009 increased to $1.89 billion or $3.30 per share fully diluted versus $1.29 billion or $2.26 per share fully diluted in the prior year.

Capital expenditures increased from approximately $350 million in fiscal 2008 to approximately $834 million in fiscal 2009. The majority of this investment was for new facilities, computers and equipment to support RIM’s growing employee base and the expansion and enhancement of the BlackBerry® Infrastructure. RIM also invested $736 million during the year for acquisitions of intellectual property and companies with strategic technologies that enhance RIM’s business.

RIM continues to have a strong balance sheet with no debt and approximately $2.24 billion in cash, cash equivalents, short-term investments and long-term investments.

RIM had over 12,000 employees at the end of fiscal 2009, up from approximately 8,400 employees at the end of fiscal 2008. This increase was spread across all areas of the company including R&D, carrier support, business development, marketing, customer care and manufacturing. We continue to recruit the best talent and believe that RIM’s team of dedicated employees is our strongest asset.

Sales, Marketing & Distribution
During the past year, RIM continued to expand the availability of BlackBerry products and services through expansion of distribution channels in North America and around the world. We made significant inroads with retail partners and saw the contribution from these channels grow substantially over the year.

Retail sales during the holiday buying season this year were the strongest ever for RIM, and independent surveys indicated that BlackBerry smartphones consistently ranked in the top three bestsellers in North America. BlackBerry smartphones are now available through approximately 475 carriers and distribution channels, in over 160 countries around the world.

R&D and Manufacturing
RIM’s product development philosophy has always been defined by the underlying values of innovation, quality and efficiency; and in fiscal 2009, the R&D team did an exceptional job of delivering on these values. RIM undertook the ambitious task of launching a record number of new BlackBerry smartphones that incorporated the latest chipset technologies, next generation network support, new high resolution displays, new and innovative input technologies and completely new user interfaces.

The launches of these new products – including the BlackBerry Bold smartphone (RIM’s first HSDPA smartphone), the BlackBerry Storm smartphone (RIM’s first touch-screen smartphone with the award-winning SurePress™ technology), the BlackBerry Pearl Flip smartphone (RIM’s first “clam-shell” smartphone), the iDen-based BlackBerry Curve 8350i smartphone (with Push-to-Talk) and the BlackBerry Curve 8900 smartphone (based on a next generation platform) - were key factors that contributed to the stellar revenue and market share growth experienced by RIM this year.

RIM continues to focus on scaling its R&D, manufacturing and new product introduction capabilities. During the year RIM opened two new R&D centers - one in Germany and one in the United States - while also continuing to grow our Canadian presence. RIM’s R&D organization now has over 5,000 employees engaged in areas including advanced research, product development, standards and licensing.

In order to support the growing demand for our products, we added significant capacity to our manufacturing organization by adding new outsourcing partners globally to increase flexibility and scalability. In addition, we invested in the upgrade of certain production and test equipment in our own manufacturing facility to enable faster production. These efforts were instrumental in allowing RIM to ramp production quickly during the fall in order to meet the strong demand generated by the new product launches.

Another area of focus during the year was the development of BlackBerry® Enterprise Server version 5.0. This initiative involves a substantial effort from hundreds of engineers and will provide enterprises and their IT departments with the most scalable, manageable and reliable BlackBerry solution yet. We are looking forward to launching the product in the coming months.

BlackBerry in the Enterprise
The enterprise market continues to be very important to RIM’s business and there are now over 175,000 organizations with BlackBerry Enterprise Server installed behind the corporate firewall. RIM’s enterprise customer base is diversified with significant growth in the past year coming from sectors including Government, Law Enforcement, Health Care and Education.

The BlackBerry® Mobile Voice System (BlackBerry MVS) is also beginning to gain traction as organizations look for ways to leverage their existing BlackBerry Infrastructure to reduce telecom costs. BlackBerry MVS enables BlackBerry smartphones to effectively become a mobile desk-phone, with one phone number ringing all devices, a single voice mailbox to manage, internal extension dialing capabilities, and added benefits for IT departments that want better control of the mobile phones in their organization.

BlackBerry MVS can also help enterprises reduce international calling costs by leveraging wireline calling rates. Rather than slowing the adoption of BlackBerry MVS, the difficult economic times actually appear to be accelerating interest in the platform due to its potential for a compelling return on investment. Many organizations are looking for ways to reduce costs and BlackBerry MVS is a good fit as it plugs into existing BlackBerry Enterprise Server and telecom infrastructures at very little incremental cost.

BlackBerry Enterprise Server version 5.0 will be the most significant upgrade to BlackBerry Enterprise Server in over three years and, after many months of planning and testing at over 1,000 beta sites, BlackBerry Enterprise Server v5.0 will be ready soon. This latest release delivers on several key corporate IT imperatives, including increased manageability, lower total cost of ownership, scalability, support for very large scale deployments and easy mobilization of hundreds of applications.

BlackBerry Enterprise Server 5.0 will also introduce a number of highly desired user capabilities, including file sharing, the ability to securely download files from the corporate network and enhanced email management features including the ability to create/delete/rename folders and assign flags to messages.

This is the most powerful version of BlackBerry Enterprise Server ever and we believe it will further cement RIM’s leadership position in the enterprise market.

BlackBerry Application Ecosystem
RIM continued to expand the BlackBerry developer community and to enhance the platform to make it easier for our partners to develop compelling BlackBerry applications. RIM works with a broad range of developers, solution providers and system integrators.

Together these groups have already brought thousands of BlackBerry applications and solutions to market and we expect this number to significantly increase with the launch of BlackBerry App World™. BlackBerry App World is an online application storefront designed to help application developers and carriers reach millions of BlackBerry smartphone users and to provide consumers with greater choice, enhanced application discovery and an easy method for managing the purchase, installation and upgrades of mobile applications.

In fiscal 2009 there was a marked increase in the number of consumer applications being developed for the BlackBerry platform as the multimedia features on BlackBerry smartphones continued to increase and as the number of consumers selecting BlackBerry smartphones continued to grow. Application availability for corporate and business use also remains robust with new solutions launched this year for the Health Care, Government, Law Enforcement, Education, Manufacturing, Retail and Professional Services markets, among others.

Other initiatives in fiscal 2009 that were focused on supporting a thriving developer community included the launch of the BlackBerry Partners Fund in partnership with RBC Capital and Thomson Reuters, the hosting of the first annual Black-Berry Developer Conference in California and the introduction of new easy-to-use development tools such as the BlackBerry® JDE Plug-in for Eclipse™.

We look forward to supporting the continued proliferation of the BlackBerry application ecosystem throughout fiscal 2010.

BlackBerry Infrastructure
We continue to invest in the BlackBerry Infrastructure to enhance the BlackBerry smartphone experience and support the growing subscriber account base. In fiscal 2009, the BlackBerry Infrastructure supported more than triple the amount of traffic it did in fiscal 2008 with over 3 petabytes of traffic flowing through the system each month. Our proactive and ongoing investment in infrastructure has enabled us to continue to provide the industry-leading functionality, quality of service, security and scalability required to continue leading the industry and to continue meeting the growing needs of our customers and partners.

Customer Support
Providing exceptional support for the growing number of BlackBerry customers is an important competitive advantage for RIM and its partners. There are now over 1,500 dedicated technical and affiliated support staff working at five customer support facilities around the world providing 24-hour, 7-days per week, multi-lingual support to meet the needs of our expanding customer base.

Four new initiatives were launched by the BlackBerry® Technical Support Services Team in fiscal 2009, including the BlackBerry® Certification Program to allow our partners to enhance their knowledge of BlackBerry hardware and software; BlackBerry® Support Community Forums, a self-service discussion medium where device users and IT administrators come together to ask questions of one another; BlackBerry Expert Support Center (BESC) to provide on-line technical support for accounts that have technical support contracts with RIM; and BlackBerry Answers which acts as both a mobile and desktop self-serve Q&A center. Many of the steps taken by the BlackBerry Technical Support Services Team in fiscal 2009 are designed to support the growing base of consumers and small business users. These new programs are designed to find new efficiencies, automate and streamline support processes, and utilize smart-technologies to aid our customers and partners.

The Year Ahead
We believe RIM is well positioned to take advantage of the exciting opportunities that lie ahead in fiscal 2010. Some of our goals for the year include:

  • Expand our customer base in existing and new markets by growing and strengthening our relationships with carriers and distribution partners across the globe;
  • Effectively manage costs and operating expenses to grow earnings;
  • Continue to launch innovative new products and services to address existing and new market segments;
  • Extend RIM’s market leadership through innovation and focused investments in R&D;
  • Launch BlackBerry Enterprise Server v5.0 and increase the adoption of BlackBerry® MVS in the enterprise;
  • Continue to expand and grow our presence in the enterprise market;
  • Expand the number and variety of applications and content available for BlackBerry smartphone users through BlackBerry App World and through other partnerships;
  • Attract, hire and retain the best available talent to support RIM’s customers and partners and to maintain RIM’s market leading position; and
  • Continue to focus on delivering strong financial performance for our shareholders.

Jim Balsillie
Mike Lazaridis

Download Research In Motion (RIM) 2009 Annual Report

PDF format, 3.3MB, 92Pages.

With BlackBerry.

Research In Motion (RIM) is proud to be celebrating 25 years of innovation and 10 years of BlackBerry®. With over 50 million smartphones shipped, RIM helps users all over the globe connect to the specific people, information and media that makes their worlds go round.

The success of BlackBerry products and services is driven by passionate employees, outstanding partnerships, distinctive technological expertise, a commitment to quality and a culture that embraces innovation, customer service and operational excellence.

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