These are stories Report on Business is following Friday, Sept. 27, 2013.
Why BlackBerry took such a bath
Looking at BlackBerry Ltd.’s financial results today gives you a sense of just where things stand with the device that had been its great hope in the war for the consumer.
BlackBerry posted a second-quarter loss of $965-million (U.S.), or $1.84 a share, compared to a loss of $84-million or 16 cents a year earlier. Revenue slumped to $1.6-billion from $2.9-billion as BlackBerry recognized hardware sales on just 3.7 million devices in the quarter, mostly older BB 7 models.
Some 5.9 million devices were actually sold in the quarter, including those shipped before the latest three-month period, "which reduced the company's inventory in the channel," BlackBerry said.
The loss swelled on a $934-million hit from unsold inventory. BlackBerry dubbed that the “Z10 inventory charge,” a reference to its touchscreen Z10 model, the latest entry in the pitched battle for the consumer with Apple Inc.’s iPhone, Samsung’s Galaxy and smartphones powered by Google Inc.’s Android system.
As The Globe and Mail’s Omar El Akkad reports, the number of unsold devices is notably high partly because BlackBerry is not recognizing sales of certain BB10 models until they make their way into the hands of consumers, rather than just the shipments of phones to retailers and partners.
Excluding that hit, and a separate one of $72-million for restructuring, BlackBerry posted an adjusted loss from continuing operations of $248-million or 47 cents a share in the quarter.
The results were forecast by BlackBerry a week ago, when it also announced a retreat from the consumer market and planned job cuts of 4,500, or 40 per cent of its work force. BlackBerry plans now to focus on professions and business, where it ruled the world when it made the smartphone popular.
Then on Monday, as its stock price continued to plunge, BlackBerry unveiled a tentative deal that would see a consortium led by Fairfax Financial Holdings Ltd. take it private for $4.7-billion, or $9 a share.
BlackBerry shares rose by 1 per cent today, to $8.03 on Nasdaq, still shy of the Fairfax proposal amid doubts that the deal will go through.
But, as The Globe and Mail’s Tara Perkins reports, Fairfax chief executive officer Prem Watsa says he’s confident he will succeed.
"We understand how some of the activities we are going through create uncertainty, but we remain a financially strong company with $2.6-billion in cash and no debt,” chief executive Thorsten Heins said today as he unveiled the second-quarter results.
“We are focused on our targeted markets, and are committed to completing our transition quickly in order to establish a more focused and efficient company.”
In an interview with Ms. Perkins, Mr. Watsa says there are no plans to break BlackBerry up, and he’s positive on the outlook.
“Once the company is taken private, we think it will become successful again,” Mr. Watsa said. “Not in three months or six months, over the years.”
After its tentative deal with Fairfax, analyst Kris Thompson of National Bank of Canada suggested that shareholders “take the money and run.” Some analysts believe there’s not much chance of a rival offer, while others say that could be a 50-50 bet.
“Fairfax Financial and the undisclosed consortium (probably private equity players and/or pension funds) likely have the political capital to pull this transaction off even with BlackBerry in a state of calamity,” Mr. Thompson said in a research note.
“Our view is that a downward re-pricing is more likely than a competitive bidder.”
(Tomorrow, at 8 a.m. ET, reporters Sean Silcoff, Jacquie McNish and others will provide a behind-the-scenes look at BlackBerry's struggles, drawn from months of reporting and interviews with dozens of past and present company insiders.)
- Omar El Akkad: BlackBerry quarterly loss hits $965-million as revenue plunges
- Tara Perkins: Watsa insists Fairfax has strong backing for BlackBerry buyout
- Omar El Akkad: BlackBerry's last stand: A big bet on corporate buyers
- Jacquie McNish: Fairfax seeks $1-billion from investors for a BlackBerry deal
- Boyd Erman in Streetwise (for subscribers): Just who would buy BlackBerry debt
- Tara Perkins, Tim Kiladze, Jacquie McNish and Sean Silcoff: Fairfax hands BlackBerry $4.7-billion lifeline
- Tara Perkins and Jacqueline Nelson: Watsa surprises again by riding to BlackBerry's rescue
- Nokia syndrome: Rescue of BlackBerry not an issue of national pride
‘Nervousness is the order of the day’
Investors are on edge today U.S. politicians head into a crucial weekend that will determine whether the government shuts down on Tuesday.
There are several factors playing into global markets, but investors are eyeing what promises to be another round of bitter fighting over the weekend.
“The haggling between U.S. President Barack Obama and the Republicans has already started in the public arena, but in order to ensure that the U.S. does not see its debt downgraded again Mr. Obama needs to move this on, and quickly,” said market analyst Alastair McCaig of IG in London.
“This will be the third time in less than two years that the U.S. will have needed to take action to avoid hitting its debt ceiling; rather than once again kicking the can down the road they should tackle the underlying issues.”
The deadline is Monday, the end of the U.S. fiscal year, and tensions are running high, as expected, heightened by wrangling yesterday.
The fear is that the government could shut down on Tuesday, and, though unlikely, default by midmonth, sending jitters through global markets.
“The president isn’t prepared to negotiate the implementation of Obamacare as part of a deal to get an increase in the debt ceiling through, so this can go to the wire,” said Kit Juckes, the chief of foreign exchange at Société Générale.
“U.S. data have been mixed (yesterday a case in point as pending home sales were soft and jobless claims very strong) and the economy doesn’t need even a temporary hit from a government shutdown,” Mr. Juckes said in a research note.
“Obviously, that would spook risk sentiment and push back tapering into the future,” he added, referring to when the Federal Reserve will begin easing its bond-buying stimulus program.
“If/when a deal is reached economic sentiment and risk appetite are likely to get a simultaneous boost. A strong credit and [emerging markets] rally would/will be unleashed. But for now, nervousness is the order of the day.”
Analyst keen on Bombardier
CanaccordGenuity is awfully keen on Bombardier Inc. stock.
Here’s what analyst David Tyerman said today as he maintained his “buy” recommendation and price target of $6 on shares of the Canadian plane and train manufacturer:
“We believe Bombardier (BBD) will prove to be a very strong share price performer over the next few years, driven by expectations of very significant earnings growth. Earnings should increase from much improved BBD Aerospace (BA) demand, substantial incremental earnings from new BA products and improved sales and margins at BBD Transportation (BT. Free cash should also surge from the above factors and from a significant decline in new product investment.”
Mr. Tyerman’s research note followed investor meetings with Bombardier Aerospace chief Guy Hachey, and the outlook for the company’s new C series planes.
“BBD is very happy with the C series first flight and reconfirmed its expectation of a 12-month flight testing campaign for the CS100 model,” the analyst said.
“M. Hachey also reiterated expectations of 300 firm orders at entry into service (EIS) from 20-30 customers. Performance confirmation, which should happen in about six months, could drive increased order flow.”
- Bombardier and Lion Air in talks on possible C Series deal
- Sophie Cousineau: Bombardier's C series reaches a milestone at 12,500 feet
- Sophie Cousineau: C series numbers still don't add up
The new governor
What makes Stephen Poloz tick, and what does he have to say?
Read Kevin Carmichael's exclusive report on, and interview with, the new Bank of Canada governor in Report on Business Magazine.
Streetwise (for subscribers)
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|BBD.B-T Bombardier Inc.||4.69||
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|FFH-T Fairfax Financial Holdings||416.02||
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|BBRY-Q BlackBerry Limited||5.88||
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|ES-FT S&P 500 e-mini||1,805.50||
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|YM-FT Dow e-mini||16,008.00||
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