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RIM surges: 'Positive' turnaround potential or all about 'survival'?

These are stories Report on Business is following Friday, Sept. 28, 2012.

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RIM shares climb
Shares of Research In Motion Ltd. surged today on the BlackBerry maker's better-than-expected second-quarter results late yesterday. But the outlook is cloudy.

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You've got to keep in mind that this stock is still under $10, and that this is a wounded company deep in the hole, but comments from analysts are more optimistic than we've seen in some time.

"Risks remain but turnaround potential looking plausible," is how National Bank Financial analyst Kris Thompson puts it today.

As The Globe and Mail's Omar El Akkad reports, RIM is getting smaller and trimmer as its targeted cuts take effect.

RIM still lost $235-million (U.S.) or 45 cents a share in the quarter, slumping from a profit of $329-million or 63 cents a year earlier, but that was better than investors expected. Revenue fell to $2.9-billion from $4.8-billion, but that also came in above the estimates.

RIM shipped some 7.4 million BlackBerrys and 130,000 PlayBook tablets, and the number of its global subscribers rose to 80 million.

This is in advance of the Canadian company's launch of its new BB10 smartphones next year, crucial amid heated competition from Apple Inc.'s iPhone, the Google Inc. Android system and the Windows 8 devices.

Not everyone is as upbeat as the market reaction suggests, but some analysts are now raising their price targets on the stock. Here's what analysts are saying:

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"The new management team is executing by maintaining the BlackBerry subscriber base, managing costs and cash and seemingly readying an early C2013 BB10 global platform loss … Our thesis has been that RIM's [subscriber] base would enter a period of accelerating decline leading to lower service cash flow to support BB10 transition plans. We are now taking a leap and expecting management will continue to take necessary steps to maintain the sub base ahead of the BB10 launch." Mr. Thompson

"While resilient sales of BB7 smartphones in markets like Indonesia, South Africa, and Venezuela demonstrate the strength of the BlackBerry brand in international markets, we believe the BB10 refresh is key for RIM to return to profitability. With our checks indicating increasing competition both from iPhone 5, Android and Windows 8 smartphones in Western markets and from ramping lower-tier smartphones based on Qualcomm and MediaTek turnkey solutions globally, we expect softer sales in coming quarters consistent with RIM management comments anticipating continued pressure on operating results for the remainder of the fiscal year." Michael Walkley, CanaccordGenuity

"It's still all about BB10 – and it is still an uphill battle. We attended BlackBerry Jam Developer Conference in San Jose earlier this week. Our initial impressions of RIM's new user paradigm of the BlackBerry Hub and Flow are quite positive. Developers we spoke to were also quite positive about BB10 (platform and tools) as well as RIM's investment in the dev community (BB10 Alpha device seeding and $10,000 app guarantee). However, we thought the event lacked buzz, likely a reflection of RIM's US market share dwindling to 9.5% (comScore MobiLens survey, three-month ending July 2012) and the announced delay in June of BB10 to C1Q13 did not help." Steven Li, Tavis McCourt, Raymond James

"The street is largely giving RIM a pass on this quarter as it readies the important BlackBerry 10 launch. The fact of the matter is that the company has really placed on its bets on BlackBerry 10.' Bill Kreher, Edward Jones, to The New York Times

"If they can have another quarter of not burning cash and can get the device out in a few months, then investors are thinking, 'perhaps they have a chance to come back." Neeraj Monga, Veritas Investment Research, to Bloomberg

"It's about survival now; it's not about BlackBerry 10. That's almost secondary. The battle now is staying alive and looking after your current customers. It's not really clear that their core customers are looking for BlackBerry 10." Shaw Wu, Sterne Agee, to The New York Times

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"While RIM delivered marginally better results, we believe it is still too early to get constructive." Phillip Huang, UBS, in research note headed "Not out of the woods yet," according to Reuters

GDP up 0.2 per cent
Canada's economy kicked off the third quarter with better-than-expected growth in July.

Gross domestic product expanded by 0.2 per cent, Statistics Canada said today, better than June's revised 0.1 per cent and the 0.1 per cent than economists had expected.

July's gains were driven by the manufacturing and utilities sectors, while mining, oil and gas, and construction suffered setbacks.

Manufacturing, which has been hit of late, bounced back by 0.6 per cent on the heels of June's 0.7-per-cent slump.

Big ticket items also climbed, by 0.7 per cent, largely due to computers and electronic gadgets.

Retail trade climbed 0.6 per cent.

"While July's real GDP results were somewhat better than expected, the Canadian economy will still be hard pressed to hit the Bank of Canada's 2-per-cent growth forecast in Q3," said Robert Kavcic of BMO Nesbitt Burns.

Senior economy Matthieu Arseneau cited the manufacturing gain as the "big surprise," but doesn't expect it to last.

"Do not extrapolate this performance into the future as we already know that the production has probably led to an inventory overhang in light of declining shipments (down a whopping 2 per cent in July !)," he said in a research note.

"As a result, we already have indications that firms are cutting back on production with manufacturing jobs having declined for a third month in a row in August. This development combined with slowing activity in construction points to declining production in the goods sector."

Toronto-Dominion Bank senior economist Sonya Gulati agreed that manufacturing will have little "staying power" and pointed toward an overall cooling.

"The world remains a risk-filled one and this uncertain global economic environment should weigh on the trajectory for those areas linked to international trade," she said.

"Manufacturing and transportation are two areas that come to mind. With tired consumers and housing markets beginning to cool, the domestic economic front is running out of gas and energy to steer the Canadian growth engine."

Libor to change
Britain's financial regulator is proposing a sweeping overhaul one of the world's key interest rates in the wake of a scandal and a series of probes.

Martin Wheatley, chief of the Financial Services Authority, unveiled several recommendations to address the problems with the London interbank offered rate, or Libor, amid the rate-rigging scandal.

"The system is broken and needs a complete overhaul," Mr. Wheatley said.

Tims scores well
Today, it's all about hockey and coffee.

Well, coffee, really, but what better day to mark the ascension of Tim Hortons Inc. in the United States than on the 40 anniversary of Canada's win over the USSR in the celebrated Summit Series.

An annual survey released yesterday by Zagat ranked Tim Hortons fifth in its ranking of U.S. restaurants in the "quick refreshment" category.

It's the first time Tims has been there.

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