Isnin, 23 Disember 2013

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The Star Online: Business

BlackBerry steps back on handset business, shares jump

Posted: 23 Dec 2013 01:12 AM PST

TORONTO: BlackBerry Ltd said on Friday it was entering a handset production deal that lowers the risk it will have to take more massive writedowns on unsold smartphones, and its shares surged even though it posted dismal quarterly results.

The stock rose as much as 17% after the company announced the five-year partnership with FIH Mobile Ltd.

The Hong Kong-listed unit of Taiwan's Foxconn will initially build low-end devices for sale in Indonesia and other emerging markets. BlackBerry said it hoped to expand the fledgling relationship to its top-of-the-line smartphones.

The deal is unconventional in that BlackBerry will no longer pay upfront for components used in the devices made on its behalf in Foxconn's Indonesian and Mexican factories.

Instead, Foxconn, the trading name of Hon Hai Precision Industry, will take a share of profit on each device in return for taking on inventory management, which can result in writedowns if smartphones go unsold. Foxconn will also help with developing, designing and distributing the handsets.

Chief Executive John Chen, who took the helm at BlackBerry last month, said he expected the Foxconn deal to help BlackBerry's handset business turn cash-flow positive, and for the company as a whole to post a profit for the fiscal year that begins in early 2015.

"It's almost like BlackBerry is disposing of its consumer handset business without actually disposing of it," said Jefferies analyst Peter Misek, who likened the deal to what Hewlett-Packard Co and Dell have done with laptops.

The move, which comes a month after BlackBerry said it was giving up on a plan to sell itself, helped take the sting out of the massive, US$4.4bil loss that it posted for the quarter ended Nov 30, as smartphone sales shrivelled.

A new line of devices running on BlackBerry 10 software has failed to gain traction, forcing the company to write off US$1.6bil of inventory and supply commitments for the quarter. The previous quarter it wrote off US$934mil for unsold phones.

The Waterloo, Ontario-based company pioneered the concept of on-the-go email, and for years its pagers and phones were must-have devices for political and business leaders. But in recent years it has lost its once-dominant market share to Apple Inc's iPhone and a slew of smartphones powered by Google Inc's Android operating system.

As of Thursday's close, the stock had fallen 47% this year. It was last trading up 14% on Nasdaq at US$7.13.

"The most immediate challenge for the company is how to transition the devices operations to a more profitable business model," said Chen, who is credited with turning around Sybase, a database and mobile software company, before it was sold to German software company SAP AG in 2010.

Chen has said he is counting on strong growth in BlackBerry's service business, which manages smartphone traffic on the internal networks of corporate and government clients.

"Just jettisoning all the stuff and driving on with the part of the business that makes money makes a heck of a lot of sense to me and that is very clearly where Chen is going," said Ross Healy, a portfolio manager at Macnicol & Associates who owns a small number of BlackBerry shares.

Carolina Milanesi, an analyst at Kantar Comtech, said the deal is a good move for Foxconn, the world's largest electronic parts manufacturer and a major partner of Apple Inc.

"This might be the first step for them to try and diversify, and experiment with putting their brand on the products they make," she said.


In his first presentation to analysts after the release of BlackBerry's results, Chen struck an upbeat tone tempered with a heavy dose of realism. The mix may have helped soothe nervous investors who had sharply lowered their expectations for BlackBerry after a string of disappointing news.

"It's clear that he's not the old guard, he's not there trying to do what Lazaridis and Thorsten were up to. He's actually been taking some concrete steps," said Mark McKechnie, an analyst at Evercore Partners, referring to BlackBerry's founder Mike Lazaridis and Thorsten Heins, Chen's predecessor.

Chen moved quickly to stamp his authority on BlackBerry, hiring several former colleagues from his time at Sybase and SAP for senior roles in corporate strategy, marketing, and enterprise strategy, a key unit in the stripped-back company.

BlackBerry sold about 4.3 million handsets in the third quarter, with older BlackBerry 7 models accounting for about 3.2 million of that number.

The company recognized hardware revenue on 1.9 million devices, down from 3.7 million in the previous quarter.

On a brighter note, its cash pile grew to US$3.2bil from US$2.6bil a quarter earlier, but that included US$1bil raised by issuing convertible notes to a group of investors last month after calling off a months-long search for a buyer.

Service revenue slipped 13% as fewer people paid to use BlackBerry's secure network, and the company said that level of decline could be expected to continue.

Along with the writedown on unsold phones, the company also slashed by US$2.7bil the carrying value of some long-lived assets, mostly licensing deals made when it was far larger.


The company reported a third-quarter net loss of US$4.4bil, or US$8.37 a share, compared with year-earlier net income of US$9mil, or 2 cents a share.

Excluding the inventory writedowns and impairment charges, the loss was US$354mil, or 67 cents a share.

Analysts on average had expected a loss of 44 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to US$1.19bil from US$2.73bil as increased uncertainty about the company's fate led to further sales erosion. Wall Street had forecast US$1.6bil.

Morningstar analyst Brian Colello said BlackBerry's turnaround strategy was more important than its latest operating results.

"I don't think it's a surprise that the revenue, operating margin and the business continues to decline. I think the bigger question is, what is the turnaround story at this point?" he said. "They have a lot of different assets that could point the company in different directions." – Reuters. 

Japan to auction US$1.49tril JGBs in 2014/14

Posted: 23 Dec 2013 06:50 PM PST

TOKYO: Japan's government said on Tuesday it plans to issue 155.1 trillion yen (US$1.49tri) in government bonds in the fiscal year that begins next April, the first planned year-on-year reduction in JGB issuance into markets since 2008.

Worried about its snowballing public debt, the Ministry of Finance also aims to extend the average maturity of its debt, by increasing 30-year bond sales by 1.2 trillion yen a year while reducing two-year notes by 2.4 trillion yen.

The announcement is in line with what sources told Reuters on Sunday as well as with market expectations.

The government also said it will increase issuance of inflation-linked bonds to 1.6 trillion yen, an increase of 1 trillion yen, during the 2014/15 fiscal year.

The average maturity of its new debt will rise to eight years and five months in 2014/15 from seven years and 11 months in the current fiscal year – Reuters. 

Japan’s record budget spending highlights balancing act

Posted: 23 Dec 2013 06:33 PM PST

TOKYO: Japanese Prime Minister Shinzo Abe on Tuesday secured cabinet approval for a draft budget for the next fiscal year that aims to split the benefits of higher tax revenue between trimming fresh borrowing and stimulating the economy with record spending.

The government's second annual budget since Abe's election triumph a year ago marks a balancing act between boosting growth and doing just enough to show it is keen to rein in public debt, which is more than twice the size of the economy.

Of the projected record spending of 95.88 trillion yen (US$921.97bil) in 2014/15, about one-third will be spent on social security while debt servicing costs will account for nearly one-quarter.

"Abe vows to seek both growth and fiscal consolidation, but the focus now needs be on stimulus," said Hidenori Suezawa, analyst at SMBC Nikko Securities. "Hasty fiscal tightening could derail the economy and foil the sales tax plan in 2015."

Spending in the general-account budget for the year starting April 2014 will rise more than 3 trillion yen from this year's initial budget, the Ministry of Finance said, with higher outlays for public works, military and social security.

Ministry officials played down the rise, however, saying it was inflated by technical factors such as the transfer on-budget of outlays from special accounts, and allocations from a planned April sales tax hike to shore up social security funding. Interest payments also rose while welfare costs increased as Japan's population ages.

Tax revenue is estimated at 50 trillion yen, rising 6.9 trillion yen from this year to a seven-year high, reflecting both expected economic growth of 1.4% and an increase in the sales tax to 8% from 5% that kicks in April.

New bond sales will be cut by 1.6 trillion yen from the current fiscal year to 41.25 trillion yen, a second consecutive decrease, but the government still relies on borrowing to cover 43% of its spending, down from 46.3% this year.

A "flexible fiscal policy" combining near-term stimulus with longer-run consolidation is part of Abe's economic recipe that also mixes in hefty monetary easing and pro-growth reforms.

Analysts expect budgets to stay loose for the time being to help the economy manage the planned two-step doubling of the sales tax to 10%, with the first increase due in April.

Earlier this month, the government approved 5.5 trillion yen in extra spending for the current fiscal year to cushion the first increase in the sales tax. The second part of the increase to 10% is pencilled in for October 2015.

Some analysts worried about a lack of measures to help the world's third-largest economy sustain growth.

"We want to see more wise spending in areas with growth potential," said Naoki Iizuka, economist at Citigroup Global Markets Japan. "We cannot rely on public works forever."

The public works budget will rise to 5.96 trillion yen from this year's 5.28 trillion yen, including new bullet train lines, quake-proofing of infrastructure, and projects linked to the Tokyo 2020 Olympics.


Analysts and ministry officials say the government is making progress towards its goal of halving the primary budget deficit, which excludes new bond sales and debt servicing costs, by fiscal 2015/16.

The government estimates its primary budget deficit at 18 trillion yen in fiscal 2014/15, down 5.2 trillion yen from this year for the second biggest decrease on record.

Still, calculations by both analysts and the government suggest Tokyo would miss its goal of a primary surplus in 2020/21 without further tax increases and spending cuts.

SMBC Nikko's Suezawa said social security spending must be streamlined in order to get runaway debt and spending under control to meet the 2020/21 target.

"The Abe administration, like the previous government, will struggle with cuts to welfare spending that could risk alienating the growing ranks of elderly voters," he said.

Social security outlays to cover healthcare and pensions for the fast-ageing population will top 30 trillion yen for the first time, up 1.4 trillion yen from this year and accounting for roughly a third of the budget.

Debt servicing costs – interest payments and redemptions – are expected to rise to 23.2 trillion yen, up 1 trillion yen from this year and the budget's second-biggest item.

Defence outlays amount to 4.78 trillion yen, up 2.2% on the year and marking the biggest increase in 18 years, amid simmering tensions between Japan and China over tiny islands that both claim in the East China Sea.

The International Monetary Fund estimates Japan's general budget deficit at 9.5% of GDP in calendar 2013, among the worst in the developed world, and narrowing to a still-elevated 6.8% in 2014. Public debt already exceeds 240% of GDP, by far the highest among major economies – Reuters.


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