BlackBerry Cuts Loss and Sees Rising Sales; Shares Jump

Hannah Yoon/Bloomberg via Getty Images TORONTO -- BlackBerry (BBRY) reported a smaller quarterly loss on Friday and flashed encouraging signals about its hard-pressed smartphone business as well as its software and services sales, spurring a 7 percent jump in its shares. The Canadian company, a smartphone pioneer pushed to the margins by Apple's (AAPL) iPhone and devices running Google's (GOOG) Android software, is now focusing more on software and services than on hardware as it works through a drawn-out turnaround. On the services front, the company reported a huge number of conversions into its heavily promoted new mobile device management platform in its second quarter. But BlackBerry's hardware unit also offered hopeful news, posting an adjusted profit for the first time in five quarters, helped by lower manufacturing costs and strong demand for its low-end Z3 handsets in emerging markets. The Waterloo, Ontario-based company notched revenue growth from the previous quarter in North America, but sales slipped elsewhere. Its total revenue was down more than 40 percent from a year earlier. "Broadly speaking, they're doing the right things ... but that revenue number is getting real small," said BGC Partners analyst Colin Gillis. BlackBerry shares were up 7.6 percent at C$11.70 on the Toronto Stock Exchange and up 7.4 percent at $10.51 on Nasdaq. John Chen, who became BlackBerry's chief executive officer in November, said the company has already taken 200,000 orders for its new squared-screened Passport smartphone, which went on sale on Wednesday and sold out on Amazon.com (AMZN) within six hours. In his turnaround plan, Chen has moved rapidly to cut costs, sell certain assets and strengthen the company's balance sheet. He said revenue declines are likely near a nadir, with growth likely to begin in calendar 2015 with the sales of new products and services. Software Growth Eyed Chen told analysts and reporters on a conference call that he expects software revenue to double next year, from around $250 million in the current fiscal year, as the company wins converts to its mobile device management platform, BlackBerry Enterprise Service 10, also known as BES10. The platform allows companies and government agencies to manage and secure not just BlackBerry devices running on their networks, but also Android, Windows and iOS-based phones and tablets. BlackBerry said it issued 3.4 million licenses for the BES10 platform in its second quarter, a sharp increase from the previous quarter, and may end a promotional program early due to its success. A quarter of the license signups came from rival mobile device managers, it said. "On the bright side, we're encouraged by the company's growth in enterprise software licensees and aggressive cost-cutting measures to right-size the business," Morningstar (MORN) analyst Brian Colello said. The success of Chen's turnaround plan depends to a large degree on whether the company's next BES upgrade helps boost sales. The new BES12 software is set for a mid-November launch. Quarterly Results BlackBerry reported a net loss of $207 million, or 39 cents a share, for its second quarter ended Aug. 30. That compared with a year-earlier loss of $965 million, or $1.84 a share. Revenue was $916 million, versus $1.57 billion a year earlier. Excluding one-time items such as charges for restructuring and a change in the fair value of debentures, the loss was 2 cents a share. On that basis, analysts polled by Thomson Reuters I/B/E/S were expecting a 16-cent loss. "Our workforce restructuring is now complete, and we are focusing on revenue growth with judicious investments to further our leadership position in enterprise mobility and security," Chen said in a statement. The company said it doesn't expect its cash balance to drop below $2.5 billion in either the current quarter or the next one. Cash burn has worried investors despite a capital infusion provided by major shareholder Fairfax Financial last November. -.

Trains Soften the Real Estate Blow

With China's gross domestic product (GDP) representing nearly 15 percent of the global economy, it is little surprise that markets rise and fall on how China is faring. For nearly two decades now China has been the growth engine of the emerging markets, to the point that the World Bank International Comparison Project forecast this past May that the Chinese economy could surpass the United States to become the world's largest. That's an honor that the US has held since it overtook the United Kingdom in 1872.

Despite the important role China plays in the world economy, trying to read the Chinese economic tea leaves is a tricky proposition. For one thing, when an economy grows that large its fortunes become tied to the rest of the world and they can rise and fall depending upon what's happening on the other side of the ocean. At the same time, just as we say "don't fight the Fed," here in the States, in China's case it is "don't fight the central committee." Whenever the Chinese economy seems to be faltering, the government will step in with support measures.

That's why I've been surprised that so many market watchers continue to predict a hard landing for China. Global markets have been rallying over the past few days largely due to the fact that, once again, those calling for a hard landing were wrong.

Most of the economic data coming out of China so far this year has been relatively weak, particularly when it comes to real estate. While June data hasn't been released yet, homes sales in the first five months of the year fell 10.2 percent year-over-year while construction starts were down 18.6 percent. According to data from the International Monetary Fund, real estate directly accounts for 12 percent of Chinese GDP and indirectly accounts for even more when you consider sales of home furnishings, appliances and other items.

But just as analysts the world over watch Chi! nese economic data, so does Beijing. The country's real estate slowdown was largely government engineered, as Beijing took steps to slow credit growth and limit purely speculative real estate development. And just as it can tighten, now it is loosening, pushing banks to ease mortgage terms and cut interest rates, generally loosening credit conditions and embarking on social housing projects of its own. At the same time, the Chinese government cut a number of taxes for small- and mid-sized businesses and launched a raft of infrastructure projects.

As usual, a bet on a hard Chinese landing is probably going to be a losing one – the government just won't let that happen. As I've often said, I would avoid Chinese real estate-related investments at this point, but infrastructure plays should continue to pay off thanks to their simulative effect.

I would pay particular attention to China's ambitious efforts to develop a high-speed train network across the country in order to be more economic development opportunities to the country's interior. China currently operates the world's longest high-speed rail network at more than 6,000 miles.

Last year the government spent about RMB650 billion on rail development, with the goal of investing at least RMB3.3 trillion and building 13,000 miles of new railroad by the end of 2015. It also plans to grant ownership and operating rates on some city and regional connections to local governments and private investors.

Krawcheck to Speak at Raymond James Women’s Symposium

Raymond James (RJFS) says wealth management guru Sallie Krawcheck will be the keynote speaker at its 20th annual Women’s Symposium set for mid-October in St. Petersburg, Fla.

“Sallie Krawcheck is an extraordinary woman, and we value her leadership in the financial services industry,” said Nicole Spinelli, director of Raymond James’ Network for Women Advisors, in an interview. “It’s very befitting for us to have someone of her caliber with us to celebrate the 20th year of the event.”

Krawcheck is the chair of Ellevate Network and former president of the Global Wealth & Investment Management unit of Bank of America (BAC). She acquired the women’s organization 85 Broads in 2013; the group recently changed its name to Ellevate and plans to launch an index fund in cooperation with Pax World Management that will invest in companies with a sizeable number of women officers and directors.

“The network and this event are proof that a small group of committed individuals can make an impact – we have close to twice the number of practicing female financial advisors than the industry average and several female advisors who regularly rank among the top professionals in the industry,” said Raymond James CEO Paul Reillly, in a press release.

Raymond James has roughly 850 female advisors. More than 200 are expected to attend the event in October. In addition, women working in the capital markets operations of Raymond James will attend, along with some 30 or more prospective advisors working at the wirehouses and other broker-dealers.

“In this industry, we believe as a firm that no information is proprietary, and that sharing information is key is relationships,” Spinelli said. “We’ve been doing this event for 20 years at Raymond James, which is a testament to the fact that Raymond James is a great firm and is a great firm specifically for women. While other firms have women’s networks, they may not be as well defined as ours. We truly value the perspectives shared by our women advisors.”

Last year, about 20 prospective female reps attended the event. “There’s a pretty good record of prospects [who attend the Women's Symposium] affiliating with us,” she noted.

Said Krawcheck in a statement: “I look forward to sharing my story of building a career in the financial services industry, as well as to hearing from the successful women advisors who founded and maintain such a strong, long-lasting support system for women in what has traditionally been a male-dominated industry.”

Other guest speakers include Susan Bradley, CFP, author and founder of the Sudden Money Institute; Molly Fletcher, founder of MWF Business Consulting and nicknamed “the female Jerry Maguire” for her work as a sports agent; Susan Story, CEO of American Water and member of the Raymond James Financial board of directors; Anastasia Amoroso, global market strategist for J.P. Morgan Funds; Suzette Rothberg, vice president of business development & training for American Funds Distributors; Susan Kay, a business development consultant for MFS Investment Management; and Bella Allaire, executive vice president of technology and operations for Raymond James.

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Check out Sallie Krawcheck Proves Everything's an Index Fund Now on ThinkAdvisor.

 

A Bold Prediction for the Aussie

The Reserve Bank of Australia believes the decline in the country's exchange rate is necessary for its economy to transition to growth from the non-mining sectors.

While a resurgent Australian economy should ultimately flow through to our investments there, as US investors, we definitely miss the performance enhancement we enjoyed in our Portfolios when the aussie traded above parity with the US dollar.

Although the S&P/ASX 200 generated an enviable total return last year of 20.2 percent in local currency terms, much of that gain evaporated when translated back into US dollars.

From that standpoint, those who'd enjoy at least a temporary boost from the exchange rate could be in luck. Morgan Stanley just made a bold prediction that the Aussie could ascend to parity with the US dollar again later this year, as investors stretch for the higher yields offered by the country's government debt.

In a research report, the US bank says cash will be flooding into Australia as the government issues AUD5.5 billion in debt per month. Australia is one of the few remaining countries with a coveted triple-A rating, while the country's 10-year notes currently offer the highest yield among its peers, recently at 3.8 percent.

According to The Wall Street Journal, it's the Japanese who are doing most of the buying. From September 2013 through this past April, Japanese investors bought AUD10.9 billion of assets. Last year, they sold AUD34.2 billion, so there's presumably some dry powder remaining to at least match those purchases.

On this basis, Morgan Stanley raised its forecast for the Australian dollar, predicting that the Aussie will reach parity with the US dollar by the end of the year.

The Australian dollar currently trades near USD0.94, up 8.3 percent from its three-year low in late January. However, it's still down about 14.5 percent from this cycle's high in mid-2011.

According to Bloomberg's survey of institutional economists, the aussie is forecast to average USD0.905 for the remainder of 2014, then decline to an average of USD0.87 in 2015. Though the currency is projected to rebound to USD0.90 in 2016, it's expected to renew its decline in the years thereafter.

In fact, Morgan Stanley's estimate is a definite outlier among its peers, according to Bloomberg's aggregation of private-sector forecasts. Among institutions that have offered relatively recent forecasts, the next highest prediction for the aussie's fourth-quarter performance is from Wells Fargo, which expects the currency to hit USD0.96.

But Morgan Stanley believes the aussie's rise will prove to be short-lived. For full-year 2015, the bank forecasts the Australian dollar will decline to USD0.88, which is essentially in line with its peers.

If the aussie does renew its ascent, however, it's difficult to predict how long momentum could sustain its upward trajectory, especially given the currency's safe-haven appeal amid a tenuous global recovery.

After all, the Australian dollar remained stronger far longer than many expected. Indeed, it was the US Federal Reserve's announcement toward the middle of last year that it was planning to curtail its extraordinary stimulus that finally triggered the aussie's selloff.

Although the Reserve Bank of Australia's (RBA) rate-cutting cycle had already been underway for two years by that point, the currency had remained stubbornly high. And even above USD0.90, the RBA has characterized the exchange rate as uncomfortably high.

From the RBA's perspective, the currency would have to fall to the mid-USD0.80s to make a meaningful difference for the country's economy.

As such, while we certainly stand to benefit in the short term if Morgan Stanley's prediction proves correct, from a longer-term perspective it's best for the aussie to trade below parity with the US dollar.