Thursday, June 16, 2011

The Biggest Silver Lining in RIM's Q1 Results

RIM's results for the 1st quarter was mixed, and guidance for the 2nd quarter was ugly, but there are several silver linings, with the PlayBook being the biggest one.  EPS in the quarter was $1.33 (beating consensus of $1.32) though revenue was $4.9 billion (missing consensus of $5.15 billion).  However, EPS for 2Q is now expected to be $0.75-$1.05 (lower than consensus of $1.40) and revenue is expected to be $4.2-$4.8 billion (lower than the $5.46 billion expected).  Full year guidance was reduced from the previous $7.50 to $5.25-$6.

There were several silver linings from the conference call.  Co-CEOs Jim Balsille and Mike Lazaridis both attending the conference call was a good effort to sooth investors.  Gross margins for the quarter was also better than expected, at $43.9%.

"Biggest BlackBerry Launch in History"
It was also announced that the Bold 9900/9930 will be launching in late August, earlier than the September that was widely rumoured.  Jim Balsille also said that RIM is having the "biggest BlackBerry launch in history" with certification being conducted at 23 carriers right now.  It was hinted that OS 7 devices will be launching quickly one after another, especially since they use the same OS, which speeds up certification.  Thus, while Q1 and Q2 earnings are rough, investors can expect to receive a boost in Q3 and Q4 from what is believed to be 4 BlackBerry launches (Bold 9900/9930, Torch 9850/9860, new Curve and Curve Touch).

PlayBook The Biggest Silver Lining

The biggest silver lining was PlayBook sales.  RIM recorded sell-in of 500,000 PlayBooks in Q1, beating consensus of 350,000.  PlayBook sales in Q1 was from April 19 to May 28.  Thus, at this rate, RIM is on pace to sell 4 million PlayBooks in calendar 2011.  Of course, RIM is launching many services for the PlayBook in the summer, including native email, Android Apps Player, BlackBerry OS Apps Player and Native SDK.  3 4G versions of the PlayBook (LTE, HSPA+ and Wi-Max) are also launching in the Fall.  Thus, PlayBook sales will only ramp higher in the months ahead, which means that RIM will sell more than 4 million PlayBooks.  I expect PlayBook sales to reach 6 million to 8 million in calendar 2011.     

Sunday, June 12, 2011

US markets fall on slow economic growth

US markets fell on Friday on soft trade data from China. The S&P 500 fell 18.02 points or 1.40% to 1,270.98. The Dow lost 172.45 points or 1.42% to 11,951.91. Markets were pulled lower by weak US economic growth during the week. For the week, the S&P 500 fell 2.2%, while the Dow dropped 1.6%. It was the 6th consecutive week of losses for the Dow, while the S&P 500 is down 6.6% from its high in May.

On Thursday, it was announced that initial jobless claims last week increased by 1,000 to 427,000. It was worse than the 419,000 that economists expected. Also on Thursday, US April trade deficit fell 6.7% from March to 43.7 billion. It was better than the $48.3 billion that economists expected, and lifted US markets on Thursday.

Oil tumbles on Saudia Arabia

A report that stated Saudi Arabia is planning to increase its oil production to 10 million barrels per day sent WTI prices below $100/barrel. On Friday, WTI dropped 2.6% or $2.64 to close at $99.29.

Soft trade data from China

Trade data from China helped to push markets lower this week. The trade surplus was smaller than expected, while export growth slowed. The trade surplus in May was $13.1 billion, while export growth slowed to 19.4% from 29.9%. 
Greece crisis continues

Amid protests, the Greek government continued with plans to sell assets, cut public sector employees and increase taxes. ECB chief Jean-Claude Trichet hinted this week that he will raise the interest rate from its current level of 1.25% on July 7. This caused an outcry among economists concerned that the interest rate hike will add to the problems of the periphery euro zone nations.
Looking ahead to next week

The direction of the markets next week will depend on the many US economic data that will be announced, including retail sales, housing starts and inflation. Markets could bounce back on bargain hunting on individual days. However, the trend will likely continue to be down. With weak US growth, a euro zone debt crisis and a soft landing in China, it will be hard for markets to head higher. Looking ahead to July, the planned interest rate hike by the ECB will hurt peripheral euro zone nations. They are already in trouble as it is, and a higher interest rate will only make borrowing costs more expensive.

Sunday, June 5, 2011

US markets fall on weak jobs report

US markets fell on Friday on a disappointing jobs report. The S&P 500 dropped 12.78 points or 0.97% to 1,300.16. The Dow lost 97.29 points or 0.79% to 12,151.26. For the week, the S&P 500 and the Dow both fell 2.3% with a series of weak economic data. The S&P 500 has fallen for 5 straight weeks, and it is 5% lower than its April high.

The US labour department report on Friday showed that only 54,000 jobs were added in May, which was much lower than the 175,000 expected. The May unemployment rate also increased 0.1%, to 9.1%. Earlier in the week, the ADP report showed that the private sector only added 38,000 jobs in May.

String of weak economic data

Early in the week, May PMI was announced to be 56.6, which was lower than expected, and the lowest level since November 2009. In addition, May consumer confidence fell to 60.8, lower than the 66.5 that the market expected.

US Housing in Double Dip Recession

On Tuesday, it was official that the US housing sector was in a double-dip recession. In the first quarter of 2011, US house prices fell 4.2%, reaching the lowest level since 2002.

Euro zone troubles continue

On Wednesday, Moody's downgraded Greece to Caa1 from B1, with a negative outlook. It also said Greece was running out of options. The euro zone received some relief on Friday, when the EU, ECB and IMF announced that they will provide funding for Greece in early July.

Weak data from China

Weak economic data from China helped dragged down markets this week. May PMI was announced to be 52, which was 0.9 lower than April, and the lowest level since September. It confirmed that the Chinese economy is slowing.

Looking ahead to next week

Following a series of worst-than-expected economic data in the US, investors are more certain of a slowing US economy. Without significant stimulus, the economic trend is unlikely to reverse. Thus, investors should expect US markets to continue falling next week. In terms of the euro zone, while Greece will receive funding in early July, other countries are still in trouble. The EU-ECB-IMF are simply using band-aid solutions for Greece, which does not solve the problem and only delays the day when Greece will have to default.