July 3, 2020

High & Low Finance: How BlackBerry Handled Past Wealth

But then the technology changed, and the company struggled to keep up. Eventually it realized it could not continue as it was. It was broken up and acquired, with investors receiving a fraction of what their shares had been worth at the peak.

That was the story of the Digital Equipment Corporation, which was based in a former textile mill in Maynard, Mass., and became the second-largest computer company in the world in the 1980s. In 1998, it was acquired by Compaq, a maker of personal computers that had destroyed Digital’s business in mini computers. It proved to be a poor deal for Compaq, which itself was acquired later by Hewlett-Packard.

A year before Digital was acquired, a small mobile technology company based in Waterloo, Ontario, went public on the Canadian market. In 1999, it listed on Nasdaq and became a phenomenon. It was called Research in Motion until this year, when its corporate name was changed to that of its primary product, BlackBerry.

Now it seems as if BlackBerry will follow the Digital Equipment path. It has hired bankers to pursue its “strategic options,” and the expectation is that it will be acquired for its cash and patents while the product that made it rich and famous will gradually vanish.

Digital left behind a large number of technology companies in Massachusetts, some of which flourished in the very mill that Digital made famous. BlackBerry’s impact on Waterloo seems likely to be similar.

This column is not about the changing technology that caused the decline of BlackBerry, which by now is well known. Instead, it is about the way the company handled prosperity when profits were plentiful — a way that served BlackBerry executives well and that pleased Wall Street but provided no benefits to loyal shareholders.

BlackBerry’s corporate filings show that over the years it distributed $3.5 billion to shareholders. (Although BlackBerry is based in Canada, it keeps its books in United States dollars and that number, like all others in this column, is in United States currency.) That is an impressive amount, especially considering that the entire company is now worth only a little more than $5 billion.

But loyal shareholders did not receive any of that money. To get the money, an investor had to sell. The money was spent on share buybacks, and most of those buybacks came in 2008 and 2009, when the company was flying high.

BlackBerry’s financial strategy was not particularly unusual, although it does stand out in the way it abused the rules on executive stock options. Perhaps it would never have paid dividends anyway, but those options gave the company’s executives good reasons to avoid dividends and concentrate on share buybacks.

The result was a classic “sell low and buy high” strategy, one that did wonders for the executives.

Over the years, BlackBerry executives and employees exercised options to acquire 83.3 million shares, adjusted for two stock splits. On average, they paid $4.38 a share.

Those prices were, of course, well below the market value of the shares at the time. That is the way options work — or at least are supposed to work. The exercise price is equal to the market price when the options are issued, but the executive has up to 10 years to exercise them, and will do so only if the price has increased.

One reason companies that issue a lot of options prefer stock buybacks to dividends is that while buybacks may raise the market value of the stock and thus increase the value of an outstanding option, dividends are less likely to do so. Option holders, unlike shareholders, do not benefit from dividends.

Corporate managements like to say that options do not dilute shareholders’ stakes because the company acquires and retires an offsetting number of shares. BlackBerry did just that, buying 85.5 million shares that it canceled. It bought an additional 12.3 million shares that it did not cancel but held to provide stock to issue directly to executives.

Over all, it paid an average of $36.10 for the shares it repurchased.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/08/23/business/economy/how-blackberry-handled-prosperity-past.html?partner=rss&emc=rss

Samsung Reports 42 Percent Jump in Profit

In an earnings report, Samsung said its net profit from January through March had soared 42 percent to 7.2 trillion won, or $6.5 billion, from 5 trillion won a year earlier.

Sales rose 17 percent to 52.9 trillion won. Operating profit was up 54 percent to 8.8 trillion won. Profit from the division that makes smartphones, tablets, personal computers and cameras accounted for nearly three-quarters of the company’s entire profit.

Samsung is the world’s largest maker of computer memory chips, televisions, mobile handsets and LCD panels. It does not provide smartphone sales figures, but it has increasingly relied on smartphones as its main profit generator — a strategy that has brought the company into patent and marketing clashes with Apple.

Samsung began sales of its latest Galaxy S4 smartphone in South Korea on Friday. It planned to introduce it in the United States on Saturday.

Samsung’s rivalry with Apple on the Apple’s home turf intensified as Apple reported its first profit decline in more than a decade. Apple also indicated it planned no major product releases until the autumn.

Samsung has challenged Apple’s once dominant place in the world’s smartphone market by flooding it with a range of models with a variety of screen sizes and prices and updating its versions faster than Apple ever has.

Samsung captured a third of the global smartphone market in the first quarter, according to data released by Strategy Analytics. Shipments of Samsung smartphones surged 56 percent to 69.4 million units in the quarter, it said. Apple iPhone shipments rose 6.6 percent to 37.4 million units.

“Although market uncertainties from the European crisis and the slow global economic recovery are still lingering, we expect to increase” spending on research and development “for strengthening our competitiveness ahead of planned new product launches,” Robert Yi, Samsung’s head of investor relations, said in a statement.

Article source: http://www.nytimes.com/2013/04/27/business/global/27iht-samsung27.html?partner=rss&emc=rss

H.P. Reports Decline in First-Quarter Revenue and Profit

SAN FRANCISCO — Battling a declining demand for personal computers, Hewlett-Packard, the PC maker, reported lower quarterly earnings on Thursday.

The earnings were significantly higher than analysts had expected, however.

“The turnaround is starting to gain traction as a result of the actions we took in 2012 to lay the foundation of H.P.’s future,” Meg Whitman, the chief executive, said in a statement accompanying the earnings. “I feel good about the rest of the year.”

H.P. said net income fell 16 percent to $1.2 billion, or 63 cents a share, from the year-ago quarter.

The company said revenue fell 6 percent, to $28.4 billion.

Wall Street analysts had expected net income of 71 cents a share and revenue of $27.8 billion, according to a survey of analysts by Thomson Reuters.

H.P., based in Palo Alto, Calif., is one of the world’s largest suppliers of both PCs and computer servers. Demand for PCs has been shrinking, because of the popularity of tablets and smartphones, which H.P. doesn’t make. Servers face shrinking profit margins as more companies look beyond brand names and buy low-priced machines in bulk from Asian vendors.

Under Ms. Whitman, H.P. has focused on restructuring its printers and high-end server business to incorporate more data-analysis software that searches for documents and compiles reports like the energy use of the data center. She has warned, however, that the turnaround may take until 2017. In 2012, the company announced it would lay off 29,000 employees.

H.P.’s earnings announcement followed by two days a report of lower revenue and earnings by Dell Computer, H.P.’s main American rival.

Dell said its first-quarter revenue fell 11 percent, to $14.3 billion, while net income was off 31 percent, to $530 million, or 30 cents a share.

Michael Dell, Dell’s founder, has proposed taking his company private, for about $24.4 billion, to focus on restructuring the company away from the eyes of Wall Street.

Article source: http://www.nytimes.com/2013/02/22/technology/hp-reports-decline-in-revenue-and-profit.html?partner=rss&emc=rss

Bits Blog: Intel Expects Lower Revenue Because of Drive Shortage

Nir Elias/Reuters

Intel has announced that it expects revenue in the fourth quarter to be 7 percent less than expected, or  $1 billion.

It blamed a worldwide shortage of computer hard disk drives. October’s floods in Thailand severely affected the production of most of the world’s biggest manufacturers of hard drives. With fewer hard drives available, the makers of personal computers and computer servers are building fewer computers and thus need fewer semiconductors from Intel. While such shortages have been anticipated since the first hard drive factories closed, over the last two weeks the PC manufacturers have briefed Intel on the diminished need for chips, said Stacy J.  Smith, Intel’s chief financial officer.

Mr. Smith, who also said that Intel’s projected gross margins would fall to 64.5 percent from 65 percent, said the projected drop in orders “does not change our view that demand for personal computers and servers is healthy and growing.” The projected decline in revenue, to $13.7 billion from $14.7 billion, comes after a record quarter from Intel.

The shortage is expected to continue into the first quarter of 2012, as Thai manufacturers rescue and refurbish their factories. Intel expects the supply situation to improve toward the end of the first half of the year.

The depth of the demand decline appeared to shock the market. Shares in Intel were trading at midday at $23.83, down 4.7 percent. Advance Micro Devices, the second-largest maker of semiconductors behind Intel, was down 4.3 percent, at $5.30. The personal computer maker Hewlett-Packard was at $27.08, off 2.5 percent, and Dell was at $15.32, down 3 percent.

Article source: http://bits.blogs.nytimes.com/2011/12/12/intel-expects-lower-revenue-because-of-drive-shortages/?partner=rss&emc=rss