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The buzz on RIM earnings next week: Analysts divided

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The buzz on RIM earnings As always, there's a buzz around the quarterly earnings of Research In Motion Ltd. , which time and time again proves its naysayers wrong.

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The BlackBerry maker itself has projected earnings per share of $1.74 to $1.80, and revenue of $5.5-billion to $5.7-billion when it reports results next Thursday.

Analyst Phillip Huang of UBS Securities Canada is on the low end of projections, expecting RIM to come in at $1.74, which would match the third quarter, with revenues of $5.608-billion.

"What [RIM]has done well is to stay one step ahead of everyone - early in smart phones with e-mail differentiation (not as compelling with solutions from third parties now), moved to international for growth (now becoming more competitive), moved to prepaid to keep growth (which others including Apple are now focused on) and now tablets (which we are not bullish on)," he said.

"What is the next leg of growth? This remains our main concern for now and keeps us on the sidelines."

Analyst Todd Coupland of CIBC World Markets, on the other hand, is on the higher end of the scale, calling for earnings per share of $1.78 and revenue topping RIM's outlook, at $5.8-billion.

"RIM is trading primarily on PlayBook anticipation, but recently has been negatively impacted by events in Japan," said Mr. Coupland, whose price target on RIM stock is $90.

"We expect the PlayBook to launch on or about April 10 with carriers and certain U.S. retailers. About 1 million units are expected to be shipped during the May quarter."

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RIM is in fierce competition with the likes of Apple Inc. and its popular iPhone, and Google Inc. and its Android operating system.

While it prepares to launch its PlayBook tablet, Apple has been out in front not only with its iPad, but also a second version of the device.

Will the yen stay down? Canada and its allies in the Group of Seven nations took an aggressive stance today against currency traders who pushed the yen to a record high this week, a destabilizing surge that risked hampering Japan's efforts to recover from last week's devastating earthquake and tsunami.

Acting on orders from their governments, central banks in Japan, Europe, the United States and Canada banded together Friday to attempt to alter the course of currency trading for the first time in a decade, selling the yen to drive its value, Globe and Mail Washington correspondent Kevin Carmichael reports.

The move was aimed at currency traders who drove up the yen on expectations of massive repatriation of funds, threatening Japan's reconstruction efforts.

"As North American traders were passing trading books to Asia late on March 16, the yen experienced a stunning 4.3-per-cent appreciation over a violent 10-minute trading interval," Scotia Capital currency strategist Camilla Sutton said in a report today.

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"With an average daily turnover of $570-billion, [dollar-yen]is one of the most liquid tradable assets in the world, accordingly it is unlikely that the move was an issue of liquidity. Instead it was likely the combination of flows being repatriated into yen, traders positioning for expected yen strength, the collapse of what is left in the carry trade (which has also seen yen sellers evaporate) and model accounts taking advantage of a significant move. By all accounts the trading pattern was disorderly. Should it have continued, it risked a significant destabilization in the financial and economic foundation of Japan."

The big question now is where the yen goes from here, and many observers see today's drop as fleeting.

"In the longer term it is difficult to imagine a scenario that would help the Bank of Japan weaken the yen on a more permanent basis, short of an end to the current U.S. policy of dollar devaluation, and some form of U.S. fiscal tightening," said CMC Markets analyst Michael Hewson.

"Given that Bernanke's most recent public comments with respect to monetary policy have continued to be fairly dovish, that doesn't seem likely, which leaves the printing presses as the other option for the Bank of Japan as they look to outfed the Fed."

Julian Jessop, the chief international economist at Capital Economics in London, believes the yen will "weaken substantially" in time, but that's because he fears the devastation in Japan will take a greater toll on the economy than expected, forcing the Bank of Japan to ease monetary conditions even more.

"The experience both in Japan and elsewhere shows that intervention alone is not always effective when there are strong economic or financial pressures pushing in the opposite direction," Mr. Jessop said.

"What's more, the additional significance of the fact that the action is co-ordinated is more psychological than real. The position might be different for a country trying to strengthen its currency, but Japan has practically unlimited yen that it can sell and does not need overseas support. Finally, to have any chance of a lasting impact the intervention needs to be more than just symbolic. Hard numbers are not yet available, but Friday's sales appear to have been small."

Ms. Sutton of Scotia Capital said the yen isn't likely to fall sharply over the longer term, but rather stabilize and slow its strength.

"We expect that today's co-ordinated intervention will provide some temporary relief, but was not meant to, nor will it succeed at reversing near-term yen strength," she said. "The chances of repeated intervention by Japan is high, the chance of repeated co-ordinated intervention will depend on the trading pattern from here. The priority of G7 authorities is the destabilizing result of disorderly movements in foreign exchange markets, and less the negative economic consequences of a strong yen."

Adam Cole, the global chief of foreign exchange strategy at RBC in London, said he believes that the G7 objective was not to spark "significant" weakness in the yen, but to bring down the surge related to the devastation.

"Our view ... is that the balance of supply and demand is still [yen]positive and the natural direction for [the yen]is still up.

CRTC eases way for telecom switch The CRTC is putting in place new rules that will make it easier for Canadian consumers to switch between their telecom service providers, the regulator said today, though any contract penalties will still apply.

Switching providers can be an arduous, frustrating process for Canadians, Globe and Mail telecom reporter Iain Marlow reports.

But the Canadian Radio-television and Telecommunications Commission said consumers will now be able to switch with only one phone call to their new, favoured provider. That company will then contact the old carrier to initiate the transfer.

Food prices to rise Canadians haven't yet had to struggle too much with food inflation, but that's about to change, Toronto-Dominion Bank warns today, forecasting food prices will probably climb by 7 per cent to 8 per cent, and stay there for about eight or nine months.

"Canadians need to be prepared for rising food prices," economist Francis Fong said in a research report.

"... How long those increases persist will be determined by a host of supply and demand factors. We anticipate that these weather systems will eventually fade, as they have in past cycles. As such, the supply response to these elevated prices should help normalize markets for these commodities and bring price levels back down to manageable levels. In turn, this will feed into more moderate food price inflation here in Canada."

But even if commodity prices were to begin to fall now, high food inflation would still be with us for up to nine months, according to the report.

"There remain a host of risks that could potentially help support an elevated level of commodity prices and, thus, food prices. Prolonged protectionism, additional poor weather, and stronger-than-expected emerging market growth will all factor into the direction and momentum of global food prices in the coming months."

Globally, food prices have been hitting records month after month, according to the Food and Agricultural Organization of the United Nations.

The TD report cited extreme weather, with droughts in China, for example, and floods in Australia, responses by governments to ban exports or set quotes, and speculators.

"Speculators appear to be playing a role in driving up prices," the TD economist said. "While fundamentals ultimately drive long-term movements in commodity prices, a consensus is building that investors chasing short-term returns can add to short-term price volatility. Low returns on fixed-income investments and rising risk appetite appear to be the main driver of investor demand."

Inflation dips The TD report on food prices came as a fresh reading of the consumer price index showed Canada appears to be immune from inflationary pressures faced by other countries - for now.

Consumer prices climbed 0.3 per cent in February, Statistics Canada said today, bringing the annual overall inflation rate to 2.2 per cent from 2.3 per cent in January. The so-called core rate, which strips out volatile items and guides the Bank of Canada, fell to a surprising 0.9 per cent from 1.4 per cent.

But that dip in the core rate was due to a special factor related to hotel charges during the Olympics, which won't be there when the March rate is calculated, said Douglas Porter, deputy chief economist of BMO Nesbitt Burns.

"While the rest of the world seems to be grappling with rising inflation pressures, Canada is going in the opposite direction - both headline and core inflation have eased since the start of the year," Mr. Porter said.

"This is set to reverse next month, as Canada gets with the global program, but the low starting point is very favourable."

Today's reading gives Bank of Canada Governor Mark Carney even more breathing room to sit back and watch global developments before raising his benchmark lending rate.

"With respect to policy response, this reading is significantly below what the BoC was monitoring," said strategists Mark Chandler and Kam Bath of RBC Dominion Securities.

"The core annual inflation rate for February leaves the January/February average at 1.2 per cent versus expected 1.4 per cent for [the first quarter] as a whole. A bounce back to 1.3 per cent or so in the March core inflation rate looks likely at this stage. These inflation numbers will certainly add debate to the timing of the first rate hike by the BoC - arguably favouring more the July/September camp - but the activity data have been very firm and the need for intermediate rate hikes remains intact."

Encana joins terminal project Encana has agreed to buy a 30 per cent interest in Kitimat LNG, adding another vote of confidence to a $3.5-billion project that appears increasingly likely to be built, The Globe and Mail's Nathan VanderKlippe reports from Calgary today.

The company joins the Canadian subsidiaries of Apache Corp. and EOG Resources Inc. , which will now own roughly 40 per cent and 30 per cent of the project respectively. Terms of the deal were not disclosed.

If built, Kitimat LNG will be Canada's first natural gas export terminal, and for the first time allow western gas to flow to a foreign market other than the United States. Kitimat is a small British Columbia town located on the province's north coast.

China's boosts bank requirement China has yet again boosted the required reserve ratio, or RRR, for its banks by half a percentage point, its sixth such move since October. Are Beijing's attempt to cool inflation working?

"The People's Bank approach of using RRR hikes to restrain lending rather than, say, simply ordering banks to stick to quotas, or raising interest rates much faster, seems to be paying off," said Mark Williams, senior China economist at Capital Economics in London.

"Lending in February was well beneath the expected level, while recent evidence suggests that growth momentum in the economy has already peaked and that price pressures are easing."

Boyd Erman's Morning Meeting London Stock Exchange Group PLC, which is trying to combine with TMX Group Inc., has admitted it unfairly dismissed the head of a company it acquired, Streetwise columnist Boyd Erman reports today.

In Economy Lab today

While lost Libyan output appears to be priced into the oil markets, the days of $100-plus oil may be here to stay, Globe and Mail European correspondent Eric Reguly writes.

In Personal Finance today

Life is unpredictable, but if there's anything you can do to stave off disaster, it's to be prepared and be careful. Here are 10 steps you can take.

As markets react to crisis in Japan, investors who can keep their heads could benefit, writes financial adviser Ted Rechtshaffen.

The investing approach you take is up to you, but it's important to be consistent, Preet Banerjee says.

From today's Report on Business

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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