BlackBerry Posts Huge Loss on Write-Down and Charges

The stock rose as much as 17 percent after the company announced the five-year partnership with Taiwan's Foxconn Technology Co Ltd, which 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 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, $4.4 billion loss that it posted for the quarter ended November 30, as smartphone sales shriveled.

A new line of devices running on BlackBerry 10 software has failed to gain traction, forcing the company to write off $1.6 billion of inventory and supply commitments for the quarter. The previous quarter it wrote off $934 million 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 percent this year. It was last trading up 14 percent on Nasdaq at $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.

DEVICES ARE A CHALLENGE

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.

DealBook: Some Question Numbers in H.P.'s Write-Down

The “kitchen sink” charge, in which all kinds of write-downs and costs are rolled into one gargantuan number, is something of a ritual in corporate America. The $8.8 billion charge that Hewlett-Packard announced on Tuesday, however, shows why such moves should be scrutinized carefully.

H.P. took the charge in its fourth quarter to reflect the reduced value of Autonomy, the British software firm that it bought last year for about $10 billion. The computing giant said it had discovered “serious accounting improprieties” at Autonomy, including what it said were ruses that inflated revenue and profitability metrics.

H.P. contends that such accounting improprieties were behind more than $5 billion of the $8.8 billion charge. For some analysts, that didn’t add up.

“Out of the $8.8 billion, I’d be very surprised if more than a couple of billion was due to accounting improprieties,” said Aswath Damodaran, a professor of finance at New York University’s Stern School of Business.

In other words, the skeptics say they think H.P. may be overstating the financial effects of the supposed accounting chicanery. They say that H.P.’s management may have wanted to write off as much of Autonomy as possible, and that the accounting allegations allowed it to increase the charge.

This move, of course, hurt H.P’s fourth-quarter earnings. But a big charge has the advantage of cleaning the slate for the next fiscal year for the company’s chief executive, Meg Whitman. With Autonomy now only a small part of H.P.’s balance sheet, there is a much smaller chance that the troubled division will lead to more embarrassing write-downs. The Autonomy acquisition was initiated by H.P.’s previous chief executive, Léo Apotheker.

Evaluating the validity of the charge requires understanding exactly what H.P. was writing down.

When a company accounts for an acquisition, it assesses the value of the target, subtracting its liabilities from its assets. It then compares this so-called fair value with the price it is paying. If it is paying more than the fair value, the difference is recorded as good will on the buyer’s balance sheet. When H.P. acquired Autonomy, it got roughly $4 billion of intangible assets (Autonomy’s expertise, intellectual property and brand recognition) and recorded roughly $6 billion of good will. In the charge announced Tuesday, H.P. slashed the value of both, effectively saying Autonomy was worth 80 percent less than it originally thought.

In some ways, an 80 percent reduction might seem deserved, if Autonomy was in fact cooking its books. But despite their accusations, H.P. executives in a conference call did not seem to present a dire picture of Autonomy. The ruses, if that’s what they were, helped revenue and profits, but probably not enough to account for $5 billion of the charge, said Anup Srivastava, an assistant professor at the Kellogg School of Management at Northwestern University. “I can’t justify it,” he said.

Autonomy’s revenue benefited from one alleged ruse, but only by 10 to 15 percent, according to Hewlett. Catherine A. Lesjak, the H.P. chief financial officer, said Tuesday that without accounting tricks, Autonomy would have appeared less profitable. But it was still making money, according to her figures.

Without the tricks, Ms. Lesjak said, Autonomy probably had operating margins as high as 30 percent, compared with as much as 45 percent with them. And on Tuesday, Ms. Whitman said Autonomy could still be something of a “growth engine” for H.P.

Still, some people think the charge may be reasonable. In assessing the size of an impairment charge, companies focus on projections of cash flows from the affected divisions. If H.P. can show that Autonomy’s cash generation is far below its expectations, and that cooking the books largely hid that, the charge may be sound, said Cynthia Jeffrey, associate professor of accounting at Iowa State University.

“If there’s fraud involved and that wasn’t found during due diligence, the whole thing could be valueless,” she said.

H.P. could argue that the high valuation it placed on Autonomy’s cash flows looks all the more untenable in light of the legerdemain allegations, and that that’s why it had to take the charge.

When asked to comment on the charge, an H.P. spokesman, Michael Kuczkowski, e-mailed a list of what he said were the improper accounting maneuvers at Autonomy.

“Because our investigation into the accounting improprieties and misrepresentations at Autonomy remains ongoing, and given our referral of this matter to regulatory authorities in the U.S. and the U.K., it would not be appropriate for us to provide a more detailed description at this time,” he said.

Sprint Reports Loss on Nextel Write-Down

But Sprint was successful in persuading smartphone subscribers to pay more for the “unlimited data” service, and its service revenue climbed, beating Wall Street’s estimates.

The results cheered investors, who sent Sprint’s volatile stock up 20 percent, or 68 cents, to $4.05, its highest level in nearly a year.

In the April to June period, Sprint’s net loss was $1.37 billion, or 46 cents a share, compared with a loss of $847 million, or 28 cents a share in the same quarter last year.

Analysts polled by FactSet on average had been expecting a loss of 41 cents a share.

It was the 19th consecutive quarter of losses for Sprint, which is struggling to compete with its two bigger rivals, AT&T and Verizon Wireless. Still, Sprint raised its forecast for adjusted operating earnings for the year by 18 percent. The measure excludes interest expenses and writing down asset values.

Sprint’s revenue totaled $8.84 billion, up 6 percent from a year earlier. Analysts were expecting $8.72 billion.

Sprint’s goal is to complete the shutdown of Nextel in the middle of next year. It bought the network in 2005, a deal that proved disastrous. Nextel’s strength is its push-to-talk capability, functioning like a walkie-talkie, but it is not built for smartphones or data service. As subscribers abandoned it, Sprint was saddled with the cost of maintaining the network.

The company’s chief executive, Dan Hesse, said Thursday that Sprint was ahead of schedule in deactivating Nextel antennas. The company is using the space freed up on the airwaves to make data service faster.

Customers on contract-based Sprint plans paid an average of $63.38 a month in the quarter, a record high and nearly as much as AT&T customers are paying, even though AT&T has had the iPhone, which attracts high-paying customers, for a longer time.

IPhones proved surprisingly popular at Sprint. It activated 1.5 million of the phones in the quarter, the same number as in the first quarter. AT&T and Verizon had a drop in iPhone activations from the first quarter to the second, as the excitement around the latest model, the iPhone 4S, cooled.

Sprint, unlike Verizon or AT&T, still offers unlimited data service, and Mr. Hesse said that was a major reason Sprint keeps attracting iPhone subscribers. However, Sprint offers relatively slow data speeds.

Sprint Reports Loss on Nextel Write-Down

But Sprint was successful in persuading smartphone subscribers to pay more for the “unlimited data” service, and its service revenue climbed, beating Wall Street’s estimates.

The results cheered investors, who sent Sprint’s volatile stock up 20 percent, or 68 cents, to $4.05, its highest level in nearly a year.

In the April to June period, Sprint’s net loss was $1.37 billion, or 46 cents a share, compared with a loss of $847 million, or 28 cents a share in the same quarter last year.

Analysts polled by FactSet on average had been expecting a loss of 41 cents a share.

It was the 19th consecutive quarter of losses for Sprint, which is struggling to compete with its two bigger rivals, AT&T and Verizon Wireless. Still, Sprint raised its forecast for adjusted operating earnings for the year by 18 percent. The measure excludes interest expenses and writing down asset values.

Sprint’s revenue totaled $8.84 billion, up 6 percent from a year earlier. Analysts were expecting $8.72 billion.

Sprint’s goal is to complete the shutdown of Nextel in the middle of next year. It bought the network in 2005, a deal that proved disastrous. Nextel’s strength is its push-to-talk capability, functioning like a walkie-talkie, but it is not built for smartphones or data service. As subscribers abandoned it, Sprint was saddled with the cost of maintaining the network.

The company’s chief executive, Dan Hesse, said Thursday that Sprint was ahead of schedule in deactivating Nextel antennas. The company is using the space freed up on the airwaves to make data service faster.

Customers on contract-based Sprint plans paid an average of $63.38 a month in the quarter, a record high and nearly as much as AT&T customers are paying, even though AT&T has had the iPhone, which attracts high-paying customers, for a longer time.

IPhones proved surprisingly popular at Sprint. It activated 1.5 million of the phones in the quarter, the same number as in the first quarter. AT&T and Verizon had a drop in iPhone activations from the first quarter to the second, as the excitement around the latest model, the iPhone 4S, cooled.

Sprint, unlike Verizon or AT&T, still offers unlimited data service, and Mr. Hesse said that was a major reason Sprint keeps attracting iPhone subscribers. However, Sprint offers relatively slow data speeds.

Microsoft Reports 4th-Quarter Loss After a Write-Down

But while that loss can be played down as an anomaly for a company that has been a reliable moneymaker for decades, weak sales in Microsoft’s Windows business cannot. Microsoft said on Thursday that its revenue from Windows fell 13 percent in the fiscal fourth quarter, which ended June 30.

Windows sales looked worse than they really were in part because Microsoft had to change how it recognized that revenue because of an offer it has extended to people who buy PCs running Windows 7. Under that offer, users can pay $14.99 to upgrade to Windows 8 when it comes out in October.

If Microsoft had not had to defer a portion of its Windows sales — $540 million in this case — its Windows revenue would have declined 1 percent, still a dismal performance that underscores the challenges in the traditional computer business right now.

Sales in the PC market have stagnated as consumers have diverted their technology spending to more exciting technologies, including smartphones and tablet computers like the iPad. Microsoft and other companies in the PC industry are hoping to reignite growth in the business with the release of Windows 8, an operating system that has been revamped to work better on touch-screen devices.

The blockbuster success of the iPad has forced other significant changes at Microsoft, most notably the company’s decision to design and sell its own tablet computer, called Surface. Technology executives and analysts say they believe Microsoft chose to make Surface, the first computer of Microsoft’s own creation, after its partners in the hardware business failed to come up with products compelling enough to rival the iPad.

In an interview, Peter Klein, Microsoft’s chief financial officer, said sales of PCs to businesses were growing, but that consumer sales, mainly in developed markets like the United States and Europe, were weak.

Mr. Klein said that could be partly attributed to broader weakness in the economy and competition from tablets. Mr. Klein said the company believed Windows 8 would help to change things.

“We’re pretty encouraged by the impact that can have,” he said.

Other parts of Microsoft’s business fared better, including its server and tools division, for which sales rose 13 percent. At the company’s business division, which includes its Office family of applications, sales rose 7 percent.

Microsoft has also been struggling to improve its position in the smartphone business, where competitors like Apple and Google have gobbled up most of the market.

Mr. Klein said sales of handsets running Windows Phone, Microsoft’s mobile operating system, increased more than 50 percent between the company’s fiscal third and fourth quarters. Microsoft reported a net loss of $492 million, or 6 cents a share, in contrast to net income of $5.87 billion, or 69 cents a share, during the same period a year ago.

The company said its revenue was $18.06 billion during the quarter, up from $17.37 billion a year ago.

Without the charge related to the company’s $6.2 billion write-down of the value of aQuantive, the online advertising business it acquired in 2007, Microsoft would have earned 67 cents a share.

That compares to the 58 cents a share that analysts on average expected Microsoft to report, according to Thomson Reuters.

The weakness in sales of Windows did not surprise analysts who follow the company. Research firms have been warning of poor computer sales for weeks now. Rick Sherlund, an analyst at Nomura Securities, said in a research note that Microsoft exceeded his expectations for the quarter, partly by keeping its costs under control.

Microsoft shares rose more than 2 percent in after-hours trading. They closed the regular trading session at $30.67, up 22 cents.

Microsoft Reports 4th-Quarter Loss After a Write-Down

But while that loss can be played down as an anomaly for a company that has been a reliable moneymaker for decades, weak sales in Microsoft’s Windows business cannot. Microsoft said on Thursday that its revenue from Windows fell 13 percent in the fiscal fourth quarter, which ended June 30.

Windows sales looked worse than they really were in part because Microsoft had to change how it recognized that revenue because of an offer it has extended to people who buy PCs running Windows 7. Under that offer, users can pay $14.99 to upgrade to Windows 8 when it comes out in October.

If Microsoft had not had to defer a portion of its Windows sales — $540 million in this case — its Windows revenue would have declined 1 percent, still a dismal performance that underscores the challenges in the traditional computer business right now.

Sales in the PC market have stagnated as consumers have diverted their technology spending to more exciting technologies, including smartphones and tablet computers like the iPad. Microsoft and other companies in the PC industry are hoping to reignite growth in the business with the release of Windows 8, an operating system that has been revamped to work better on touch-screen devices.

The blockbuster success of the iPad has forced other significant changes at Microsoft, most notably the company’s decision to design and sell its own tablet computer, called Surface. Technology executives and analysts say they believe Microsoft chose to make Surface, the first computer of Microsoft’s own creation, after its partners in the hardware business failed to come up with products compelling enough to rival the iPad.

In an interview, Peter Klein, Microsoft’s chief financial officer, said sales of PCs to businesses were growing, but that consumer sales, mainly in developed markets like the United States and Europe, were weak.

Mr. Klein said that could be partly attributed to broader weakness in the economy and competition from tablets. Mr. Klein said the company believed Windows 8 would help to change things.

“We’re pretty encouraged by the impact that can have,” he said.

Other parts of Microsoft’s business fared better, including its server and tools division, for which sales rose 13 percent. At the company’s business division, which includes its Office family of applications, sales rose 7 percent.

Microsoft has also been struggling to improve its position in the smartphone business, where competitors like Apple and Google have gobbled up most of the market.

Mr. Klein said sales of handsets running Windows Phone, Microsoft’s mobile operating system, increased more than 50 percent between the company’s fiscal third and fourth quarters. Microsoft reported a net loss of $492 million, or 6 cents a share, in contrast to net income of $5.87 billion, or 69 cents a share, during the same period a year ago.

The company said its revenue was $18.06 billion during the quarter, up from $17.37 billion a year ago.

Without the charge related to the company’s $6.2 billion write-down of the value of aQuantive, the online advertising business it acquired in 2007, Microsoft would have earned 67 cents a share.

That compares to the 58 cents a share that analysts on average expected Microsoft to report, according to Thomson Reuters.

The weakness in sales of Windows did not surprise analysts who follow the company. Research firms have been warning of poor computer sales for weeks now. Rick Sherlund, an analyst at Nomura Securities, said in a research note that Microsoft exceeded his expectations for the quarter, partly by keeping its costs under control.

Microsoft shares rose more than 2 percent in after-hours trading. They closed the regular trading session at $30.67, up 22 cents.

DealBook: Microsoft Takes Write-Down in Failed Digital Ad Foray

Microsoft owned up on Monday to the collapse of its biggest push into digital advertising, announcing that it would take a $6.2 billion accounting charge in its online services division for a failed acquisition.

The accounting charge, called a write-down of good will, was essentially a write-off of the value of aQuantive, a digital advertising company that Microsoft bought in 2007. It will effectively wipe out Microsoft’s fourth-quarter profit.

The company said it took the write-down because “expectations for future growth and profitability are lower than previous estimates” for the online services unit.

The charge will not affect the online services division’s operations or financial performance, Microsoft said.

“It’s disappointing, but it is not a shock at this point,” said Brendan Barnicle, senior research analyst at Pacific Crest Securities. “The industry has evolved beyond where aQuantive was when Microsoft bought it.”

Microsoft does make money in online advertising, but has relied on a number of digital advertising partnerships.

The deal for aQuantive was struck when technology and traditional advertising firms were desperately seeking footholds in the world of Internet display advertising. At the time, aQuantive was the biggest company Microsoft had bought in its history.

A month before the aQuantive acquisition, Google, Microsoft’s big rival in online advertising, purchased a similar firm, DoubleClick, for $3.1 billion. That deal has been highly profitable for Google, analysts say.

The purchase of aQuantive may well have been driven by pressure Microsoft was feeling at the time, not only from the DoubleClick deal, but by similar acquisitions by other companies. Microsoft bought aQuantive one day after the WPP Group bought 24/7 Real Media, another digital advertising company, for $649 million, and a month after Yahoo agreed to pay $680 million for Right Media, an online ad exchange.

All of the acquisitions were in one or another part of the display advertising business across the Web. Once highly profitable by indiscriminately pasting digital ads across the borders of millions of Web pages, the business has become under pressure as companies like Google got better at aiming for individual tastes with search advertising.

With DoubleClick, Google appeared to be using that personalization technology for the placement of banners and other display advertising.

Google used DoubleClick’s huge inventory of Web ads inside AdSense, Google’s self-serve ad placement technology for third-party Web sites.

AQuantive was a well-respected online agency based in Seattle, but its focus was on design and client services. The company did have ad inventory and an ad placement engine similar to DoubleClick’s at the time, but Microsoft did little to update it.

“It could have been another DoubleClick, but they would have had to know a business where publishers and advertisers meet, and then invest heavily,” said Todd Sawicki, chief revenue officer at Cheezburger, a publisher of several popular Web sites.

“Microsoft bought aQuantive in a reactionary move to Google buying DoubleClick, thinking that ad serving was its core strength,” he added. “Then they woke up the next morning and realized what they had.”

Brian McAndrews, the chief executive of aQuantive, was promoted to head Microsoft’s publisher and advertising group in August 2007, but left the company in December 2008. Now a venture partner with the Madrona Venture Group, Mr. McAndrews was recently elected to the board of The New York Times Company.

The poor performance of aQuantive has not hurt other parts of Microsoft’s online ad business. The company’s Bing search engine has grown, as has its revenue per search. Microsoft has struck a number of partnerships, including with Yahoo, WPP and App Nexus, which does real-time ad placement.

In May 2011 Microsoft paid $8.1 billion for the communications company Skype, its biggest purchase, and one that is thought to be going well for Microsoft.

Microsoft still has some innovative ad technology products, said Darren Herman, chief digital media officer at the Media Kitchen, a digital advertising agency. It may be using some of its partnerships to learn more about the online ad business as a prelude to an actual purchase, he said.

“There are a lot of people that think that Microsoft and App Nexus are going to link up,” Mr. Herman said. “It’s just a matter of when, not if.” Nonetheless, the end of possible competitor to Google’s DoubleClick ad placement engine left some even outside Microsoft feeling the sting.

“AOL has a small ad engine, and so does 24/7, but for ad placement it’s really DoubleClick or bust,” said Mr. Sawicki. “It’s a phenomenal failure.”

Tanzina Vega contributed reporting.