Jessa P.

Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Nintendo Mulls New Business Model after Forecasting Loss

Nintendo Co. President Satoru Iwata said the maker of video-game machines is considering a new
business model after forecasting a surprise 25 billion-yen ($240 million) annual loss because of tepid
demand for the Wii U.
Nintendo fell the most in more than 12 years in the U.S. yesterday. The company had previously projected
profit of 55 billion yen for the year ending March as it counted on Christmas shoppers to revive sales of
the Wii U console featuring games with iconic characters Mario and Zelda. Nintendo cut its forecasts for
Wii U console sales to 2.8 million units from 9 million and for Wii U game sales to 19 million units from
38 million.
The family-focused content of Nintendo is losing its appeal as titles were delayed, casual gamers migrate
to mobile devices, and hardcore players opt for the faster Sony PlayStation 4 and Microsoft Xbox One.
The owner of Pokemon and Donkey Kong also refuses to offer games with its characters on mobile
devices, limiting its ability to profit online players surging demand.
We are thinking about a new business structure, Iwata said at a press conference yesterday in Osaka,
Japan. Given the expansion of smart devices, we are naturally studying how smart devices can be used to
grow the game-player business. Its not as simple as enabling Mario to move on a smartphone.
Nintendo American depositary receipts fell 17 percent to $14.90 yesterday New York, their biggest
decline since September 2001. Each ADR equals 0.125 underlying shares.
Nintendo declined 2.8 percent to 14,645 yen yesterday in Tokyo, before the announcement. The shares
advanced 54 percent last year.

Apple, Samsung
The new forecast for the Wii U is less than the 3.45 million units sold the previous fiscal year. The Kyoto,
Japan-based Company also cut its forecast for operating income to a 35 billion-yen loss from the prior
100 million-yen profit.
Projections for sales of its handheld 3DS player were cut to 13.5 million units from 18 million, and for
sales of 3DS games to 66 million units from 80 million.
Nintendo posted a quarterly loss of 8 billion yen in October after cutting the price of the console in the
face of new machines from Sony Corp. and Microsoft Corp. Iwata is trying to lure consumers who prefer
playing games on mobile devices from Apple Inc. and Samsung Electronics Co.

More Pressure
The video-game market has moved into smartphones and tablets, said Mitsushige Akino, chief fund
manager at Ichiyoshi Asset Management Co. in Tokyo. Nintendo needs to expand from their current
hardware business model. Its a structural problem.
The revisions increase the pressure on Iwata, who vowed in October to meet a forecast of 100 billion yen
in full-year operating profit and 9 million units in Wii U sales. Nintendo has lost about 80 percent of its
market value since the introduction of the original Wii drove shares to a record high of 72,100 yen in
November 2007, according to data compiled by Bloomberg.
Its market capitalization is about $20 billion -- less than Samsungs previously announced capital
expenditures.
The revision is much worse than expected, Yusuke Tsunoda, an analyst at Tokai Tokyo Securities Co. in
Tokyo, said by phone. Its going to be a third consecutive annual operating loss and that raises a serious
management issue.
Iwata said any announcement about a pay cut would come later this month when the company releases
third-quarter earnings. There are no plans to reshuffle management in the near term, he said.

Lower Dividend
The company reduced its planned dividend for the fiscal year to 100 yen from 260 yen. Nintendo revised
its foreign-exchange assumptions to 100 yen to the dollar from 90 yen, and to 140 yen per euro from 120
yen.
We were unable to sufficiently take advantage of the weaker yen, Iwata said.
Even with new titles including Pikmin 3, Nintendo failed to capitalize on U.S. video-game product
sales that surged to their highest in three years in December.
Hardware sales increased 28 percent to $1.37 billion from a year earlier, Port Washington, New Yorkbased NPD Group Inc. said on Jan. 16. The tally, the highest since spending hit $1.84 billion in December
2010, drove total retail sales for the industry to their fifth straight monthly gain.

Price Cut
The Wii U features a tablet-like, 6.2-inch touchscreen controller that lets players connect wirelessly to the
console and shift the display between the device and a television. The consoles compete in a market
where smartphone sales are on track to exceed 1 billion units this year, researcher IDC said Oct. 29.

The Wii Us price in the U.S. was cut by $50 to $299.99 on Sept. 20, while the Japanese price remained a
suggested 30,000 yen.
Nintendo introduced the 2DS portable machine, resembling a tablet, in October for $129.99 to lure firsttime and casual gamers.
The global video-game market may reach $111 billion by 2015, researcher Gartner Inc. said Oct. 29.
Mobile games are the fastest-growing segment, with revenue set to reach $22 billion by 2015 from $13.2
billion this year, Gartner said.
We cannot continue a business without winning, Iwata said. We must take a skeptical approach
whether we can still simply make game players, offer them in the same way as in the past for 20,000 yen
or 30,000 yen, and sell titles for a couple of thousand yen each.

Source:
Horie, M. & Amano, T. (2014). Nintendo Mulls New Business Model after Forecasting Loss
http://www.bloomberg.com/news/articles/2014-01-17/nintendo-forecasts-net-loss-on-stagnatingsales-of-wii-u-games

Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Walgreen Shakeup Followed Bad Projection

A billion-dollar forecasting error in Walgreen Co.'s Medicare-related business has cost the jobs of two top
executives and alarmed big investors.

At an April board meeting, Chief Financial Officer Wade Miquelon forecast $8.5 billion in fiscal 2016
pharmacy-unit earnings, based partly on contracts to sell drugs under Medicare.
Last month, directors got a shock. Mr. Miquelon suddenly cut that forecast by $1.1 billion.
In early August, the CFO of the nation's largest drugstore chain was gone. Walgreen said several days
earlier that its pharmacy chief, Kermit Crawford, would retire at year-end.
Behind the botched numbers and management shake-up are Walgreen's efforts to capture a larger role as a
middleman dispensing prescription drugs under Medicare's Part D, which subsidizes costs for the elderly
and disabled. The saga at Walgreenwhich derives 25% to 30% of its prescriptions from Medicare Part
D plansshows the broader risks for those operating in the Medicare ecosystem.
The bottom line: Walgreen hadn't factored in, among other things, a spike in the price of some generic
drugs that it sells as part of annual contracts.
Mr. Miquelon, 49 years old, declined to comment on board discussions but said that "all senior leaders are
constantly updated on all relevant financial matters and in turn apprise all board members transparently
and expeditiously." He said his departure wasn't forced. People familiar with the decision say both
executives were pressured to leave. The 55-year-old Mr. Crawford, a 31-year Walgreen veteran, said: "I
made the decision to retire."
In a call with investors two weeks ago, Walgreen Chief Executive Gregory Wasson said the company was
"really, really challenged" by negotiations to get reimbursement for dispensing prescription drugs under

Medicare's Part D, and it didn't "fully anticipate" a "rapid and pronounced increase in generic-drug
pricing." Mr. Wasson, 56, declined to comment.
Walgreen directors have told investors they were stunned by the change in the pharmacy forecast, which
was for earnings before interest and taxes. Stefano Pessina, the company's largest shareholder and a
director, has told other investors he wasn't permitted to see the forecasts before they were distributed to
the board. The 73-year-old Mr. Pessina, who holds roughly an 8% stake, was unavailable for comment.
In recent meetings, investors say, Walgreen directors told them that forecasts given to directors in April
were "inadequate" and that the company's finance and pharmacy units weren't "talking to each other."
In an email, Mr. Miquelon said the finance group "works well across all aspects of the company and that
is inclusive of Kermit's department." He said finance people are embedded in the various business units.
Mr. Miquelon said that in his six years, total shareholder return of 116% "outpaced all key competitors
and major indices."
Pharmacy chains make long-term contracts with health insurers and others, including firms that operate
Medicare Part D drug plans, agreeing to sell a range of drugs for set prices.
But the prices Walgreen must pay drug makers to get some generic drugs rose. Among those that rose in
price was the antibiotic tetracycline. Walgreen declined to say which rose.
In some cases, the firm found it would receive lower rates than expected for drugs it dispenses.
Its finance unit didn't incorporate these price changes into its April forecast of fiscal 2016 pharmacy
profits. In making its July forecast, it did.
In meetings with investors two weeks ago, Walgreen officials said the company group writing contracts
wasn't communicating with the finance group.
Walgreen has scrambled to reflect the higher drug costs in the pricing of its contracts. It said it believes
drug-price inflation will continue, and this is "baked into" future plans.
Its major rival CVS Caremark Corp.'s retail armsaid price increases on generic drugs weren't
unexpected. CVS didn't indicate any effect on earnings or forecasts from such changes.
In the investor conference call, Walgreen's Mr. Wasson said the new CFO, Timothy McLevish, has "a
history of strong cost control and financial discipline," and he will "help us make sure that we're making
good, sound financial decisions and forecasting going forward." Mr. McLevish, 59, is a former Kraft
executive.
Walgreen's forecast flub has been overshadowed by its decision, disclosed the same day as the investor
call, not to do a so-called tax inversion. Walgreen's stock plunged 14% after it confirmed it won't move its
headquarters abroad after it buys the rest of European drugstore chain Alliance Boots GmbH. Such a

move could have cut Walgreen's tax bill but attracted attention from harsh critics of tax inversions in the
U.S. government.
Overall, Walgreen's performance has been lackluster in recent years. When Mr. Wasson became CEO in
2009, its profit margin for earnings before interest and taxes was 5.6%, adjusted to take out one-time
costs, versus an unadjusted 7.5% at the retail unit of CVS. By 2014, Walgreen's adjusted margin had risen
to 6.5%, and the CVS unit's was up to an unadjusted 9.4%.
Walgreen is planning to repurchase $3 billion of its shares over two years. "Why wouldn't you consider
leveraging up more to buy back more stock?" asked Barclays PLC analyst Meredith Adler on the investor
call.
Treasurer Jason Dubinsky replied that the firm had to preserve cash for reasons such as the Alliance Boots
deal. In a statement, Walgreen said it would keep in mind feedback on its capital allocation.
Mr. Miquelon's departure as CFO ends a sometimes rocky tenure. He was arrested for alcohol-related
incidents in 2009 and 2010, according to public records. He said he paid for a driver, has "fully accepted
personal accountability" and "never been convicted of a DUI or any crime."
He will get severance of $3.2 million and a performance bonus of nearly $1.2 million; Mr. Crawford will
get severance of $3.3 million and consulting pay.

Source:
Siconolfi, M. (2014). Walgreen Shakeup Followed Bad Projection.
http://www.wsj.com/articles/walgreen-shakeup-followed-bad-projection1408494546#livefyre-comment

Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Apple Forecasts Second Sales Drop as iPhone Woes Deepen

Apple Inc.s streak of 51 consecutive quarters of uninterrupted sales growth is over -- and its expansion
may not resume until late this year.
A boom in demand for smartphones, music players and other electronic devices propelled Apples annual
revenue by $227 billion in the 13 years since the last quarterly drop, resulting in a skyrocketing stock
price that made Apple the worlds most valuable company.
That era of untrammeled expansion hit a wall in the quarter that ended in March as fewer people
upgraded to the latest iPhones, and the company is predicting another decline in the current period.
With the introduction of a new model still months away, Apple investors are seeking answers on whether
lackluster sales of the device, the companys biggest revenue generator, reflect a broader slowdown in the
market for high-end smartphones -- or just the pause before the next upgrade frenzy. Forecasts from

suppliers such as Qualcomm Inc. and Taiwan Semiconductor Manufacturing Co. have suggested demand
is cooling, and stalled economic growth in China is paring Apples sales in that region.
I see nothing on the horizon from a component or a technology perspective thats going to drive these
major upgrades, Bob ODonnell, chief analyst at TECHnalysis Research LLC, said in a televised
interview on Bloomberg West. Were going to see people hold onto these things longer, just like we saw
with PCs.
Second-quarter sales slid 13 percent to $50.6 billion from $58 billion a year earlier, the company said
Tuesday in a statement. That compared with the average analyst estimate of $52 billion. Net income
declined to $10.5 billion, and IPhone shipments fell 16 percent. Sales in the third quarter, which ends in
June, will be $41 billion to $43 billion, Apple said. On average, analysts estimated revenue of $47.4
billion, according to a Bloomberg survey.
The smartphone market is currently not growing, Chief Executive Officer Tim Cook said a conference
call. Thats an overhang of the macroeconomic environment in many places in the world.
The stock dropped as much as 8.3 percent to $95.68 Wednesday morning and was trading at $96.92 at
10:07 a.m. in New York. Concerns about decelerating smartphone demand have contributed to an almost
20 percent decline in Apple shares in the past 12 months. The stock fell less than 1 percent to $104.35 at
Tuesdays close in New York. That gave Apple a market capitalization of about $579 billion -- still the
worlds largest company by that measure.

Growth Streak
The last time Apples quarterly profit dropped compared with the same period a year earlier was in the
second quarter of fiscal 2003, when it cited higher expenditures on developing new products.
The introduction of the iTunes Store the following quarter was the starting point for surging iPod growth,
which would ultimately birth the iPhone four years later.

The Cupertino, California-based company on Tuesday also said it will boost its share-repurchase program
to $175 billion, from the $140 billion announced last year. Apple will increase its quarterly dividend, as it
did a year ago, to 57 cents a share from 52 cents.
The second-quarter report showed that Apple is no longer able to count on China as a growth engine.
Sales in that country, Taiwan and Hong Kong fell 26 percent in the period, a major shift from just a
couple of years ago, when sales in the region were more than doubling with regularity. Apple attributed
the decline primarily to lower sales in Hong Kong, where the local currency peg with the U.S. dollar
made products more expensive to visitors.
China is particularly worrisome for Apple because it has risen quite quickly to become Apples secondmost important region, said Brian Blau, a San Francisco-based analyst at Gartner Inc. That makes us
wonder what the issue is, whether its a temporary issue or whether its going to be something longerterm.
IPhone sales in the recent period fell to 51.2 million from 61.2 million a year earlier. Analysts on average
had predicted the company would sell 50.7 million iPhones in the quarter, according to a Bloomberg
survey.
Legal Battles
The quarterly report is Apples first since a high-profile legal skirmish with the U.S. government over
data privacy, encryption and law enforcement. The U.S. dropped two separate demands that the company
help it break passcodes to get data from the iPhones used by a drug dealer in New York and a shooter in a
December terrorist attack in San Bernardino, California. Apple had vehemently fought against both
orders, saying that helping the government would jeopardize security for hundreds of millions of users
and the cases could pose a dangerous precedent for law enforcement agencies access to encrypted iPhone
data. The Department of Justice had argued it only wanted access to specific phones in limited instances,
and abandoned the two cases after finding alternate methods for unlocking the phones in question.
As iPhone sales slow, Apple investors are increasingly asking what might fuel the companys next growth
spurt. A number of possibilities have surfaced: virtual reality gear, a self-driving car or a live television

service, for example. Yet Apples secretive approach to development makes it hard to predict when, in
what form, or even if any of these innovations will someday surface.
Virtual reality gained headlines back in January, when Cook said VR wasnt a niche and had some
interesting applications. Meanwhile the potential allure of the automotive industry for Apple and other
technology companies has been highlighted in recent weeks as Tesla secured more than 325,000 preorders for its latest electric car in a matter of days.

Seeking Acquisitions
As growth slows, Cook said Apple may look to acquisitions to speed up product development or help the
company enter new product categories. Apple has made 15 acquisitions over the past 12 months, most of
them small. "Were always looking," Cook said.
Analyst project sales will be little changed in the fiscal fourth quarter, which ends in September, and on
average they predict sales growth of 4 percent in the last three months of the year, when a new version of
the full-sized iPhone is likely to be on the market.
In the meantime, the company has been adding to its product line. In March, the company rolled out the
new iPhone SE, partially seen as a move to bolster sales in emerging economies such as India and China.
Yet analysts cautioned that the smaller phone, starting at $399 in the U.S., could risk cannibalizing sales
of the more expensive flagship 6-series handsets, and may reduce the average price at which Apple sells
its phones.

Price Impact
The lower price point of the iPhone SE is one of the main reasons for Apples lower-than-projected thirdquarter sales forecast, Chief Financial Officer Luca Maestri said in an interview. The company has been
unable to manufacture enough iPhone SEs to meet demand, he added.

Every time we launch a new product we know there is an element of overlap, Maestri said. We look at
the opportunity to attract the first-time smartphone buyers.
Last month Apple also unveiled a new, smaller iteration of the iPad Pro, incorporating the power and
some features of its larger Pro model for business users, aimed at stemming a persistent decline in sales of
the tablet. IPad shipments in the recent quarter fell 19 percent from a year earlier to 10.3 million, topping
analysts average projection of 9.4 million.
To help make up for dwindling growth in smartphones and other devices in the shorter term, Apple has
been trying to bolster its services business, which includes its iCloud storage platform, Apple Music and
the App Store. Not only is the profit margin wider on these offerings, buying them usually commits
customers to subscription services that generate stable recurring revenue streams over months or years.
Services was a bright spot in the second quarter, with revenue jumping 20 percent.
Sales of Mac computers declined 12 percent to 4.03 million units, less than estimates of 4.6 million.

Source:
Webb, A. (2016). Apple Forecasts Second Sales Drop as iPhone Woes Deepen
http://www.bloomberg.com/news/articles/2016-04-26/apple-forecasts-anothersales-decline-as-iphone-demand-cools
Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Apple Falls After Forecast for First Sales Drop Since 2003
Apple Inc. fell the most in five months after forecasting a sales decline for the first time in more than a
decade, adding to evidence that the market for smartphones is becoming saturated and that expansion in
China is no longer enough to maintain the companys unprecedented run of growth.
Revenue in the first three months of the year will be $50 billion to $53 billion, Apple said Tuesday, the
first quarterly drop since 2003 and below analysts estimates for $55.5 billion. That follows a holiday

quarter in which overall sales and iPhone shipments fell short of projections, reinforcing concerns that
Apple is reaching the limits of iPhone growth and that a push in China wont make up for a slowdown in
the rest of the world -- a sentiment thats fueled a stock slide of 20 percent in the past six months.
While Apple remains immensely profitable -- generating a record $18.4 billion in net income on sales of
$75.9 billion in the December quarter -- its no longer benefiting as much from the rapid adoption of
smartphones around the world. Mobile-phone rival Samsung Electronics Co. also recently reported
weaker-than-expected results. Apple Chief Executive Officer Tim Cook has expanded in China and
released new services and products such as Apple Watch to help broaden the business, but the companys
dependence on the iPhone leaves it vulnerable to any deceleration in demand.
They have other products, and have the potential to launch other products, but the hole left from an
iPhone slowdown is too big to fill," said Abhey Lamba, an analyst at Mizuho Securities USA. Its future
is whatever is happening in the smartphone space.
Apple shares dropped as much as 5.3 percent to $94.66 in New York for their biggest intraday decline
since Aug. 24.
In addition to the iPhone, Apples other product lines are also stalling. iPad purchases continued to
decline, falling to 16.1 million tablets during the holiday quarter, compared with a projection of 17.3
million. Mac sales fell to 5.31 million, compared with the 5.8 million estimated. IPhone sales rose to 74.8
million units, compared with the average 75 million predicted by analysts.
Luca Maestri, Apples chief financial officer, said the company is feeling the effects of a "very different"
economic environment around the world. Apple is beginning to see "softness" in China, particularly in
Hong Kong, he said.
You need to take into account the business opportunities that we have, but also the realities of an
economic environment that is not ideal right now, he said. Brazil, Canada, Japan and Russia also are
showing signs of slowing down, he said. "There are a lot of economies around the world that are in
recession."

Exchange Rate
Apple said its also being hurt by the strength of the U.S. dollar against foreign currencies, which is
trimming revenue. What would have been $100 in sales in the fourth quarter of 2014 is today worth only
$85 because of the shift in currency-exchange rates, Apple said in a statement.
For the first quarter, which ended in December, the Cupertino, California-based company reported pershare net income of $3.28. Analysts on average had projected earnings of $3.23 a share on sales of $76.5
billion, according to data compiled by Bloomberg.
The results step up pressure on the company to pack its next iPhone update with new features that will
prompt customers to upgrade. IPhone sales exploded after the release of the larger-screen models in 2014,
but the latest versions released in September didnt include many distinctive changes -- and sales
plateaued.
"The question is whether there has been a secular slowdown of people buying smartphones, said Kim
Forrest, a senior equity analyst at Fort Pitt Capital Group, which has about $1.7 billion under
management. The second question is whether customers are still buying iPhones at the same rate in
China."

Tough Comparisons
Apple got a boost last quarter from an earlier release in China of the latest iPhone models -- the 6S and 6S
Plus -- but the trade-off is that sales in the current period may take a hit. Overall sales in greater China
rose 14 percent to $18.4 billion last quarter, and Cook said the company would continue to invest there
despite an economic slowdown.
"We remain very bullish on China," Cook said. "I dont subscribe to the doom-and-gloom predictions."

Gross margin, a measure of profitability, was little changed at 40 percent in the December quarter, and
will be 39 percent to 39.5 percent in the current period, Apple said. Cash and equivalents rose to about
$216 billion in the December quarter.
While Apple beat its record for most profitable quarter for a U.S. company, investors are looking ahead to
the rest of the year, Forrest said.
Were a fickle lot, the investor class, and we may like your product, she said, but if youre not making
more money next year were kicking you to the lot."
Apple largely created the global smartphone market with the 2007 debut of the iPhone, and as customers
have adopted the technology around the world no company has profited more. But the market is slowing
down, making growth harder to find. Research firm IDC forecast smartphone sales last year would rise by
less than 10 percent for the first time ever. Besides Apple, companies ranging from Samsung to Chinas
Xiaomi Corp. have felt the impact.

New Products
Apple has been adding tools such as the Apple Music streaming service and Apple Pay digital payments
to augment its business, but the challenge is generating enough revenue from new products to move the
needle for a company of Apples size. Mizuhos Lamba said that while Apple makes about $300 for each
iPhone sold, it takes about 60,000 transactions via Apple Pay to make $100.
Apple didnt disclose sales for Apple Watch, which isnt yet a breakout hit with customers in the way that
iPhone or iPad were.
Maestri said Apples services business -- which includes music streaming, the App Store and Apple Pay -is growing rapidly and will help make up for slowdowns in other areas. He said investors dont yet
appreciate that piece of the companys business. The company generated $31 billion in services revenue
in fiscal 2015, and in the past 90 days about 1 billion Apple devices connected to them, he said.

"Its a clear point that were going to make to anybody who is willing to listen," he said. "The stock price
doesnt reflect the true value of our company."
Maestri contested those who say Apples business has peaked. "We see a number of opportunities to
grow.

Source:
Satariano, A. (2016). Apple Falls After Forecast for First Sales Drop Since
2003.
http://www.bloomberg.com/news/articles/2016-01-26/apple-forecasts-firstsales-drop-since-2003-on-iphone-slowdown

Jessa P. Ariola

July , 2016

Mrs. Hannah Dara V. Garay-Nugroho

A41

BlackBerry Rises on Profit Forecast After More Software Gains

2017 loss will be 15 cents a share; analysts expected 31 cents

Software revenue, a key focus, rose 21% from a year earlier

BlackBerry Ltd. rose as much as 4.6 percent after forecasting better-than-expected profit and insisting
there was a way to make its ever-shrinking phone business profitable again.

Key Points

Fiscal-year adjusted loss will be 15 cents a share, compared with an estimated loss by analysts of
31 cents.

Fiscal first-quarter earnings per share, excluding some items, broke even, compared with
analysts average estimate of a loss of 7 cents.

Revenue in the quarter was $424 million, including software and services revenue of $166
million that was 21 percent higher than the same period last year ($137 million). Analysts had
estimated total revenue of $471 million.

BlackBerry changed its reporting structure to include revenue from both smartphone sales and
licensing deals. The new unit -- mobility solutions -- accounted for 36 percent of revenue. The
company sold 500,000 devices in the quarter, compared with 600,000 in the previous quarter.

Shares gained 2.4 percent to $6.90 at 9:57 a.m., after reaching as high as $7.05 in New York in
Thursday.

The Big Picture

Chief Executive Officer John Chen is pushing to increase software sales while finding a way to wring
profitability from the companys shrinking smartphone division. Chen has said BlackBerrys first Android
phone, the keyboard-equipped Priv, didnt sell as well as he had hoped because it was too expensive.
While the company works on two more Android phones, including a cheaper option, Chen said he would
slot some software sales into the smartphone unit. This would provide a way for that unit to achieve
profitability even as the company sells fewer phones.

The Detail

A net loss in the quarter of $670 million reflected a $501 million impairment charge, a $57
million goodwill impairment charge and a $41 million writedown of inventory and other
charges.

BlackBerry projected fiscal 2017 software and services revenue growth of 30 percent.

Service-access fee revenue will decline 20 percent in the second quarter, Chief Financial
Officer James Yersh said during an earnings call Thursday.

The company closed the quarter with cash and cash equivalents of $2.5 billion.

Street Takeaways

If Chen cant restore profitability to the handset unit, its got to go, said John Butler, an analyst
with Bloomberg Intelligence. This is a company whos in the midst of a product transition right
now. The device business is clearly not working. You really need that one device that resonates
with consumers and does well.

BlackBerry reported weak top-line numbers as both smartphone and service-access fee revenues
were weaker than expected, and the company recorded significant write-downs and

impairments, JPMorgan Chase & Co. analyst Rod Hall said in a note. However, software
revenue was better than expected, and the company provided increased transparency and a betterthan-expected FY17 EPS guide.
Source:
De Vynck, G. (2016). BlackBerry Rises on Profit Forecast After More Software Gains.
http://www.bloomberg.com/news/articles/2016-06-23/blackberry-misses-sales-estimates-asphone-unit-shrinks-further
Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Cisco Jumps After Forecast Signals Success in Business Shift

Security, conferencing help make up for tepid hardware demand

Acquisitions begin to pay off; shares jump after upbeat report

Cisco Systems Inc. jumped the most in three months after quarterly sales and profit forecasts exceeded
analysts estimates, an early sign that its staying ahead of shifts in the networking industry that threaten
its lucrative hardware business.
Growth is being driven by newer units such as security and conferencing, divisions that Cisco has built up
in recent years through acquisitions. The company late Wednesday projected sales growth of as much as 3
percent in the current period, while analysts had predicted revenue would decline. Fiscal third-quarter
results also topped estimates.
Chief Executive Officer Chuck Robbins is trying to accelerate growth by shifting the companys offerings
toward software-based networking, security and management products, which customers increasingly
prefer because theyre less expensive and more adaptable. Recent acquisitions such as Jasper
Technologies, whose software allows companies to connect all sorts of electronic devices, and a new
emphasis on security are helping make Cisco less dependent on its expensive, purpose-built hardware,
especially as lackluster economic growth means corporate customers are reluctant to spend.
Were in the early days of this transition, but I think weve proven in those businesses that we can
actually make this transition, and we now have a plan under way to take that methodology across the
balance of our portfolio, Robbins said in an interview Thursday morning on Bloomberg Go.

The company still has a long way to go to recast itself fully, and earnings are not where they should be,
Robbins said Wednesday after the earnings results were released.

Software Takeover
Profit before certain costs in the period that ends in July will be 59 cents to 61 cents a share, and revenue
may rise as much as 3 percent, the company said in a statement, indicating sales as high as $13.2 billion.
That compares with average analyst projections for profit of 58 cents a share on $12.4 billion in sales,
according to data compiled by Bloomberg.
The market was braced for them to miss and they put up decent results, not great, said Mike Genovese,
an analyst at MKM Partners. Theyre facing up to the reality that hardware is not a growth market.
Software is taking over.
Ciscos shares jumped 3.2 percent, the biggest increase since February, to $27.57. That wipes out the
years losses through Wednesday and puts Cisco up 1.5 percent in 2016.
In the third quarter, which ended April 30, Ciscos net income fell to $2.35 billion, or 46 cents a share,
from $2.44 billion, or 47 cents, a year earlier. Sales fell 1.1 percent to $12 billion. Excluding some costs,
profit was 57 cents, compared with an average analyst estimate for profit of 55 cents on revenue of $11.98
billion.
Ciscos upbeat forecast, given a month after most other technology companies gave their own quarterly
predictions, may indicate that spending on networking improved in April after a weak first three months
of the year. Rival Juniper Networks Inc. last monthsaid corporate customers and telecommunications
providers had cut back on orders in the calendar first quarter, leading to lower-than-predicted profit and
revenue. Cavium Inc., a chipmaker that counts Cisco as its biggest customer, reported sales that fell short
of its forecast.
With Cisco being off by a month, they may be able to call out if things started improving in April, said
David Heger, an analyst at Edward Jones & Co. That could be a new data point for the market.

Hardware Declines
Ciscos biggest division, switching, had third-quarter sales of $3.45 billion, a decline of 3 percent from a
year earlier. Its second-largest division, routing, suffered a 5 percent drop in sales to $1.89 billion, the

company said. Newer units including security, service-provider video and collaboration all posted sales
increases of more than 10 percent.
Gross margin, or the percentage of sales remaining after deducting costs of production, widened to 65.2
percent in the recent quarter from 62.5 percent a year ago.
Robbins, who took the top job at Cisco last year, is trying to return the company to the double-digit
percentage growth the company delivered under his predecessor, John Chambers. Cisco hasnt achieved
that since 2010, and analysts dont project that rate of expansion in the coming years, as the networking
market turns away from the combinations of locked-down custom software and hardware that were once
so successful.
Robbins has said the company is rapidly transforming its product line to fit changing customer
requirements ahead of any full-scale shift. Regardless of whether it makes that move fast enough, some
analysts are betting Ciscos reserves of cash and equivalents -- which stood at $63.5 billion at the end of
the latest quarter -- means the company can protect itself by acquiring any smaller rival thats an
emerging leader in technology that could undermine Ciscos position in the broader networking industry.
The balance sheet they have, they can keep buying themselves into areas that are growing, said Edward
Joness Heger. They can at least buy their way into keeping things stable.
Source:
King, I. (2016). Cisco Jumps After Forecast Signals Success in Business Shift
http://www.bloomberg.com/news/articles/2016-05-18/cisco-forecast-topsestimates-as-deals-help-bolster-revenue

Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Auto Sales Fall First Time Since January as Growth Era Subsides

GM, Ford U.S. deliveries declined more than predicted in May

Industry sales dropped 6% in month with 2 fewer sales days

U.S. auto sales fell in May, marking the second monthly decline this year and reinforcing the idea that the
demand for cars and trucks, while still historically robust, has reached a plateau.
The declines at General Motors Co., Ford Motor Co. and Toyota Motor Corp. were all greater than
analysts predicted, sending their shares lower. Industrywide sales dropped 6 percent to 1.54 million, the
first decline since January, researcher Autodata Corp. reported.

The results for May, whose Memorial Day weekend promotions make it a bellwether for gauging buyer
appetite, show consumer demand for cars leveling off faster than executives predicted. The automakers
reports join other economic data, including jobs numbers coming Friday, that Federal Reserve policy
makers will examine when considering a possible rate hike this month or next.
The economy is still a new building, its still coming to fruition, Rebecca Lindland, senior analyst for
auto researcher Kelley Blue Book, said in an interview. Its not something anyone would describe as this
really strong, robust growth machine yet.
The economy expanded modestly across most of the U.S. since mid-April, tightening the labor market
and nudging wages higher, a Federal Reserve report showed today. Prices in federal funds futures
contracts suggest a 24 percent chance of a rate increase this month and 53 percent by the policy makers
July session.
All the Single Ladies Also Get Credit for Booming SUV Demand
The industrys annual sales pace, adjusted for seasonal trends, was 17.5 million vehicles for the month,
Autodata said. The average analyst estimate was 17.4 million in a Bloomberg survey.
Detroit-based GMs deliveries plunged 18 percent, missing estimates for a 13 percent drop. Light-vehicle
sales slid 6.1 percent at Ford, 9.6 percent at Toyota and 4.8 percent for Honda Motor Co. Deliveries at
Nissan Motor Co. matched predictions for a 1 percent drop, while Fiat Chrysler Automobiles NV
surprised forecasters with a small gain.
Automaker shares declined, with GM falling 3.4 percent, the most since January, while Ford dropping 2.8
percent.

Fewer Days
All of the six largest carmakers had been predicted to report declines for May, which had two fewer sales
days than the year before.
Obviously were hoping for improvement in the industrys sales rate as the year goes on, Mark LaNeve,
Fords U.S. sales chief, told analysts and reporters on a conference call. I talk to the dealers about this all
the time: What needs to be low is still low -- unemployment, interest rates, gas prices -- and what needs to
be high is still high -- consumer confidence, the housing market.

One reason deliveries have softened is that carmakers arent trying to push sales with big rebates, said
Kevin Tynan, auto analyst with Bloomberg Intelligence, a unit of Bloomberg LP. Rather than chasing
volume for the sake of volume, they are making better margins," he said in a phone interview.

Automaker Results
Among the highlights from todays reports:

Sales of Ford and Lincoln passenger cars plunged 25 percent, led by the Taurus sedan, once the
companys flagship. F-Series pickup sales rose 9 percent and van sales had their best May since
1978, aided by the full-size Transit.

GMs retail sales fell 13 percent and the company continued to pull back on deliveries to rentalcar fleets. The largest U.S. automaker said it sold 22,000 fewer rental cars in the month, the
biggest reduction in the past two years.

Every Nissan-badged car except Maxima and Versa declined, leaving the brand with a 2.9 percent
decline in car deliveries. Nissan brand light-truck sales set a May record, with Rogue crossover
sales rising 5.9 percent.

Fiat Chryslers 1.1 percent gain surprised analysts who predicted a 0.7 percent decline. Jeep sales,
the Italian-American carmakers profit engine, rose 14 percent from a year earlier, while minivan
deliveries jumped 84 percent.

Volkswagen AGs namesake brand sales fell 17 percent, the seventh consecutive monthly decline
as the German automaker struggles to recover from a diesel-emissions test scandal. On average,
analysts had predicted a 21 percent slide.

Sales by Hondas Acura luxury division dropped 20 percent. The decline was smaller among its
namesake-brand cars, down 0.4 percent. The Civic car posted a 2.7 percent gain.

Source:
Welch, D. & Mittelman, M. (2016). Auto Sales Fall First Time Since January as Growth Era
Subsides
http://www.bloomberg.com/news/articles/2016-06-01/fiat-chrysler-posts-surprise-increase-onjeep-minivan-demand

Jessa P. Ariola
Mrs. Hannah Dara V. Garay-Nugroho

July , 2016
A41

Nordstrom Plunges on Lower Forecast, Adding to Retail Woes

Investors fear that consumers are changing the way they shop

The outlook follows a similiarly bleak forecast from Macys

Nordstrom Inc. fell as much as 16 percent in New York trading after cutting its annual forecast, adding to evidence
that the department-store industry is mired in a deep slump.
The company now expects earnings of $2.50 to $2.70 a share, excluding the impact of stock buybacks, according to
a statement Thursday. Nordstrom had previously forecast as much as $3.35. It also reduced its sales growth
predictions to between 2.5 percent and 4.5 percent, down from as much as 5.5 percent.
The outlook jarred investors a day after Macys Inc. gave a similarly bleak forecast. The fear: Consumers are
shifting their spending away from clothing and other department-store wares, potentially leaving the companies in a
long-term funk. Kohls Corp. alsoposted disappointing results on Thursday, saying simply that shoppers werent
buying apparel. J.C. Penney Co. followed on Friday with weaker-than-projected sales.
Its a bloodbath, said Poonam Goyal, a retail analyst at Bloomberg Intelligence. Theres a structural change in
how consumers shop, and for some reason everything flipped in March.
Nordstrom shares fell as low as $38 on Friday following the previous days report. That marked the biggest intraday
drop since November. Even before the tumble, the stock was down 9.2 percent this year.
For a quick wrap of the analyst commentary on Nordstrom today, click here.
The U.S. Commerce Department posted surprisingly strong retail sales figures for April on Friday, with purchases
climbing the most since March 2015. But the benefits arent being distributed evenly. Auto dealers, grocery stores
and online merchants had the biggest gains.
Department-store chains have been dogged by a range of problems. Theres no major fashion trend to bring in
shoppers, and many younger customers are opting to buy apparel online instead. But also consumers are spending
more of their money on technology or experiences, rather than clothing. That means they may wear an old outfit a
bit longer than before and budget those funds toward something else.
The pace of change in the retail industry is accelerating, Co-President Blake Nordstrom said in the statement. To
cope with the shift, the company is cutting expenses and reducing its capital investments. That includes adjusting
inventory.
We remain committed to serving customers by taking steps that will continue to meet their expectations while
driving profitable growth, he said.

Capital Spending
The retailer said in February that it will slash capital spending by $300 million over the next five years. This year,
Nordstrom will spend about $900 million on investments, including $300 million on new stores in Canada and its
first location in Manhattan.
As part of its belt tightening, Nordstrom is cutting as many as 400 jobs, mostly from its corporate center and
regional support teams. It has said that it aims to save about $60 million this fiscal year. The moves will be
completed by the end of the second quarter, Nordstrom said last month.
In the old days, retailers would try to bounce back by freshening up their product line. But if its a structural change
in how consumers shop, thats not so easy.
Theyre spending in different places -- thats whats killing them, Goyal said. I dont think its a product issue.
Source:
Rupp, L. (2016). Nordstrom Plunges on Lower Forecast, Adding to Retail Woes.
http://www.bloomberg.com/news/articles/2016-05-12/nordstrom-plunges-after-retailchain-cuts-its-earnings-forecast