RIM warns of losses, layoffsComment on this story
Struggling BlackBerry-maker Research in Motion issued a dire warning about its business, saying Tuesday that it will post an operating loss for the second-straight quarter and will lay off a large number of employees this year.
RIM also said it has hired JP Morgan and RBC Capital Markets to help it evaluate strategies, including possibilities of partnering with other companies and licensing software, in addition to other alternatives.
Waterloo, Ontario-based RIM made no mention of a sale of the company. But new Chief Executive Thorsten Heins did not rule that out after RIM's last earnings report in late March.
“It's a disaster, it's bad,” Jefferies analyst Peter Misek said. “The problem is you can't see a path to a sale until you stabilise the business.”
If the bank advisers weren't originally brought in to consider a sale, they are likely weighing it now, Misek said.
The statement from RIM did not detail the coming layoffs, other than to say the company expects “significant spending reductions and headcount reductions in some areas throughout the remainder of the year.”
Misek said he expects RIM to announce as many as 5,000 layoffs soon. The company has about 16,500 employees.
RIM's stock fell 7 percent, or 80 cents, to $10.43 in extended trading following the release of the company's statement. Before Tuesday's announcement, the stock had lost almost 75 percent in the last year.
The company that pioneered the smartphone market with its BlackBerry phones is facing the most difficult period in its history. RIM's US share of smartphones dropped from 44 percent in 2009 to 10 percent in 2011, according to market researcher NPD Group. The company still has 78 million active subscribers across the globe, but Apple Inc. and phone makers such as Samsung and HTC that use Google Inc.'s Android software are taking market share.
RIM is working on the launch of a new operating system, but that's happening just as North Americans are abandoning their BlackBerry's for flashier and more versatile smartphones like Apple's iPhone and Android phones.
“The on-going competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace, and we expect our (current quarter's) results to reflect this, and likely result in an operating loss for the quarter,” Heins said in Tuesday's statement.
Heins, formerly a little known chief operating officer at RIM, took over in January after RIM founder Mike Lazaridis and longtime executive Jim Balsillie stepped down as co-CEOs after the company lost tens of billions in market value.
RIM said the company looks to save $1 billion - even as it transitions to its much-delayed “BlackBerry 10” software platform expected out later this year.
RIM reiterated that its financial performance will continue to be challenged for the next few quarters. Heins said BlackBerry sales continued to do well overseas but “churn” - or subscriber turnover - in the United States offset that. RIM will report its results for the March-through-June quarter on June 28.
Misek said he believes that had BlackBerry 10 been released last year, the company might have had a chance. But he said RIM is now likely to release the new BlackBerrys right when Apple is due to introduce a new iPhone.
Colin Gillis, an analyst with BGC Financial, called it a downward slide that's not going slow. He said he doesn't see any buyers for RIM coming forward soon.
Gillis said the advisers are likely presenting a number of options, including a sale, split up of the software and hardware business or a continued attempt to turn the company round. Gillis said RIM could license something like its popular BlackBerry messenger service.
“Unfortunately, it falls into the too little, too late category,” Gillis said. “It doesn't mean somebody won't try it. It doesn't mean it's going to be a saviour for the company either.”
Gillis said he believes RIM is fighting against some of the best talent in the world in Google, Apple and Samsung in a fast-moving marketplace.
“They were the leader and this is what happens in the technology cycle of creation and destruction. They rode the first wave of the smartphone revolution and Apple is riding the next one,” Gillis said.
BlackBerrys lag iPhones and Android phones when it comes to third-party applications, or “apps.” The iPhone's popularity has continued to skyrocket as Apple has developed a vast ecosystem of apps. Now, RIM must persuade developers that it's worth their time and effort to make apps for the BlackBerry 10 platform.
RIM has tried to make phones with touchscreens that resemble the iPhone, but those offerings have largely flopped. And so has RIM's tablet, the PlayBook, which uses the very software that will be in the new BlackBerry 10 smartphones.
RIM is following the same trajectory as struggling Finnish handset maker Nokia and California-based Palm, both of which attracted consumers with trend-setting phones and technologies in their heyday, only to be outmaneuvered by competitors. In Canada, there is fear that the nation's biggest technology company could go the way of former Canadian tech giant Nortel, which declared bankruptcy in 2009 and was picked over for its patents.
“It is a very bad situation for Canada, primarily because this was the national champion,” Misek said. “What this illustrates is you have to be globally competitive and you've got to remain globally competitive.” - Sapa-AP