Even though everyone knew it was coming, the numbers were worse than expected.
Confirming an earlier report from the Wall Street Journal that predicted mass layoffs were coming, BlackBerry announced today it would be letting 4,500 employees go. And a week ahead of its scheduled Sept. 27 quarterly earnings call, the company took the extraordinary step of halting trade of its shares before it announced key results from its second quarter. The numbers weren’t pretty:
- Net operating loss of between US$950 and $995 million.
- $1.6 billion in sales significantly missed analyst expectations of $3.06 billion.
- 3.7 million handsets were sold, mostly older BlackBerry 7-based devices
- BB10-based devices that have been shipped to the channel won’t be recognized in BlackBerry’s results until they’ve been sold to end-users.
- The company will write down between $930 million and $960 million due to ballooning handset inventories. This is the fourth such writedown it’s had to take in the past two years.
- The company will take a $72 restructuring charge in the current quarter.
- Outside of the inventory and restructuring charges, the company expects an operational net loss of between $250 to $265 million.
- Net cash dropped by $400 million to $2.6 billion.
The dismal performance in the quarter outlines in stark detail just how far the one-time smartphone pioneer has fallen. It confirms what had been suspected through much of the summer, that new devices based on the long-awaited BlackBerry 10 operating system had failed to capture consumer and business interest. The next-generation platform was supposed to lure customers back into the BlackBerry fold, and it was clear when the Z10 handset was launched in January that everything was riding on this new technology.
BlackBerry 10 – too little too late
Subsequent product introductions – the keyboard-equipped Q10 and Q5 – failed to either retain existing BlackBerry customers or conquer iPhone and Android users. Just this week, the launch of the Z30 – a high-end device with a 5-inch screen – barely made a ripple amid speculation over the company’s future. Apple added further insult to injury with its iPhone 5s/5c launch, and the availability of its iOS7 operating system upgrade, further diverting attention away from BlackBerry’s marketing message.
Instead of a BB10-led renaissance, the company is now pulling back, reducing its phone portfolio from six offerings to four – two high-end smartphones, presumably the Z30 and Q10, and two entry-level devices, likely the Q5 and the Z10. It will also retrench from the consumer market, focusing instead on enterprise and prosumer buyers – an area that, prior to the iPhone’s arrival on the scene, was BlackBerry’s virtually exclusive domain.
All of this plays out as the company continues to work through its strategic review. The sales falloff, weakened cash position and writedowns all made the scale and scope of the latest layoffs all but inevitable. BlackBerry has to downsize – quickly – to more closely reflect the fact that it will no longer compete device-to-device against Apple and Google.
An uncertain, smaller future
What emerges from this process will be a smaller, more focused company that no longer competes in sectors where it cannot compete. Although the 4,500 layoffs will be targeted across all divisions and levels of the company, the handset business, which some observers have said could take upwards of $2 billion just to shutter, is especially vulnerable.
Share values tumbled 17% before trading ended for the day, further deepening concern over what comes next, and whether a restructuring will come soon enough to staunch further degradation in the company’s position. Interest has been light, with few potential buyers willing to step forward.
Today’s events do nothing to calm the churning waters. Indeed, this likely isn’t the end of it.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. firstname.lastname@example.org