We've known all along that this was coming.
Since moving into the corner office in January, Research In Motion CEO Thorsten Heins has prefaced countless speeches and presentations with warnings that things will get worse before they get better. Amid falling demand for existing BlackBerry 7-based products, the company is navigating a valley, of sorts, as it feverishly prepares devices based on its next-generation operating system, BlackBerry 10, for a Q1 2013 launch. Against that backdrop, expect Thursday's analyst call to bleed a deeper shade of red than last quarter.
Do it right, not fast
In most respects, the company is a victim of its own timing. The introduction of BlackBerry 10, originally scheduled for release last year, was repeatedly pushed back. In announcing the delays, Heins said it was more important to get it right than to deliver it on a specific date. He cited the complexities of bringing a clean-sheet design to market instead of an update to its existing platform, and said sweating the integration of millions of lines of code was critical to ensuring a seamless end-user experience.
While the push for quality is welcome — RIM had been burned before, notably when it rushed its first touchscreen device, the Storm, to market in time for the holiday shopping season, and again last year when it launched the PlayBook tablet missing key pieces of software — the timeline has nevertheless put RIM in its current predicament where it wrestles with plunging sales and margins from increasingly stale products.
Expect that fall from grace to continue in Thursday's figures. Analyst consensus puts expected shipments within 6.5 million and 7.7 million devices, down from 7.8 million smartphones and 250,000 PlayBooks last quarter. Thanks to slowing device sales that will only fuel additional market share erosion, top- and bottom-line revenue are both expected to lag last quarter's US$2.8 billion revenue, US$518 million GAAP net loss, and US$192 million adjusted net loss. The previous quarter's revenue performance was already 33 per cent off from Q4 2012.
Collapsing market share foreshadows continued blood on the page until new products based on BlackBerry 10 begin to turn the tide. Assuming they do. According to July comScore data, over half of all smartphone users — 52.2 per cent - used phones powered by Google's Android operating system in the U.S., while Apple grabbed 33.4 per cent. RIM's 9.5 per cent share was down 2.1 points in a month, and 3.9 points since May, and it fell off the list of top-5 mobile device vendors altogether. The company announced last quarter it will lay off 5,000 employees to slice $1 billion in costs before the end of its current fiscal year. At the end of its last quarter, it reported cash reserves of $2.2 billion.
Subscriber growth is crucial
Unfortunately for RIM, those cash reserves may find themselves under even greater strain if the company's global subscriber total, likely the most closely watched metric on Thursday, heads south.
Even as every other needle has swung into the negative, the subscriber base has continued to grow. The company announced today it's base has gown to 80 million strong, up from 70 million reported in August 2011. For as long as RIM has been reporting subscriber figures, the numbers have always grown.
All of this is playing out as the company hosts about 1,000 developers at its BlackBerry Jam Americas event in San Jose, California this week. The aim is simple: get them so jazzed about the new platform and its development tools that they code lots of compelling apps in time for the rollout. The company's been giving away early versions of the devices, known as Dev Alpha, as well as a new suite of development tools, to prime the pipeline in advance of a Jan. 21, 2013 app submission deadline. This is a critical process for RIM, as a vibrant online app store is essential for driving demand.
Thorsten's balancing act
The challenge Thorsten Heins now faces is monumental: keep investors, employees developers and other stakeholders focused on the future amid a worsening wave of negative financial performance data. BlackBerry 10 is a bet-the-company launch that can ill afford for its most crucial drivers to be distracted just before they're set to cross the finish line. Thursday's earnings call will be followed by at least one more, in December, before the new products hit the market. Even after the new phones launch, it's unclear how long it will take before they have a material impact on revenue.
In other words, this roller coaster is headed down for a while before things begin to turn. Better buckle up for the ride.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. firstname.lastname@example.org