BlackBerry maker Research in Motion (RIM) issued a warning regarding its business on Tuesday, May 29, reporting it is losing money for the second consecutive quarter. Consequently, the company will have to lay off a "significant" number of employees.
Waterloo, Ontario-based RIM said it has hired J.P. Morgan and RBC Capital Markets to help it better assess its current state and consider its options. Possibilities taken into account include partnering with other companies, licensing software or overhauling its business. There was no mention of selling the company, but RIM's CEO Thorsten Heins did not rule out the option after the company's last earnings report in late March.
According to BGC Financial analyst Colin Gillis, RIM is in a downward spiral that does not seem to be slowing, and potential buyers for RIM are unlikely to be coming forward soon. "Unfortunately, it falls into the too little, too late category," said Gills, as cited by USA Today. "It doesn't mean somebody won't try it. It doesn't mean it's going to be a savior for the company either."
Significant Layoffs
The company's statement said RIM expects "significant spending reductions and headcount reductions in some areas throughout the remainder of the year," but offered no additional details on the upcoming layoffs. Jefferies analyst Peter Misek said he expects the company to announce about 5,000 layoffs soon. RIM currently employs roughly 16,500 people, after it laid off 2,000 employees in July. RIM added that it aims to save $1 billion.
Following the release of the company's statement, RIM's shares dropped 7 percent - 80 cents - to $10.43 in extended trading. Before the announcement, the stock had fallen nearly 75 percent in the last year, marking RIM's most difficult period in its entire history. According to market researcher NPD Group, RIM's U.S. smartphones share has seen a dramatic decline from 44 percent in 2009 to just 10 percent in 2011.
Outmaneuvered by Competition
RIM still has 78 million active subscribers worldwide, but it cannot keep up with Apple's iPhone and other smartphones from various manufacturers using Google's Android platform. RIM has recently lost many customers who have shifted to competitors. "The on-going competitive environment is impacting our business in the form of lower volumes and highly competitive pricing dynamics in the marketplace," explained Heins in the statement on Tuesday. RIM will likely post an operating loss on June 28, when reporting its fiscal first quarter results, added the CEO.
Formerly RIM's Chief Operating Officer, Heins took over the helm in January, following the departure of RIM founder Mike Lazaridis and long-time executive Jim Balsillie. The two former co-CEOs resigned after RIM lost tens of billions in market value.
Similarly to Finnish handset maker Nokia, RIM was once on top and its trend-setting devices and technologies appealed to numerous consumers, but competitors soared by leaving RIM behind. RIM used to be "the leader and this is what happens in the technology cycle of creation and destruction," said Gills. "They rode the first wave of the smartphone revolution and Apple is riding the next one."
