RIM Reports Losses, Layoffs, and Further Blackberry 10 Delays

RIM CEO, Thorsten Heins, at BlackBerry DevCon Europe 2012

The news from Research In Motion just gets worse and worse. The maker of BlackBerry phones once dominated the smartphone market. But the rise of Apple's iPhone and a series of missteps have led the company into a period of turmoil, causing co-founders to head for the exit as the stock price plummeted more than 94% in the past four years.

RIM delivered its latest bad news after the market closed on Thursday: Earnings were considerably worse than even many bearish analysts  expected. The company reported revenue of $2.8 billion in the quarter ending June 2 and a net loss of 37 cents a share. Analysts had been looking for revenue of $3.1 billion and a loss of three cents a share.

RIM said it will lay off 5,000 employees as part of a restructuring effort that will cut $1 billion in costs. The layoffs will occur over the coming nine months and will require RIM to take a $350 million restructuring charge.

“I understand that this is an incredibly difficult message to deliver,” said Research in Motion CEO Thorsten Heins during a conference call discussing the earnings. “It is necessary to change the scale and refocus the company on areas of highest opportunity.” Thorsten said the job cuts will make RIM “lean and nimble” in a competitive industry.

Perhaps the worst news concerned Blackberry 10, a new operating software that the company has vowed will make Blackberry devices competitive again. Blackberry 10 won't be released until early 2013, several months later than the fall release RIM had promised earlier. This isn't the first time Blackberry 10 has been delayed. The company disappointed investors last December with a similar announcement.

Heins said the features that will make Blackberry 10 distinctive and competitive are simply taking a long time to get right. “I will not deliver a product to market that does not meet the needs of our customers,” he said. “There will be no compromise on this issue.” Asked by an analyst whether the delay would make the hardware that much more outdated, Heins said he wasn't concerned, since the new phones “will be more than competitive.”

The delay raises the question of what RIM can do to improve matters during the several months before the Blackberry 10 arrives. Executives said they will keep upgrading users of older Blackberry 5 and 6 models to last summer's Blackberry 7 phones and focus on growth in emerging markets. But that strategy isn't likely to work well, since RIM warned investors that it will post an operating loss in the current quarter and that “downward pressure” will weigh on operating costs for the rest of its fiscal year.

RIM's BlackBerry phones have 78 million subscribers around the world, although the company is losing market share as iPhones gain popularity abroad and Android smartphones dominate the lower end of the market. RIM said it shipped 7.8 million BlackBerry phones last quarter, and only 260,000 PlayBook tablets.

Revenue in the quarter declined 33% from the same quarter a year ago, while gross margins fell to 28% from 44%. Much of the decline was caused by lower demand for Blackberries in North America, prompting RIM to focus sales in emerging markets, where the average price per phone is lower.

One positive note: RIM's cash stockpile remains substantial. The company had $2.2 billion in cash at the end of the last quarter. CFO Brian Bidulka said in the conference call that he expects the cash position to remain steady through the current quarter, although he warned that restructuring costs could cause it to decline.

The earnings report did nothing to ease the perception that the demise of RIM is just a matter of time. Heins declined to comment on whether the company would sell itself whole or in pieces. Instead, RIM continues to pin its hopes on a new phone even as it kicks the release date down the road. That strategy is a risky one, and it's not going over well with investors. RIM's stock fell another 19% in after-hours trading, pushing the price to its lowest ebb since December 2003 and the company's market value below $4 billion.