Research In Motion Ltd. is learning to be hungry again.
Once the dominant force in the smartphone industry, the struggling BlackBerry maker is undertaking a company-wide plan to become smaller and leaner, slashing thousands of jobs to offset its tumbling sales. And for the moment, that is preventing the company’s finances from getting a lot worse.
RIM disclosed a loss of $235-million (U.S.) in the fiscal second quarter, which included $93-million in severance and other expenses from its cost-cutting plan that will result in 5,000 job cuts. The company’s $2.9-billion in revenue, while down 31 per cent from the same period last year, was a slight improvement from the first quarter.
Those results were enough to send the stock soaring in after-hours trading, where it rose as much as 20 per cent, to $8.55.
The positive reaction underscores the diminished expectations of analysts and investors after a long string of quarters in which BlackBerry sales and profits were disappointing.
RIM chief executive officer Thorsten Heins said such cost-cutting measures have been difficult, “but these things are essential as the company completes the transition to [BlackBerry 10],” the company’s new line of wireless devices, scheduled for release next year.
“We are in the midst of building a stronger and leaner organization,” he said.
RIM also grew its subscriber base slightly from 78 million to 80 million, even as some observers had expected the company to start losing subscribers. Although RIM sold slightly fewer BlackBerrys (and far fewer PlayBook tablets) this quarter than the last one, it still managed to move units in overseas markets such as South Africa, Indonesia and the Philippines through aggressive BlackBerry upgrade programs.
The cost-cutting program is part of Mr. Heins’ overall plan to slowly regain ground in the smartphone wars. Unlike his predecessors, the current CEO is concerned first and foremost with simply solidifying his company’s position as the third-place player in the industry, behind Apple and the slew of smartphones running on Google’s Android operating system.
But beyond Thursday’s better-than-expected results, RIM’s core problems are largely unchanged. The company will have to go at least another quarter trying to convince customers to buy its current line of products, as it waits for BlackBerry 10 smartphones to hit store shelves in the first calendar quarter of 2013. So far, RIM has accomplished this task by targeting overseas markets where its brand is still hugely popular.
However, in many of those countries, the company sells predominantly low-end devices, on which it makes less money. Mr. Heins has already made clear he expects RIM to post another operating loss next quarter.
The launch of the new BB10 phones can’t come soon enough for the company, but it will also give RIM some headaches. The company plans to initially target the high-end and then mid-tier markets, before eventually putting out entry-level BB10 smartphones. That roll-out could prolong the transition of RIM’s massive subscriber base to the new phones.
In a conference call with analysts, Mr. Heins indicated he has been meeting with the CEOs of several companies to discuss partnership and product licensing opportunities – part of a “strategic review” the CEO promised investors earlier this year. While some have taken that review as a sign the company may put itself up for sale, it appears a much more likely scenario involves RIM licensing its BlackBerry operating system software to outside device manufacturers.
Mr. Heins first promised the strategic review at a time when investors were loudly complaining about RIM’s poor financial performance and shrinking market share. But on Thursday, trying to maintain as much focus as possible on the upcoming BB10 devices, Mr. Heins would not give details of which CEOs he spoke to, or what they discussed.
"Heins is keeping his cards close to his chest, as I believe he should," said Ronald Gruia, principal telecom analyst for Frost & Sullivan. "He might as well wait until BB10 is out to see how well that fares before making some more decisions on that front."
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