BlackBerry Ltd. will cut 4,500 jobs, write off more than $900-million (U.S.) worth of unsold phones and abandon parts of the consumer wireless market in an attempt to save a business in freefall.
The Waterloo, Ont.-based company said the writedown will lead to a loss of nearly $1-billion in its second quarter ended Aug. 31. The company said the inventory charge is largely related to its Z10 touchscreen phone, which it unveiled in January at a splashy event in New York. Sales of the device have been so dismal that BlackBerry said its smartphone revenue will be less than $800-million in the quarter, less than half the $1.7-billion it reported a year earlier.
The stock shed 16 per cent of its value after the late afternoon announcement, closing in Toronto at $9.08 (Canadian).
The extreme measures underscore the uncertainty over the company's future.
In the summer, BlackBerry announced it had hired investment bankers and legal advisers to examine strategic options, including a possible sale. That process is continuing.
The jobs cuts represent 40 per cent of BlackBerry's workforce and are certain to hit the Waterloo region hard, coming on the heels of deep staff reductions in the last two years.
"We are implementing the difficult, but necessary operational changes announced today to address our position in a maturing and more competitive industry, and to drive the company toward profitability," chief executive officer Thorsten Heins said in a statement.
Overall revenue is expected to fall to $1.6-billion from $2.9-billion a year earlier when the company reports second-quarter results next week, well short of expectations.
BlackBerry also said it was scaling back its efforts in the consumer market it dominated before Apple Inc. and Google Inc. introduced powerful, consumer-friendly mobile platforms in the late 2000s, leaving BlackBerry trailing badly in the smartphone business it had created.
Instead, BlackBerry will focus on its original base of enterprise clients and professional, or "prosumer," customers.
"The core handset business that BlackBerry is in is really a battle that they've lost," said James Gellert, CEO of independent ratings agency Rapid Ratings. "It's a question of whether the other businesses and technology that they have can be relied upon to drive the business going forward."
The Z10, followed by the keyboard-powered Q10, was supposed to reverse the company's dwindling fortunes. They were the first smartphones to use the new BlackBerry 10 operating system, which provided a better Internet-browsing experience to its previous phones, while introducing such innovations as a hub for managing communications.
But the new system was delayed, and sources say the Z10 launch in particular was hurt by poor marketing and lagging support for the company's existing corporate customers to help them move over applications they had built on its previous operating platform. Some long-time users were frustrated as they tried to navigate around the new system, either finding some familiar functions had vanished or were difficult to figure out. "Some customers would say, 'Where's the back button, and the hang up key?'," said a company source, who spoke on condition of anonymity. "They don't exist any more."
The Z10 was dogged by high returns, as much as 20 per cent in the United States and Western Europe, according to a source close to the company. Not only did the device sell poorly in key markets, it represented a minority of phones sold in the last quarter, when most of the 3.7 million unit sales were of the company's older devices.
Instead, the Z10 is now destined for the bargain bin. The company hinted that it will reprice the Z10 to make it more attractive to entry-level users. "This suggests the platform has not gained any traction in the marketplace," said Neeraj Monga, an analyst with Veritas Investment Research.
The lone piece of good news was related to the increasing popularity of BlackBerry Enterprise Server 10, the service BlackBerry sells to its corporate customers. Previous versions of the BES service focused solely on allowing corporate IT departments to manage their employees' BlackBerrys. However, with the new edition, BlackBerry added functionality that allows them to do the same for non-BlackBerry smartphones – recognizing that more companies allow workers to bring their other devices to work.
Friday's news doesn't necessarily hurt the company's attempt to sell itself, but positions it to do much of the cost-cutting that any potential buyer would likely do anyway after a purchase. "Getting this stuff out of the way makes them more valuable to a buyer," said Robert Enderle, principal analyst at technology research firm the Enderle Group.