Research In Motion Ltd. said it will cut 2,000 jobs, almost 11% of its work force, the latest move in a make-or-break scramble to resuscitate its products and keep the company that essentially invented the smartphone from becoming an also-ran.
The BlackBerry maker has struggled to stanch its shrinking share of North American smartphone sales in the face of an onslaught led by Apple Inc.'s iPhone and products run on Google Inc.'s Android operating system. In June 3, 2011, comScore reported that the Apple iPhone had officially overtaken RIM's BlackBerry as the No 2 mobile phone in the U.S.
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In July 5, 2011, comScore reported mobile phone market shares for the month ending May 2011, and this showed that RIM BlackBerry had lost even more market share.
• Smartphone Platform Market Share - 76.8 million people in the U.S. owned smartphones during the three months ending in May 2011, up 11 percent from the preceding three month period. Google Android ranked as the top operating system with 38.1 percent of U.S. smartphone subscribers, up 5.1 percentage points. Apple strengthened its #2 position with 26.6 percent of the smartphone market, up 1.4 percentage points. RIM ranked third with 24.7 percent share, followed by Microsoft (5.8 percent) and Palm (2.4 percent).
• OEM Market Share - For the three month average period ending in May, 234 million Americans ages 13 and older used mobile devices. Device manufacturer Samsung ranked as the top OEM with 24.8 percent of U.S. mobile subscribers, followed by LG with 21.1 percent share and Motorola with 15.1 percent share. Apple strengthened its position at #4 with 8.7 percent share of mobile subscribers (up 1.2 percentage points), while RIM rounded out the top five with 8.1 percent share.
The company's long-time co-chiefs, Mike Lazaridis and Jim Balsillie, have promised to revamp their own devices.
But investors have dumped the stock amid profit warnings, product delays, executive departures and dwindling confidence in the two leaders' willingness to embrace big, strategic change.
RIM shares have lost more than half their value so far this year. Last month, the company warned it would shed jobs as part of a wider cost-cutting effort as executives promised to navigate the Canadian company through a "transition" towards more competitive products.
But Monday's job cuts were deeper than expected. Nokia Corp., facing a similar erosion of market share, cut or transferred about 7,000 staff in April. While Nokia is a much bigger company than RIM, the cuts at the Finnish device maker represented just 5% of its global work force.
It's also the first significant culling of staff at RIM in its short, super-charged history. In 2002, the company—then just 2,000-employees strong—laid off 200, marking its biggest retrenchment until now people.
In recent years, RIM has added thousands of workers to keep up with demand for its BlackBerry phone. It more than doubled the size of its work force over the last four years. After the cuts announced Monday, RIM's work force will be about 17,000, the company said.
RIM also disclosed a series of senior executive changes, including the retirement of Chief Operating Officer Don Morrison, who had previously been on medical leave. The shifts didn't appear to satisfy shareholders, many of whom have called for a more wholesale overhaul.
RIM shares fell 4.4% to $26.67 at 4 p.m. Monday on the Nasdaq Stock Market. It now has a stock market value of $13.9 billion. By comparison, Apple's market cap has swelled to $369 billion.
Robert McWhirter, head of Toronto money management firm Selective Asset Management Inc., sold the remainder of his 58,000 RIM shares about three weeks ago. He said he worries that RIM, which has always put a premium on the engineering that goes into its devices, will struggle to compete in a market now driven largely by the availability of applications for such devices.
RIM faces "significant challenges," he said.
The company has bought itself some time with its restructuring efforts. It has promised a line of next-generation BlackBerrys in coming months and years that executives say will compete better with iPhones and other, newer competitors.
Sales of BlackBerrys are still growing quickly in many overseas markets, and the company has little debt and a hefty cash hoard. It had nearly $20 billion in sales in its latest fiscal year.
Mike Abramsky, an analyst at Royal Bank of Canada, has a neutral rating on RIMM stock, but said,
"RIM has a good strategy, but can they execute on it?"
The stakes in the turnaround effort go beyond the company's tidy, corporate campus in Waterloo, Ontario, a few hours' drive from Toronto. Canada's economy is dominated by mining and energy companies, and RIM has long stood out as the country's most important technology firm—one of the few Canadian corporations with a globally recognized brand.
It has also become an incubator for an eco-system of smaller companies that have created a high-tech corridor around Waterloo and its university that many liken to Canada's version of Silicon Valley. Amid RIM's recent troubles, the community has rallied around Messrs. Lazaridis and Balsillie.
Ian Klugman, president and chief executive of Communitech, a non-profit support network for tech start-ups in the region said.
"It's not the end of the road by any stretch of the imagination. It's a new road for RIM."
Ian McLean, chief executive of the Greater Kitchener-Waterloo Chamber of Commerce, said Monday he recently bought about 10,000 Canadian dollars ($10,500) worth of RIM stock for his children's education fund.
Still, many Canadians have seen parallels between RIM's current woes and the meteoric rise and fall last decade of another Canadian tech giant: Nortel Networks Corp., which declared bankruptcy in 2009 after failing to find a merger partner to weather the global financial crisis.
RIM placated some disgruntled shareholders earlier this month, promising to review a structure that allows Messrs. Lazaridis and Balsillie to serve as co-chairmen and co-CEOs. Investors and analysts have criticized the arrangement for discouraging an independent board from pushing back enough on strategic decisions.
Neither executive was available for comment Monday.
One small, activist firm succeeded in getting a vote on the structure on the July 12 meeting's agenda, but pulled it after RIM agreed to review the structure.
At RIM's annual meeting earlier this month, Mr. Lazaridis said the company was taken off guard by a smartphone "arms race" that exploded in North America with the debut of the iPhone in 2007.
RIM was slow to realize the threat and upgrade products that could capture new consumers while holding onto RIM's security-minded corporate client base.
During the last two years, RIM made several steps to right the ship, buying up companies to provide a new operating system, browser, and design shop. RIM now says it plans to launch its first phones and tablets using the new operating system, QNX, by early next year.
RIM launched its PlayBook tablet to mixed reviews earlier this year. RIM has acknowledged it didn't do a good job marketing the product, and has promised more user-friendly versions of the tablet in the future.
RIM said Monday the size of the workforce reduction was in line with preliminary estimates it factored into earnings guidance provided last month. Details about the cost of the job cuts and other operating expense reductions will be disclosed in the company's second-quarter results, expected on Sept. 15, the company said. RBC estimated the cost of the restructuring at about $200 million to $250 million.
The company said Monday one of its three chief operating officers, Mr. Morrison, will be leaving. Mr. Morrison has been on medical leave since mid June.
RIM had previously maintained his medical leave was temporary and that he would return to the company. The company said it will farm out his responsibilities to existing executives. Thorsten Heins is taking on the expanded role of COO for product and sales, consolidating responsibility for all product engineering, including hardware and software. Jim Rowan will take on the expanded role of COO for operations.
Amid the turmoil at RIM, several senior executives have abandoned ship. The company's top marketing executive left the company just weeks before the launch of the PlayBook, and several other senior marketing executives have left RIM since.
COMMENTARY: In June 10, 2011, I profiled Apple and how it has succeeded in totally dominating the mobile app market in a period of four years. Apps is what made the Mac a success, and apps is what has made the iPhone, iPad and Android phones a success. The same thing cannot be said about BlackBerry. Let's look at the number of apps available for the BlackBerry, Android and iPhone between March 2010 and March 2011.
- BlackBerry:
- March 2010: 5,000
- March 2011: 20,000
- +15,000 or 300%
- Android:
- March 2010: 30,000
- March 2011: 250,000
- +220,000 or 733%
- iPhone:
- March 2010: 170,000
- March 2011: 350,000
- +180,000 or 105%
As you can readily see from the above chart, Android apps grew nearly 7 times faster than those for the iPhone between March 2010 and March 2011. BlackBerry apps grew by 300% during the same period, but only increased 15,000 apps. That's 205,000 and 165,000 less than Android and iPhone apps respectively. Essentially, BlackBerry did little to compete against Google Android and Apple in the app market, a self-inflicted wound if there ever was.
Research in Motion also made another major strategic mistake. Of the big three smartphone manufacturer's Research in Motion was late in introducing a touchscreen phone, the Torch 9800, in August 3, 2010. However, by the time the Torch was introduced, Apple iPhone had fully exploited its first-mover advantage, Google was growing like crazy, and both were stealing huge chunks of market share from BlackBerry. It's fate may have already been sealed.
However, I would not write-off BlackBerry entirely. BlackBerry's market share outside the U.S. has remained relatively stable, and it also commands a huge share of enterprise users, who value its reputation as a workhorse. It's also No 1 among federal government workers with 500,000 phones. However, in order to prevent its market share from eroding even further, it must take a huge gamble--it should introduce an Android-compatible touschscreen phone as soon as possible. This would allow its present user base to access the 250,000+ apps available for the Andriod, and give it a fighting chance to compete with the Apple. I think Google would welcome that arrangement, allowing it to dominate Apple even more, and maybe even allow BlackBerry to take back some of the market share it lost to Apple.
Research in Motion was also very late to the tablet market, introducing the BlackBerry PlayBook tablet in September 27, 2010, but the new tablet was not available for sale until late December 2010, missing most of the Christmas shopping season. The PlayBook was a decent tablet. I tested it myself. It supported Adobe Flash, had multi-tasking features, a higher screen resolution than the iPad, but it was heaver and its battery life was inferior to the iPad, and most importantly lacked sufficient apps to draw buyers. It claims it has sold over 500,000 PlayBook's, but this is a far cry from the nearly 22 million iPad's that Apple has sold through the end of June 2011.
Having said this, Research in Motion, really needs to gut its entire product design and engineering team, and recruit new blood, that can design the next generation of BlackBerry smartphones and tablets capable of competing with the iPhone, Samsung, Nokia, HP, Sony and Motorola. If it cannot develop better design and engineering, it should try to acquire the technology. It's not enough simply to make incremental smartphone and tablet changes like it did with the Torch 9800 and PlayBook tablet, it really needs to differentiate itself, and "put a dent in the universe", borrowing from Steve Jobs. Can it do that remains to be seen.
Courtesy of an article dated July 26, 2011 appearing in The Wall Street Journal Technology
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