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‘RIM’s survival hopes rest on BB10 success’

Mobile News
July 18, 2012

Things have gone from bad to worse for the BlackBerry manufacturer. As it announces yet more bad news, Chris Donkin talks to industry insiders and telecoms analysts to assess the firm’s chances of staying afloat

Fears for the future of BlackBerry manufacturer RIM intensified this month after the firm announced further cuts to staff, plummeting profits and no handset launches until 2013.

The Canadian company confirmed plans to axe around 5,000 employees – almost a third of its global team – as part of restructuring plans that it hopes will generate savings of around $1 billion
this year.

The news came after its Q1 financial results revealed a 33 per cent drop in revenues to $2.8 billion, delivering a loss of $518 million. Global sales of BlackBerry handsets also declined from 11.1 million during Q4 to 7.8 million in Q1.

The average selling price of BlackBerry smartphones declined to US$218 from the US$258 recorded last quarter.

Despite the drop in sales, RIM CEO Thorsten Heins (pictured) announced the surprise decision not to release any new handsets until 2013.

This is due, in part, to further delays to its BlackBerry 10 operating system, which was due out during Q4 this year, but has now been held up along with the handsets.

Heins, who took over when co-CEOs Mike Lazaridis and Jim Balsillie quit in January, said the job cuts were a “necessity” but would have no impact on BlackBerry’s customer services or the development of its new operating system or smartphone.

Heins said: “I will not deliver a product to the market that is not ready to meet the needs of our customers or provide anything less than an outstanding user experience. There will be no compromise of this issue.

“We are aggressively working with our advisors on our strategic review and are actively evaluating ways to better leverage our assets and build on our strengths.

“I am not satisfied with these results and continue to work aggressively with all areas of the organisation and the board to implement meaningful changes to address the challenges, including a thoughtful realignment of resources and honing focus within the company on areas that have the greatest opportunities.

“We are expecting the next several quarters to be very challenging. We are in the mists of a platform and company transition and we face an increasingly competitive environment.

“When we come out of this transition period we want to move forward with a lean and nimble organisation that can act quickly and is aligned with our growth opportunities.”

Fears remain
But not everyone shares Heins enthusiasm. Even prior to the company’s latest results, RIM’s future had been the subject of lengthy speculation as its stranglehold on the smartphone market, an area it once dominated, began to loosen.

Confidence in its services was also severely damaged in October last year, when its networks were hit by outages that affected an estimated 70 million users across five continents worldwide.

The problem began when a server in London failed. The outage then spread to Europe, Africa, the Middle East and Latin America. There are around seven million BlackBerry users in the UK alone.

According to some reports the  outages cost the firm more than $54 million after share prices tumbled from around $24 on October 11 to $17 a month later.

Prior to this the firm had announced plans a year ago for a restructure which eventually saw 2,000 job losses, mostly in North America, in a bid to reduce costs.

The latest restructure has been described by some as the last throw of the dice for the firm, which now faces the prospect of losing even more market share as existing customers will have to wait up to a possible nine months before they can  upgrade their handset to the latest model or switch manufacturers.

This period is also likely to see Apple release updates to its iPhone range, and RIM will also miss out on the lucrative and most competitive Christmas period.

Others close to the firm claim it will now look to exit the market as supply and service contracts draw to a close.

Miracle needed
Ovum chief telecoms analyst Jan Dawson suggested RIM will need something close to a miracle to turn things around.

“They have to survive three quarters without anything competitive and then they have to have a product which will blow people away,” he said. “It’s tough to see how they will dig themselves out of this. It’s not impossible, but it needs to be a turnaround like we have never seen before.

“It’s not surprising sales are down as they haven’t really done much. Q4 is traditionally the biggest for the consumer market and they are going to miss that, during which, there will probably be a new iPhone selling very well, and to potential BlackBerry buyers.”

Dawson also blamed RIM’s slow reaction to the iPhone and its failure to keep up with technological advances as the root cause of its problems, while laying the blame for this at the feet of founders and former co-CEOs Basillie and Lazaridis.

“It’s often a problem when founders of a company try to run it. Apple had the same problem in its first incarnation – people think they are right and grow used to being right, but they underestimated the iPhone and were very slow to react.”

IHS senior analyst Ian Fogg agreed: “RIM are in the middle of a complete transition from their last BlackBerry product line, which is really hard to do. Not many companies have done what they are attempting – it really isn’t easy. The problem they have is that the longer it is before a new product is released, the longer they will struggle.

“BlackBerry 7 (BB7) has been around for years and a lot of the features are nowhere near as good as Android, iPhone or Windows Phone. With more modern and capable phones coming to market, they have to get this next generation perfect.”

Dawson believes the delay could be dangerous, with the company relying on BB7 for another three quarters, which will see it effectively ‘burning cash’.

He claims the firm made a grave error in announcing BlackBerry 10 in October and subsequently delaying it – meaning customers would be naturally more reluctant to purchase an older model.

He added that the changing nature of the industry has meant even its business customers will not be immune to the lure of new app-filled phones aimed at the consumer market.

“It used to be that in businesses they could sell straight to the IT departments, but now you have employees dictating what they want and people using their own devices.

“They also have to find a way to sell more BB7 devices now. They have shot themselves in the foot by announcing BB10 so long ago. The date can’t slip any more. The longer this goes on, the more their hopes for survival dwindle.”

Full article in Mobile News issue 518 (July 16, 2012).

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